European Journal of Accounting, Finance and Investment

Tax Policy Uncertainty And Foreign Direct Investment In Nigeria

Anita Ibiere Amieye Ph.D

Department of Accounting, Faculty of Management Sciences, Ignatius Ajuru University of Education, Rumuolumeni Port Harcourt

Obiazi Tubotamuno-Ojas Jack Ph.D

Department of Accounting, Faculty of Administration and Management, Rivers State University, Nkpolu-Oroworukwo, Port Harcourt.

Keywords: Tax policy uncertainty, Foreign direct investment, Corporate tax volatility, ARDL bounds testing, Nigeria

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Abstract

This study investigates the effect of tax policy uncertainty on foreign direct investment (FDI) inflows in Nigeria using a financial time-series econometric framework. Employing annual data from the Central Bank of Nigeria (CBN), Federal Inland Revenue Service (FIRS), and National Bureau of Statistics (NBS), the study captures dynamic interactions between fiscal unpredictability and investment behavior over recent reform periods. The Augmented Dickey–Fuller (ADF) test confirms stationarity of all variables, validating their suitability for autoregressive distributed lag (ARDL) estimation. The ARDL bounds testing approach establishes a long-run cointegrating relationship between FDI and tax policy uncertainty, proxied by corporate income tax rate volatility, legislative and regulatory changes, and enforcement and compliance uncertainty. Short-run ARDL results reveal that fluctuations in corporate tax rates, frequent legislative amendments, and discretionary enforcement significantly deter FDI, while lagged dependent variables indicate persistence in investment behavior. The error correction mechanism confirms convergence toward long-run equilibrium following short-term shocks. Empirical findings show that all dimensions of tax policy uncertainty exert negative and statistically significant effects on FDI, both in the short and long run, highlighting the critical role of fiscal predictability and policy credibility in attracting foreign investment. The study concludes that recurrent tax reforms, inconsistent legislative practices, and enforcement ambiguities constrain Nigeria’s ability to attract foreign capital. Policy recommendations include prioritizing stable and predictable tax regimes, enhancing legislative coherence, improving transparency in tax administration, and institutionalizing investor-focused communication mechanisms to reduce compliance uncertainty and strengthen Nigeria’s investment environment.

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