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EFFECT OF TAX LIABILITIES ON FINANCIAL PERFORMANCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

The instability in the banking sector over the years has been characterized by numerous variations and volatilities where banks are mandated by law to pay taxes that could translate into a substantial cost to their performance. The study empirically ascertains the effect of tax liabilities on financial performance of listed deposit money banks in Nigeria. To accomplish this objective a comprehensive study on the theoretical, conceptual and empirical literature on tax liabilities and financial performance was examined. Tax liabilities was proxy by company income tax, tertiary education tax, value added tax and capital gain tax. This study adopted the ex-post facto research design. The population of the study consists of 14 quoted deposit money banks in Nigeria, judgmental sampling techniques was used to select ten banks as a sample size. Secondary data was obtained from audited annual financial reports of the listed deposit money banks in Nigeria from 2013-2022. the study adopted panel least squares regression through pooled effect, fixed effect, and random effect, from the outcome determined by the Hausman test, fixed effect regression was preferred for results interpretation with the aid STATA 17. Findings show that company income tax had a positive and significant effect on financial performance; tertiary education tax and capital gain tax had negative and significant effect on financial performance of listed deposit money banks in Nigeria. Value added tax had positive and insignificant effect on financial performance. The study concludes that companies income tax, tertiary education tax and capital gain tax reduced financial performance of listed deposit money banks in Nigeria. The study recommends among others that through collaborative efforts with tax authorities DMBs should engage in strategic tax planning such as exploring legal avenues to stabilize or minimize tax liabilities. The government should review the countries’ fiscal policy and where necessary introduce new tax incentives, tax exemptions, tax allowances, tax relief, tax rebates, and tax shelters for companies income tax, tertiary education and capital gain tax since it has adverse effect on financial performance of DMBs in Nigeria.

Keywords

Tax Liabilities, Financial Performance, Return on Assets, Deposit Money Banks

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