IMPACT OF COMPANY INCOME TAX ON FOREIGN DIRECT INVESTMENT

ABSTRACT

This study critically examines impact of company income tax on foreign direct investment. The purpose of carrying out this research work is to measure the impact of foreign direct investment on company income tax, to assess if there is a positive relationship between foreign direct investment and Nigeria’s Balance of payment, to ascertain whether foreign direct investment is directly linked to Nigeria’s External reserve, to established the extent to which foreign direct investment affect Nigeria’s foreign trade. The time frame for this project is from 2005 - 2015. Using annual statistical bulletins from Central Bank of Nigeria and World Bank Development Indicators. Linear regression analysis was carried out on SPSS (17.0) statistical package for social science. The regression coefficient was applied to test each hypothesis and it reveals that company income tax (CIT), balance of payment (BOP), External reserve (EXT) have significant effect on foreign direct investment (FDI). In recommendation, incentive should be given to investor because it contribute to the country’s growth and development. Also proper payment techniques of company income tax should be effected.

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

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1.2     STATEMENT OF THE PROBLEM

Ogba (2013) noted that experience has shown that there are certain issue that commonly arise and questions that often come up when foreign investors seek to .invest in Nigeria. This article (while attempting to address some of those issues that investors often seek answer to) is not intended to be specific to investments in any given sector of the economy of the issues discussed.

The need to attract Foreign Direct Investment into the Nigerian economy is reflected by the following ills:

i.       Unwilliness of foreign investors to invest in the country.

ii.       Economic imbalance (unfavorable, balance of payment) .

iii.      Decline in external reserve of the country. .

iv.      Unfavorable tax structure in the country. The realization of the above challenges, the researcher observe that the effect on the economy if far reaching and in most cases detrimental to the economy. The improvement of the tax structure and tax rate in the country would. invariably turn the economy around with much impact on’ improvement in foreign direct investment stock, balance of payment position and technology transfer. This therefore form the focus of this research which intended to capture the impact of company income tax on foreign direct investment.

In reaction to the above challenges, Kareem et al (2012) pointed out that this immense fall of 60.4 percent shows the need for Nigerian government to begin to rigorously and courageously address the challenges to foreign investment and other business interests in the country. The UNCTAD report noted that investment inflow into Nigeria and the rest of Africa increased. Substantially, in 2008 but declined significantly in 2009. Inspire of economic reform by the government, no appreciable improvement was made. Insecurity in the land is a likely primary factor responsible for the sharp decline. This is a true reflection of Nigeria’s economic, Social legal, and cultural environment which raises several questions and anxiety from prospective foreign investors.

While the research holds constant insurgency and other determinant of investment, the study is therefore interested in assessing whether company income tax is a major determining factor of foreign direct Investment in Nigeria. This form the focus of the research.

1.3     OBJECTIVES OF THE STUDY

The following objectives have been outlined by the researcher by the for attainment at the end of the research work.

i.       To measure the impact of Foreign Direct Investment on company income tax.

ii.       To assess if there is a positive relationship between Foreign Direct Investment and Nigeria’s Balance of Payments.

iii.      To ascertain whether Foreign Direct Investment is directly linked to Nigeria’s External Reserve.

iv.      To established the extent to which Foreign Direct Investment affect Nigeria’s Foreign Trade.

1.4     RESEARCH QUESTION

i.       Does Foreign direct investment, measure the impact of company income tax in Nigeria?

ii.       Is there a positive relationship between Foreign direct investment and Nigeria’s balance of payments?

iii.      To what extent is foreign direct investment linked to Nigeria’s external reserves?

iv.      Does foreign direct investment affect Nigeria’s foreign trade.

1.5     STATEMENT OF HYPOTHESIS

i.       Ho: Foreign direct investment does not measure the impact of Company income tax in Nigeria.

ii.       Ho: There is no positive relationship between foreign direct investment and Nigeria’s balance of payment

iii.      Ho: Foreign direct investment is not linked to Nigeria’s external reserves.

iii.      Ho: Foreign direct investment does not affect Nigeria’s foreign trade.

1.6     SCOPE OF THE STUDY

The researcher adopt ex-post factor research design in the ascertainment of the relationship between company income tax and foreign direct investment. To this end, secondary data was utilized particularly statistical bulletins from the central Bank of Nigeria, and World Bank Development Indicators from 2004 to 2014 Frequency distribution table and descriptive statistical would be used to present and analyze the sought data which the regression analysis employed to test the research hypothesis.

By carrying out this operation, the researcher would be able to demonstrate using quantitative fact as to the extent to which company incomes tax relevant in the attraction of foreign direct investment. The research is based in Asaba metropolis of Delta State.