TAX INCENTIVES AND RETURN ON CAPITAL EMPLOYED OF LISTED OIL AND GAS COMPANIES IN NIGERIA
Ogunbowale, Funmi Racheal , Nurudeen, Abdulfatai Olanrewaju and Adedire-Ampitan, Adetumilara Adepeju
Volume 5 Issue 2
Abstract
This study investigates the effect of tax incentives on the Return on Capital Employed (ROCE) of listed oil and gas companies in Nigeria. Specifically, the research focuses on Investment Tax Allowance (ITA), Tax Exemption (TEX), and Tax Credit (TCR) as proxies for tax incentives. Employing an ex-post facto research design, the study analyzed panel data from nine listed oil and gas firms on the Nigerian Exchange Group (NGX) covering the period 2014 to 2023. Using the Fixed Effects Model, selected based on the Hausman test, the results reveal that both ITA and TCR have statistically significant positive effects on ROCE (p = 0.0063 and 0.0205 respectively), indicating their relevance in enhancing capital efficiency. However, TEX does not exhibit a significant effect on ROCE (p = 0.2686), suggesting that tax holidays alone may not effectively improve capital productivity. Grounded in the Incentive Theory of Taxation and the Resource-Based View, the study concludes that tax incentives can play a critical role in boosting financial performance when strategically designed and utilized. The study recommends that The Nigerian government should strengthen the implementation of Investment Tax Allowance (ITA) and encourage oil and gas firms to utilize Tax Credit (TCR), as both significantly enhance capital performance. Policymakers should also review the structure of Tax Exemptions (TEX), which showed no significant effect, to ensure they are performance-based and relevant. Firms are advised to assess the combined use of exemptions with other incentives, as exemptions alone may not yield optimal capital efficiency. Keywords: Investment Tax Allowance, Oil and Gas Sector Nigeria, Return on Capital Employed, Tax Credit, Tax Exemption, Tax Incentives.
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