Impact of Tax Incentives on Foreign Direct Investment Flow in Nigeria

Abstract

The growing pace of the globalisation process has triggered economic development, especially among developing nations. One of the immediate responses to this phenomenon is the increasing trend of FDI flows among countries driven by some factors. This paper aimed at determining the impact of tax incentives (tax holiday and custom duty exemption) on FDI inflow into Nigeria over the period 2008-2018. Using secondary data obtained from the Nigerian Investment Promotion Commission, Central Bank of Nigeria and Nigerian Customs Service, Driscoll-Kraay Standard Errors regression analysis was used via STATA version 14 to test the research hypothesis. The study's findings revealed that overall, tax incentive has a positive and significant impact on FDI inflow. Specifically, tax holiday has significant positive effect on FDI at 5% level of significance (β = 0.1578; t = 3.99; p < 0.05) while custom duties exemption reported significant positive effect on FDI at 1% level of significance (β = 0.2436; t =5.61; p<0.01). It is recommended that the government maintain and strengthen its policies on tax holidays and customs duties exemption to improve FDI inflow, thereby developing the national economy.