DIRECT TAX AND FOREIGN DIRECT INVESTMENT
ABSTRACT
This study examined the impact of direct tax on foreign direct investment in Nigeria within the period of 1990 to 2017. The long run stability of the variable was tested and it was found that the data were stationary and co integrated. An error correction test was performed to detect the speed of adjustment to equilibrium in case of sudden chock. The outcome of the test showed that direct tax has a positive effect on foreign direct investment in Nigeria.
The result revealed that company income tax positively but statistically insignificantly affect foreign direct investment in Nigeria. Also, there exist a positive and statistically significant relationship between personal income tax and foreign direct investment in Nigeria. Lastly, the result revealed that petroleum profit tax positively but insignificantly affect foreign direct investment in Nigeria.
It was recommended that there is need for the government to reduce corporate tax rate in order to spur FDI into the country. Also, Nigerian government needs to come up with more friendly economic policies and macroeconomic adjustments that will lead to continuous increase and growth of the nation’s GDP and stable inflation rate thereby paving way for a friendly business environment.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1        Background to the Study    -    -
1.2      Statement of the Research Problem-    -    
1.3     Objective of the Study-    -    -    
1.4     Research Hypotheses    -    -    -
1.5     Scope of the Study    -    -    -    
1.6     Significance of the Study    -    -
1.7     Limitation of the study     -    -    
CHAPTER TWO: LITERATURE REVIEW    
2.1     Introduction-    -    -    -    -    
2.2    Conceptual Literature    -    -    -    
2.2.1     Concept of Foreign Direct Investment    -    
2.2.1.1 Benefits and Costs of FDI and Economic Growth    -    
2.2.2 Concept of Direct Tax    -    -    -
2.2.2.1 The History of Direct Taxes    -    -    -    
2.2.2.2 Types of Direct Tax    -    -    -    
2.3 Theoretical Framework    -    
2.3.1 Optimal Tax Theory    -    
2.3.2 Laffer Curve Theory    -    -    
2.3.3 Exogenous Growth Theory    -    -    -    -
2.4 Empirical Literature    -    -    
2.4.1 PPT and Foreign Direct Investment    -    -
2.4.2 Company Income Tax and Foreign Direct Investment    -
2.4.3 Personal Income Tax and Foreign Direct Investment    -    -
CHAPTER THREE: METHODOLOGY
3.1 Introduction    -    -    -    -
3.2 Research Design    -    -    -    -
3.3 Population and Sample    -    -    -
3.4 Model Specification    -    -    
3.5 Sources of Data    -    -    -
3.6 Method of Data Analysis    -    -    
3.7 Operationalization of Variables    -    -
CHAPTER FOUR:DATA ANALYSIS AND PRESENTATION OF FINDINGS
4.1 Introduction    -    -    -    -    -    -    -    
4.2Data Presentation and Analyses of Results    -
4.2.1 Unit Root Testing    -    -    -    -    -    
4.2.2 Co-integration Test    -    -    -
4.2.3 Descriptive Analysis    -    -    -    -    
4.2.4 Correlation Analysis -    -    -    -    -
4.2.5 Regression Analysis    -    -    -    -    
4.3 Hypothesis Testing and Discussion of Findings    -    -
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSIONS
 AND RECOMMENDATIONS
5.1     Introduction    -    -    -    -    -
5.2     Summary of Findings     -    
5.3     Conclusion     -    -    -    -
5.4     Recommendations    -    -    -
Bibliography     -    -    -    -
APPENDIX    -    -    
CHAPTER ONE
INTRODUCTION
1.1     Background to the Study
Tax is classified into two main categories that is direct and indirect taxation. Direct tax is imposed on properties, incomes and corporate profits etc. Indirect tax includes value added tax, sales tax and import duty etc. In case of direct taxes, tax revenue depends on a country’s policy, either it relaxes the direct taxes for attracting foreign investment or imposes to collect revenue (Fakile,&Adegbile, 2013). For example, tax holidays and tax credits for new foreign investment and exemption of import duty in case of imports of raw material and machinery. Secondly, indirect tax depends on the sales of goods and services.
Foreign direct investment (FDI) is a direct investment into production or business in a country by an individual or organization of another country, either by buying an organization or in the target country or by developing operations of an existing business in that country (Bénassy-Quéré, Fontagné,&Lahrèche-Révil, 2015). Foreign direct investment is as opposed to portfolio investment which is a dormant investment in the securities of another country, for instance, stocks and bonds. Adepeju (2012), conceptualized Foreign Direct Investment (FDI) as investment that is made to get a persisting management interest (generally 10% of voting stock) in an endeavor and operating in a country other than that of the investors (describe as showed by residency) the investors aim being an intense voice in the management of earning either long term capital or short term capital as showed up in the nations balance of payments account decree (Macaulay, 2012).
According to Adepeju (2012), Nigeria is in dilemma as it is in dare need of foreign capital for the on-going internal adjustment, yet it fears that commanding heights of some sectors of the economy may extract complete control of the national economy and the need for foreign capital has become indispensable if the economy must come out of the depression. The Nigerian Government in recognition of the importance of FDI as an important vehicle for industrial progress, most times expressed readiness to enter into bilateral agreement with foreign governments, or private organization that wish to invest in the country as well as discuss the additional incentives (Morisset, 2003).
A competitive environment depends both on companies operating in that environment and on the rules and regulations provided by the state. Businesses are also seeking to obtain a higher profit through market share and in this sense they develop policies and strategies to differentiate them from the competition (Adepeju, 2012). At the same time, governments are struggling to gain a competitive advantage in order to attract greater investment in their territory. They are doing this because it will create new jobs, will boost revenues from taxation, lead to the formation of local budget and will also increase property value.
The main reasons why some businesses tend to have a higher interest in some countries rather than others is provided by the economic and fiscal policies of those states, and the level of bureaucracy or the presence of the necessary infrastructure (Okoi&Edame, 2013). Tax policies occupy a central place in the final destination of choice for a company wishing to invest in a country other than the country of origin (Justman, Thisse&Ypersele 2011). Bearing this in mind, we can say that a country is even more attractive to investors if its taxes are low. Moreover, the size of the economy, its purchasing power and other market related factors can be compensated if there are fiscal incentives for companies (Bucovetsky 2013).
In this way, each country wants to attract more foreign investors and it will act accordingly in terms of the administrative and legal framework. Countries use tax incentives and tax reductions to stimulate the inflow of foreign direct investments.
Corporate tax is a levy imposed on taxable profit of firms with a stipulated statutory rate. The burden of corporate taxation obviously influences the volume and location of foreign direct investment (FDI) for the simple reason that it determines after tax returns from investment (Okoi&Edame, 2013).
1.2  Statement of the Research Problem
There is a limited empirical work on testing the impact of FDI on direct tax revenue. Gropp and Kostial (2012) used the panel data of nineteen OECD countries to find relationship between FDI and direct tax revenue. They found a weak correlation between FDI and corporate income tax and found a strong positive impact of FDI inflows on the profit tax and on the total tax revenue.
The mechanism through which FDI impacts are transmitted still stays open for further discourse and research particularly in developing nations (Mintz, 2014). This study is significant in that it examines the effect of direct tax on foreign direct investment in Nigeria. Most of the earlier studies on FDI have either be in Africa, Sub-Saharah Africa or country specific.
In terms of policy forecast, because of economic and environmental differences it is good to study the environment differently so as to known what is good for such an environment (Ogbonna, 2013). This is what motivates the research to investigate the effect of direct tax on foreign direct investment in Nigeria. Also this study will consider personal income tax, company income tax and petroleum profit tax as components of direct tax. More recent data and the use of Error correction model and unit root test will be carried out to test the hypotheses due to the time frame which makes it different from other previous studies.
More specifically, this study seek to provide answers to the following research questions;
i)    What is the relationship between company income taxand foreign direct investment in Nigeria?
ii)    What is the effect of personal income tax on foreign direct investment in Nigeria?
iii)    Does petroleum profit tax affect foreign direct investment in Nigeria?
1.3  Objective of the Study
The main objective of the study is to determine the relationship between direct tax and foreign direct investment in Nigeria. Other specific objectives are to:
i.    Determine the relationship between company income tax and foreign direct investment in Nigeria.
ii.    Determine the effect of personal income tax on foreign direct investment in Nigeria.
iii.    Examine the effect of petroleum profit tax on foreign direct investment in Nigeria.

1.4 Research Hypotheses
The following hypotheses will be tested in the course of the study:
Ho1: There is no significant relationship between company income tax and foreign direct investment in Nigeria.
Ho2: Personal income tax does not have significant effect on foreign direct investment in Nigeria.
Ho3: There is no significant relationship between petroleum profit tax and foreign direct investment in Nigeria.
1.5 Scope of the Study
The study is a Nigeria study, covering a period of 28 years (1990 to 2017). Relevant data shall be sourced from the Central Bank of Nigeria Statistical Bulletin (2017). The reason for the choice of this period is based on the fact that several foreign direct investment have occurred during the period in Nigeria coupled with several economic policy changes relating to tax revenue. This will in no small measure enable us to have a long time fair view of the effect of direct tax on foreign direct investment in Nigeria overtime.
1.6 Significance of the Study
As indicated in the statement of problem, the study will definitely give an insight into the effect of direct tax on foreign direct investment in Nigeria.
i.    The study will also be relevant to potential foreign investors who would want to come into the country to invest.
ii.    Furthermore, the study will be very relevant to the Nigerian government, corporate bodies and policy makers, as it will provide them useful information and guidelines to formulating appropriate policies and programmes affecting direct tax and foreign direct investment Nigeria.
iii.    Again, the academia, researchers, Finance students and other related disciplines will also benefit immensely, as it will also constitute viable data source that will enable them conduct further studies.
1.7 Limitation of the study     
The major limitation of this study relates to the issue of conflicting values. Since the study relies heavily on secondary data, there were often conflicting values for some of the variables under investigation from different sources. Such shortcomings in the values of the variables occasioned by the sources of data used constituted a major constraint to the results of the study. Nevertheless, this constraint was minimized by trying as much as possible to stick to data from the Central Bank of Nigeria Statistical Bulletin, since source is more credible in Nigeria.