Effect of corporate taxes on financial performance of listed deposit money banks in Nigeria

Abstract

The Nigerian banking sector play a vital role in economic growth through financial intermediation, by mobilizing and providing of deposit and credit services to households and firms. Its contribution to Nigeria’s Gross Domestic Product (GDP) increased to N3.8 trillion in 2023, representing 26.5 per cent Year-on-Year (YoY) from N3.01 trillion reported in 2022. This study therefore, examined the effect of corporate taxes on financial performance of listed Deposit Money Banks (DMBs) in Nigeria from 2015 to 2024. The tax variables investigated were Company Income Tax (CIT), Value Added Tax (VAT), Education Tax (ET), Capital Gains Tax (CGT), and the National Information Technology Development Agency Levy (NITDAL), with Return on Assets (ROA) as the performance indicator. The study adopted longitudinal research design and utilized secondary data obtained from the audited financial statements of listed DMBs published on the Nigerian Exchange Group (NGX). The data were analyzed using panel regression techniques to determine the relationship between the tax variables and financial performance. The findings revealed that all tax variables had a negative and significant effect on banks’ financial performance, implying that increased tax obligations reduce profitability and liquidity. Among these variables, Capital Gains Tax (CGT) showed the strongest negative effect, suggesting that it severely constrains reinvestment and growth. The study concludes that corporate taxes imposes a heavy fiscal burden on Nigerian banks, weakening their profitability and competitiveness. It recommends harmonizing tax policies, reducing CGT rates, and providing tax incentives for banks that reinvest profits in digital and capital development. The study suggests that future research should focus on assessing the impact of tax incentives and exemptions on bank investment decisions, technological innovation, and capital formation to provide actionable insights for policymakers. Additionally fiscal indicators such as withholding tax, excise duties, and stamp duties should be included to provide a more comprehensive understanding of tax effects on the banking sector.