EFFECT OF TAX INCENTIVES ON FOREIGN DIRECT INVESTMENT IN THE
PETROLEUM INDUSTRY IN NIGERIA

Arzizeh T. Tapang 1 , Benjamin E. Onodi 2 & Akachukwu H. Amaraihu 3
1*, 2, 3
Department of Accounting, College of Management Sciences,
Michael Okpara University of Agriculture, Umudike
P.M.B. 7267 Umuahia, Abia State – Nigeria,
E-mail: arzizeh@gmail.com; benonodi@yahoo.com; &hillaryakachi@gmail.com
Tel: +2348032737920; +2348036678077 & +2347035157534

Abstract
This study focused on the effect of tax incentives on foreign direct investment in the petroleum
industry in Nigeria. In the petroleum industry the issue of tax incentive has not really received a
positive attention because the people think that the sector is rich enough to pay all taxes. Though
there is little level of tax incentives in the oil sector, but this cannot be compared to what we have in
the private sector. The ability to sustain itself and to expand petroleum industries are faced with the
problem of high tax rates, multiple taxation, complex tax regulations and lack of proper
enlightenment or education about tax related issues. These have led to an increase in record of dearth
of petroleum industries in Nigeria. An ex-post-facto research design was adopted. Secondary data
were collected and analyzed using regression analysis with the aid of STATA 13. The findings
revealed that tax incentives proxy by investment tax allowance, non productive rent, capital
allowance has a significant effect on foreign direct investment. Based on the findings it is concluded
that firms’ enjoying tax incentives will generate more employment opportunities than firms in highly
taxed regions. Conducive investment climate is a strong requirement for the flow of sustainable
physical investment in an economy. Tax incentives positively influences the living standards and per
capital income, and expand variety of goods available to consumers. The study recommends that tax
policies should be amended to eliminate double taxation. Also it is recommended that tax incentives
should be effectively implemented and efforts should be made by relevant tax authority to ensure that
firms benefit from these incentives. Finally, investment climate in the country should be made
conducive through effective policy formulation, implementation and the provision of adequate
functional physical infrastructure.
Keywords: Capital Allowance, Foreign Direct Investment, Investment Tax Allowance, Non- Productive Rent, Tax incentives

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