CORPORATE TAXATION AND FOREIGN DIRECT INVESTMENT IN SELECTED SUB-SAHARAN AFRICAN COUNTRIES
Keywords:
Corporate Taxation, Foreign Direct Investment, Sub Saharan Africa, Trade Openness, Value Added TaxAbstract
Foreign Direct Investment remains crucial to the economic growth and development in the Sub-Saharan African (SSA) countries, but its flow is consistently hampered by tax policies, inadequate infrastructure, as well as macroeconomic volatility. The study assessed the effect of Corporate Income Tax (CIT) on FDI on five of the largest Sub-Saharan African countries—Nigeria, South Africa, Kenya, Ghana, and Ethiopia—between 1999 and 2023. The study employed secondary data collected from the World Bank Development Indicators (WDI), Central Bank of Nigeria (CBN) Statistical Bulletin, and National Bureau of Statistics (NBS). Using country-specific and pooled ordinary least squares (OLS) estimations, high heterogeneity across countries was revealed by the findings. In Ghana, both value-added tax and corporate tax negatively affected FDI and offered proof of the hypothesis that a rising tax burden deterred investment. Kenya and Ethiopia, however, experienced counterintuitive positive VAT effects, and Nigeria and South Africa had no significant tax effects. It was also revealed that VAT and company income tax are not statistically significant, which suggests that tax policy alone is a weak determinant of FDI inflows. Interaction terms between economic growth, inflation, and taxation did not show any consistent effect, although marginal responsiveness to inflation was found in Ghana. It is therefore recommended that the governments of Sub-Saharan Africa should consider reducing high corporate income tax rates and instead institute broader, investment-friendly tax policies complemented by actions that enhance macroeconomic stability, especially through GDP growth and improved ease of doing business.
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