Taxation Policies and Profitability of Deposit Money Banks in Nigeria

Justice Sunday Ogbaragu and Dr. (Mrs) T. N. Offor
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Justice Sunday Ogbaragu: Chukwuemeka Odumegwu Ojukwu University, Igbariam Campus, Nigeria
Dr. (Mrs) T. N. Offor: Chukwuemeka Odumegwu Ojukwu University, Igbariam Campus, Nigeria

International Journal of Research and Innovation in Social Science, 2024, vol. 8, issue 9, 2298-2314

Abstract: This study investigated the effect of taxation policies on the profitability of deposit money banks in Nigeria. The ex-post facto research design was employed to assess the effects over the period 2013 to 2022. The sample size comprised five major Nigerian banks (Zenith Bank, Access Bank, UBA, FCMB, and Fidelity Bank) selected using a non-probability sampling technique. Data were sourced from published audited financial statements available on bank websites, the Nigerian Stock Exchange, and the Federal Inland Revenue Service. Variables included ROA as the dependent variable, and Corporate Income Tax (CIT), Value-Added Tax (VAT), and Withholding Tax (WHT) as independent variables. The study employed panel data Ordinary Least Square (OLS) regression on EViews version 12 for analysis. The results indicated that a higher Corporate Income Tax (CIT) rate, with a coefficient of -0.903132 and a p-value of 0.0000, had a significant and negative effect on bank profitability. In contrast, Value Added Tax (VAT) exhibited a coefficient of 0.287309 with a non-significant p-value of 0.6276. However, Withholding Tax (WHT), with a coefficient of -3.286051 and a p-value of 0.0200, significantly reduced bank profitability. The study concluded that CIT and WHT policies directly influenced bank profitability, underscoring the need for balanced tax policy decisions. VAT showed no direct effect due to the indirect intermediary role of banks. Recommendations include reviewing CIT and WHT policies concerning the banking sector, ensuring VAT policy transparency, and considering incentives or exemptions to maintain industry stability. The study contributed by emphasizing tax policy effects on the financial sector and informed balanced taxation approaches.

Date: 2024
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