An Evaluation of the Impact of Corporate Tax Policies on Foreign Investments in Nigeria: Evidence from Lagos State
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Background of the Study
Foreign direct investment (FDI) is critical to the economic growth of developing countries, including Nigeria. It brings capital, technology, and expertise, fostering industrialization and job creation. Corporate tax policies significantly influence FDI, as they determine the cost of doing business within a jurisdiction. In Lagos State, Nigeria’s economic hub, corporate tax policies play a pivotal role in attracting or repelling foreign investors (Adetola et al., 2023).
However, Nigeria's corporate tax environment has been criticized for its complexity, high rates, and frequent policy changes, which create uncertainty for investors. For instance, the Finance Act 2023 introduced new tax measures that have had mixed reactions from foreign businesses operating in Lagos (Chukwu & Ibrahim, 2024). These policies may either incentivize investments or drive potential investors to more business-friendly countries.
Given Lagos State's strategic importance as Nigeria’s economic gateway, understanding the impact of corporate tax policies on FDI is crucial. This study seeks to evaluate how these policies affect foreign investments and identify ways to optimize them for economic growth.
Statement of the Problem
Despite Lagos State's potential to attract significant FDI, corporate tax policies often pose challenges to foreign investors. High tax rates, complex regulations, and policy instability discourage investment, limiting the state’s economic potential (Ogunyemi, 2023). Furthermore, the lack of clarity and consistency in tax administration increases compliance costs and operational risks for foreign businesses.
Reports indicate a decline in FDI inflows to Lagos State over the past two years, raising concerns about the competitiveness of its corporate tax regime (Afolabi & Daramola, 2024). If these issues are not addressed, Lagos risks losing its position as a preferred destination for foreign investors, which could hinder economic growth and job creation.
Objectives of the Study
- To analyze the impact of corporate tax policies on FDI in Lagos State.
- To identify the challenges faced by foreign investors due to Nigeria’s corporate tax regime.
- To propose recommendations for improving corporate tax policies to attract more FDI.
Research Questions
- How do corporate tax policies impact FDI in Lagos State?
- What challenges do foreign investors face due to Nigeria’s corporate tax regime?
- What policy recommendations can enhance Lagos State’s ability to attract FDI?
Research Hypotheses
- Corporate tax policies significantly affect FDI in Lagos State.
- High tax rates and complex regulations discourage foreign investors in Lagos State.
- Simplified and consistent tax policies can increase FDI inflows to Lagos State.
Scope and Limitations of the Study
The study focuses on Lagos State, examining the relationship between corporate tax policies and FDI from 2023 to 2025. Limitations include potential access restrictions to proprietary data from corporate entities and limited responses from foreign investors due to confidentiality concerns.
Definitions of Terms
- Corporate Tax Policies: Rules and regulations governing taxes imposed on corporate entities.
- Foreign Direct Investment (FDI): Investments made by foreign entities in the economic activities of a host country.
- Tax Regime: The overall system of taxation within a jurisdiction.
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