CONCLUSION AND POLICY RECOMMENDATION FOR TAXATION

Summary of Findings

This research work evaluates the impact of taxation on foreign direct investment in Nigeria. Taxation was captured by Company Income Tax and Value Added Tax (VAT). The statistical techniques employed, surfaced the following results;

(ii)   The entire regression plane is statistically significant. This means that the joint influence of the explanatory variables (CIT and VAT) on the dependent variable (FDI) is statistically significant;

(iii) The computed coefficient of multiple determination (R² = 0.945401) shows that 94.54% of the total variations in the dependent variable (FDI) is accounted for, by the variation in the explanatory variables namely Company Income Tax (CIT) and Value Added Tax (VAT).

(iv) The total variation of 5.46% of the total variation in the dependent variable is attributable to the influence of other factors not included in the regression model.

(v)    There is inconclusive evidence regarding the presence or absence of positive first-order serial correlation (autocorrelation) in the model.

CONCLUSION

FDI is one of the most important strategies for the promotion of economic growth and development in Nigeria. FDI can serve as an engine of growth by increasing the opportunity for their integration into global financial and capital flows, expand employment and exports base, generate technological capability-building and efficiency spillovers to local firms, as well as establish investment arrangements that increase the potential of host countries for economic growth.

However, taxation is another factor which can promote FDI in a country. Thus, the primary function of a tax system is to raise revenue for the government for its public expenditure. So the first goal in the development strategy as regards taxation policy is to ensure that this function is discharged adequately. 

·      To reduce inequalities through a policy of redistribution of income and wealth. Higher rates of income taxes, capital transfer taxes and wealth taxes are some means adopted for achieving these ends. 

·      To ensure economic goals through the ability of the taxation system to influence the allocation of resources.

RECOMMENDATIONS

In the light of the research findings, the following recommendations are presented;

·          To ensure increased foreign investment inflow into the economy and to reinforce the gains of the economic policy measures, the Nigerian investment promotion decree should be promulgated and repealed.

·          Government should adopt tax policies that will not endanger the activities of foreign investors in the Nigeria.

· A taxation system must be as simple as possible with a few taxes and uncomplicated legislation.

·          Having seen that taxation exert influence on FDI, foreign Investment should be boosted through conscious provision of necessary tax management framework that will lower the costs of doing business in Nigeria.

·          To increase the level of savings and capital formation in the economy, the government should enhance foreign investment activities.

·          There is every need for government to protect local industries from foreign competition through the use of import duties, turnover taxes/VAT and excises. This has the effect of transferring a certain amount of demand from imported goods to domestically produced goods. 

APPENDIX I

DATA FOR ANALYSIS

YEAR	FDI (N Million)	CIT (N Million)	VAT (N Million)
1994	22229	201911	7260.8
1995	75941	459987	20761
1996	111295	523597	31000
1997	110453	582811	34000
1998	80750	463609	36900
1999	92793	949188	47100
2000	115952	1906.2	58500
2001	132481	2231.6	91800
2002	225225	1731.8	108600
2003	258389	2575.1	136400
2004	248225	3920.5	159500
2005	302753	5547.5	178100
2006	573835	5965.1	221600
2007	627024	5715.6	230800
2008	693841	6246.7	241800
2009	718356	7091.2	265700
2010	750728	7283.7	301400

                                                                                                       

    SOURCE: CBN STATISTICAL BULLETIN, VOLUME 21, 2010

                                      

APPENDIX II

REGRESSION RESULTS

Dependent Variable: FDI
Method: Least Squares
Date: 05/09/12   Time: 11:27
Sample: 1994 2010
Included observations: 17
Variable	Coefficient	Std. Error	t-Statistic	Prob.
C	-78795.31	42664.51	-1.846859	0.0860
CIT	0.117191	0.074748	1.567819	0.1392
VAT	2.809989	0.225322	12.47100	0.0000
R-squared	0.942079	Mean dependent var		302368.8
Adjusted R-squared	0.933804	S.D. dependent var		259443.2
S.E. of regression	66750.94	Akaike info criterion		25.21411
Sum squared resid	6.24E+10	Schwarz criterion		25.36115
Log likelihood	-211.3199	F-statistic		113.8537
Durbin-Watson stat	1.013422	Prob(F-statistic)		0.000000

Dependent Variable: LOG(FDI)
Method: Least Squares
Date: 05/09/12   Time: 11:28
Sample: 1994 2010
Included observations: 17
Variable	Coefficient	Std. Error	t-Statistic	Prob.
C	-0.204244	1.288253	-0.158544	0.8763
LOG(CIT)	0.074878	0.038189	1.960696	0.0701
LOG(VAT)	1.027958	0.086348	11.90487	0.0000
R-squared	0.945401	Mean dependent var		12.21022
Adjusted R-squared	0.937601	S.D. dependent var		0.999560
S.E. of regression	0.249689	Akaike info criterion		0.221581
Sum squared resid	0.872822	Schwarz criterion		0.368619
Log likelihood	1.116559	F-statistic		121.2065
Durbin-Watson stat	1.062085	Prob(F-statistic)		0.000000