TAX INCENTIVES AND THE FINANCIAL PERFORMANCE OF MANUFACTURING FIRMS IN NIGERIA

Abstract

This study examined the impact of tax incentives on the financial performance of manufacturing firms in Nigeria. An ex-post facto research design was employed, using secondary data obtained from the annual reports of ten purposively selected firms consistently listed between 2014 and 2024. Both descriptive and inferential statistical methods were applied, with Ordinary Least Squares (OLS) regression used to assess the relationship between tax incentives and financial performance. The descriptive results indicated that firm`s profitability, measured by Return on Assets (ROA), was modest across the sampled firms, with an average value of 0.082 over the study period. Regarding tax incentive variables, the mean values were 1.245 for capital allowance (CA), 0.738 for investment allowance (IA), and 0.582 for tax holiday (TH), reflecting considerable variation across firms. Correlation analysis showed that financial performance was positively associated with tax incentives: capital allowance correlated with ROA at 0.468, investment allowance at 0.431, and tax holidays at 0.356. Regression analysis provided strong evidence that tax incentives significantly affect financial performance. Specifically, capital allowance (β = 0.1052, p = 0.0000), investment allowance (β = 0.0852, p = 0.0000), and tax holiday (β = 0.0745, p = 0.0000) all exerted positive and statistically significant influences on performance. The study concludes that tax incentives are an important driver of financial performance in Nigeria’s manufacturing sector. By easing tax burdens and promoting reinvestment, measures such as capital allowances, investment allowances, and tax holidays enhance profitability, improve competitiveness, and contribute to broader economic growth. It is therefore recommended that the government sustain and strategically structure tax incentives to foster industrial development and corporate sustainability in Nigeria.