Effect of tax incentives on financial performance of manufacturing industries in Nigeria

Abstract

This study investigates the effect of tax incentives on the financial performance of manufacturing firms in Nigeria, focusing on tax holidays, capital allowances, investment tax credits, export tax incentives, and tax relief for research and development (R&D). The main objective was to examine how these incentives influence profitability, measured by return on assets (ROA), while assessing the distinct impact of each type of incentive. The study population comprised 58 manufacturing firms listed on the Nigeria Exchange Group (NGX) as of December 2024, and a sample of 32 firms was selected using proportionate sampling based on continuous listing from 2015 to 2024. Regression analysis was employed to test the relationships between tax incentives and financial performance, with variables measured using established methodologies from prior research. Findings revealed that tax holidays and Export tax incentives often fail to enhance profitability, as they have negative significant effect on financial performance of listed manufacturing firms in Nigeria. In contrast, capital allowances and investment tax credits have positive significant effect on financial performance of listed manufacturing firms in Nigeria. Furthermore, R&D tax relief has negative insignificant effect on financial performance of listed Manufacturing firms in Nigeria. The study concludes that tax incentives can enhance financial performance when strategically utilized, and it recommends that manufacturing firms reinvest tax reliefs into operations, plan and prioritize productive investments, build capacity to leverage incentives effectively, and adopt longterm R&D strategies.