Capital allowances and Foreign Direct Investment in Listed Manufacturing Companies in Nigeria

Abstract

Tax incentives have become a global phenomenon as more and more governments try to attract multinational companies and enhance the associated technology spillovers. Capital allowances are allowable as deductions in lieu of depreciation, which are treated as inadmissible for tax purpose. The objective of this study was to establish the effect of Capital Allowance on Foreign Direct Investment (FDI) in Listed Manufacturing Companies in Nigeria. The study adopted descriptive research design and the target population of the study was the 74 Listed Manufacturing Companies with approximately more than 56,000 employees. A sample size of 352 respondents from thirty two (32) manufacturing companies was selected using stratified purposive sampling and respondents were grouped into three strata; that of top, middle and lower management levels. This study used primary data which was obtained from administration of the questionnaires. Data analysis was done using frequencies, mean and standard deviation, while inferential statistics consisted of correlation and regression analysis. The findings show a strong positive linear relationship between capital allowance and foreign direct investment. The paper recommends that tax authority should introduce a policy of carrying over investment allowance that is not utilised to the subsequent year as an advantage to the investors to reduce their tax liability.

Keywords: Capital Allowances, Manufacturing Companies, Investment Allowance, Foreign Direct   Investment.