Email this article 
Differential impact of tax incentive mechanisms on financial performance of listed oil and gas companies in Nigeria
(1) Crescent University, Abeokuta
(2) Crescent University, Abeokuta
(*) Corresponding Author
Abstract
This study examines the effect of tax incentives on the financial performance of listed oil and gas firms in Nigeria. Using panel data from nine firms on the Nigerian Exchange Group (2005–2024) and a Fixed Effects Model guided by the Hausman test, the analysis focuses on Investment Tax Allowance (ITA), Tax Exemption (TEX), and Tax Credit (TCR) as proxies for tax incentives, with Return on Assets (ROA) as the performance measure. Results show that ITA has a significant positive effect on ROA, demonstrating that investment-focused tax relief enhances asset efficiency. Conversely, TEX and TCR display no significant impact, suggesting their limited role in improving profitability. Among control variables, firm size negatively affects ROA, while firm age exerts a positive effect. These findings are consistent with Ibn Khaldun’s Theory of Taxation, which emphasizes the role of moderate taxation in stimulating economic activity. The study concludes that ITA is the most effective tax incentive for strengthening financial performance in the Nigerian oil and gas sector. It recommends continued implementation of ITA, strategic use of tax credits for reinvestment, and broader adoption of exemptions to reduce fiscal burdens.
Keywords
Full Text:
PDFReferences
Abdullahi, M., & Ibrahim, A. (2022). Tax incentives and financial performance: A study of Nigerian pharmaceutical firms. Nigerian Journal of Corporate Finance, 18(1), 33–49.
Abu, R., Patchigolla, K., & Simms, N. (2023). A review on a qualitative assessment of natural gas utilisation options for eliminating routine Nigerian gas flaring. Gases, 3(1), 1-24.
Adebayo, T., & Bolarinwa, S. (2021). Tax incentives and firm profitability: Evidence from Nigerian listed companies. Nigerian Journal of Accounting Research, 9(1), 18–32.
Adebayo, T., & Musa, K. (2022). Tax incentives and their impact on corporate financial performance in Nigeria. Journal of Finance and Taxation Studies, 9(3), 45-63
Adebayo, T., & Salawu, R. (2020). Financial performance analysis of Nigerian oil and gas and gas sector. International Journal of Economics and Finance, 14(7), 120–134.
Adefunke, O., & Usiomon, O. (2022). Structural challenges in Nigeria’s oil and gas industry:
Adegbite, E., Adewale, S., & Olajide, K. (2018). Impact of tax incentives on financial performance Evidence from panel data. Energy Economics Journal, 44(5), 101–115.
Adeoye, A., & Adebayo, T. (2022). Export grants and financial performance of Nigerian manufacturing firms. Journal of Finance and Trade Policy, 10(1), 29–44.
Ali, M., & Arome, O. (2022). Tax incentives and corporate financial performance in Nigeria’s oil companies: Challenges and prospects. Journal of Energy Finance, 12(1), 22–35.
Allen-Ameri, J. D. (2023). Design and Economic Evaluation of Fiscal Regime for Associated Gas Development under Production Sharing Contracts in Nigeria’s Deep Offshore (Doctoral dissertation). Cengage Learning.
Al Haran, A. M. (2020). Effectiveness of tax incentives on foreign investment: A Comparative study of GCC Countries. Middle East Journal of Business and Economics, 6(4), 22-38.
Bashir, T. (2020). Tax policy, incentives, and foreign direct investment in Africa: Evidence from Nigeria. International Journal of Economics and Development Studies, 8(3), 89-103.
Brigham, E. F., & Ehrhardt, M. C. (2021). Financial Management: Theory & Practice (16th ed.). Boston, MA: Cengage Learning.
Chukwu, A., & Udo, E. (2021). Tax relief policies and financial performance in Nigeria’s oil and gas sector. Journal of Petroleum Finance and Management, 15(3), 56–73.
Egbunike, F., Okoye, E., & Nnamani, C. (2020). Financial performance measurement: Concepts, approaches and determinants. International Journal of Financial Research, 11(2), 50–64.
Eze, J., & Obi, C. (2020). Tax incentives and financial performance of Nigerian telecommunication firms. Journal of Business Economics and Finance, 6(4), 78–92.
Federal Inland Revenue Service (FIRS). (2021). Tax incentives in Nigeria: Policy framework and impact assessment. Abuja: FIRS Publications.
Hansen, D., & Mowen, M. (2018). Cornerstones of financial and managerial accounting (4th ed.).
Ibrahim, A., & Musa, M. (2022). Tax incentives and asset utilization in Nigerian construction firms. Construction Economics and Finance, 8(2), 134–147.
Ikpe, A., & Nwankwo, P. (2022). Tax credits and investment decisions: An analysis of the Nigerian business environment. Nigerian Journal of Business Policy, 17(1), 78-90.
Jolaoso, M. (2023). The Petroleum Industry Act 2021: The Long-lasting Solution to the Challenges Bedeviling the Nigerian Petroleum Industry. Available at SSRN 4616660.
Kimani, J., & Wanjiru, K. (2019). Effect of tax incentives on the return on assets of manufacturing firms in Kenya. African Journal of Economic Policy, 7(4), 122–135.
KPMG Nigeria. (2024). Challenges in Nigeria’s oil and gas sector: Taxation and regulatory issues.
Lagos: KPMG.
Liu, X., & Mao, Z. (2019). The relationship between tax incentives and sector performance: A cross- country study. Journal of International Taxation, 27(6), 18–29.
Martha, W., & Kanyanjua, T. (2020). The effect of tax incentives on foreign direct investment in the oil and gas sector in Kenya. International Journal of Finance and Economics, 12(3), 98-112.
Mensah, K., & Agyeman, T. (2022). Tax rebates and shareholder returns: Evidence from Ghana's banking sector. Journal of Financial Policy, 10(1), 12–25.
Mensah, P., & Ofori, K. (2020). Tax incentives and return on assets: Evidence from Ghana’s mining sector. Ghanaian Journal of Economic Studies, 9(2), 67–81.
Mustapha, R., & Hassan, A. (2022). Tax incentives and renewable energy investments in Africa: Implications for sector growth and efficiency. African Journal of Energy Studies, 15(4), 88–102.
Nguyen, T. (2023). Tax incentives as a tool for promoting investments in oil and gas: A global perspective. Journal of Energy Economics and Policy, 12(3), 55–68.
Nguyen, T., & Tran, H. (2019). The role of tax incentives in enhancing return on assets: Evidence from Vietnamese textile firms. Asian Economic Journal, 11(2), 42–58.
Oduma, C. A., & Egbo, O (2023). Tax incentives and economic development countries: A Nigerian perspective. Journal of Finance and Policy Research, 15(2), 112-128.
Ogbonna, B., & Ebimobowei, A. (2017). Taxation and financial performance of oil and gas companies in Nigeria. International Journal of Economics and Finance, 9(1), 183–191.
Okafor, C., & Akinrinade, O. (2020). The impact of tax incentives on investment decisions of manufacturing firms in Nigeria. Nigerian Journal of Accounting and Finance, 12(1), 45-61.
Okafor, C., & Uchenna, I. (2021). The impact of tax credits on financial performance: A case study of Nigerian firms. Journal of Financial Studies, 15(2), 85-99.
Okafor, C., Eze, S., & Nnamdi, I. (2021). Challenges in the implementation of tax incentives in Nigerian firms. African Journal of Taxation and Policy, 5(2), 34–49.
Okoro, T., & Nwachukwu, U. (2021). Tax incentives and return on assets: Evidence from Nigerian SMEs. International Journal of Finance and Business Studies, 14(2), 89–102.
Osemeke, M., & Okere, B. (2020). Refining capacity challenges and implications for Nigeria’s oil sector. Energy Sector Review, 9(3), 98–112.
Oseni, M. (2023). Financial performance determinants in Nigeria’s oil and gas industry: An empirical study. Nigerian Journal of Finance and Economics, 11(1), 45–60.
Ross, S. A., Westerfield, R. W., Jaffe, J., & Jordan, B. D. (2020). Corporate Finanace (13th ed.). New York, NY: McGraw-Hill Education.
Uchenna, A., & Agbasi, E. (2021). Investment tax allowance and operational efficiency in Nigerian firms. International Journal of Taxation Studies, 7(1), 59–74.
Wells, L. T. (2019). Using tax incentives to compete for foreign investment: Are they worth the costs? In T. E. Morisset (Ed.), Taxation and Investment in Developing Countries (pp. 77-94). Washington, DC: World Bank Publications.
Wooldridge, J. M. (2020). Introductory econometrics: A modern approach (7th ed.). Cengage Learning.
Yeboah, E., & Antwi, D. (2021). The impact of tax credits on return on assets in Ghana's hospitality industry. West African Journal of Hospitality Management, 8(2), 12–25.
Zwick, E., & Mahon, J. (2017). Tax incentives and corporate behavior: Evidence from U.S. firms. American Economic Review, 107(8), 2536–2559
DOI: https://doi.org/10.24123/mabis.v24i2.968
Article Metrics
Abstract view : 29 timesPDF - 2 times
Refbacks
- There are currently no refbacks.
Copyright (c) 2025 ABDULFATAI OLANREWAJU NURUDEEN, Funmi Racheal Ogunbowale
This work is licensed under a Creative Commons Attribution 4.0 International License.
This work is licensed under a Creative Commons Attribution 4.0 International License. ISSN: 1412-3789. e-ISSN: 2477-1783.
 |  |  |  |
 |  |  |  |