11 africascholarpublications@gmail.com
AUGUST, 2024
Effect of Tax Liabilities on Financial Performance of Listed
Deposit Money Banks in Nigeria
*Henry Habila; **Prof. Saratu L. Jim-Suleiman; &
***Emmanuel Uchendu
*Department of Accounting, Federal University Wukari, Nigeria. **Department of
Accounting, University of Jos. ***Department of Accounting, University of Jos
Corresponding Author: habilahenry@gmail.com
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.
Journal of Business Dev. and Management Res. (JBDMR)
African Scholar
Publications
& Research
International
www.africanscholarpub.com
VOL. 05 NO. 7,
AUGUST, 2024
E-ISSN 3026-9679
P-ISSN 3026-9423
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AUGUST, 2024
Keywords: Tax liabilities, Company Income Tax, Tertiary Education Tax, Capital Gain Tax,
financial performance.
Introduction
Globally, every firm's performance is a major
concern because it can withstand pressure from
the market and influence the overall growth of
the system and the strength of the company in
particular Sweetwilliams et al 2023. Taiwo and
Oyedekun (2022) posit that shareholders
emphasizes most of their attention on a
company's performance before embarking into
business with that company. As a result,
profitability has evolved into the primary factor
that is used to evaluate a company's financial
performance. However, financial performance
is defined as the analysis of a firm polices and
operational activities in monetary terms Verma
(2021). Conversely, financial performance
reflects ability of organization to effectively
utilize financial and production factors to
generate revenue for shareholders has been the
key focus of profit making organization
(Kayode & Folajinmi, 2020). Furthermore, the
priority of any firm is to effectively, efficiently
and ethically manage the company for
profitable, long term growth and perpetual
existence and the policies and practices of
management must also align with the interest of
shareholders and other stakeholders
(Emmanuel et al., 2022). Consequently, some
of these companies have achieved the exact
opposite of their goals, making it more difficult
for firms to attain the standards they have set
for themselves due to some tax liabilities.
Accordingly, tax liability could also impact the
financial performance of banks by reducing the
amount of cash flow it has available to invest.
This research examined the effect of tax
liabilities on the financial performance of listed
deposit money banks in Nigeria. (Hassert and
Hubbard 1976 as cited in Muhammad and
Ahmad 2019) defined taxation as the
compulsory levy by government via its
different agencies on the revenue or
consumption of its subjects. Therefore, tax
liabilities consist of income tax, other direct
taxes and indirect taxes levied by the
government. The issue of taxation and its
impact on firm performance is one of the most
important issues that policymakers and firm
executives focus on (Iormbagah., et al 2021).
Consequently, there are no companies that do
not make profit maximization decision at one
time or the other which requires corporate
taxation to be properly and effectively planned
to achieve the companies’ goals and objectives.
It is based on these facts that the research is
between tax liabilities and financial
performance. Every corporate organization is
therefore expected to pay taxes as one of its
responsibilities to the society. Okonkwo., el al
(2022) opined that Governments use tax
revenue to carry out their traditional functions
such as the provision of public goods and
services; maintenance of law and order; defense
against external aggression; and regulation of
trade and business to ensure social and
economic maintenance. One of the policy
objectives of the Nigerian government is to
improve the ease of doing business, encourage
voluntary tax compliance and fiscal
responsibility in Nigeria. To achieve these
noble objectives, the government, through the
Finance Act 2019 and 2020 (The Finance Act,
2019;2020) amended various tax and fiscal
legislations to align the Nigerian business
environment with global best practice and make
the country competitive in the world of business
by raising the tertiary education tax from 2% to
2.5% and the VAT rate from 5% to 7.5%
Osirim, (2021) these have a significant impact
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on business. Finance Act of 2020 empowers the Federal Inland Revenue Service Board (FIRSB)
to assess and collect taxes from all limited liability companies that operates from or within Nigeria.
Deposit Money Banks (DMBs) perform a very germane role in Nigerian economic resource
allocation by continually acting as a channel of funds from depositors to investors. Muhammad
and Ahmad (2019) opined that, the predominant goal of most banks is to maximize profit, and at
the same time, minimize cost, through an efficient combination and utilization of limited resources.
Especially, by charging the borrower a slightly higher interest rate, than that which is given to the
depositor, a bank is able to achieve its goal of profitability. Nevertheless, the banking industry in
Nigeria has also undergone instability (or crisis) at various phases of its growth and development.
The path of the instability of the Nigerian banking sector has over the years been characterized by
numerous variations and volatilities which can be traced to 1892 when the business of banking as
a profession officially began in Nigeria (Akpan, 2017 as cited in Adewole., et al 2021). In Nigeria,
companies are mandated by law to pay company income tax on profit earned with 30%, education
tax of 2.5%, withholding tax of 10%, value-added tax of 7.5% and capital gain tax of 10% in the
year/period preceding assessment. These taxes translate into a substantial cost to organizations and
if not properly planned and managed can have adverse effect on the bottom line, cash flow and
capacity to invest. Nonetheless, these problems encouraged the researcher to look into how these
taxes affected Nigerian deposit money banks to justify the angle of the instability because
increasing financial performance and shareholder value is one of any organization's main goals.
However, Nwaobia and Jayeoba (2016) asserted that heavy tax burdens exert negative impact on
firm’s performance. It is on this perspective that the study is anchored on the ability to pay theory
because it appears very reasonable in assessing the effect of tax liabilities of banks. Under the
ability to pay principle, one with higher incomes should pay more taxes than one with lower
incomes
Conversely in Nigeria, there has been a divergent view of scholars on the impact of corporate tax
on financial performance of companies in Nigeria (Eze., et al 2022: Adefunke & Usiomon 2022:)
argue that corporate tax has a positive and significant effect on financial performance, while others
(Otwani, Namusonge & Nambuswa, 2017; Olaoye & Oluwatoyin, 2019; Taiwo & Oyedokun,
2022). Content that corporate tax has no significant effect on financial performance. Few studies
on corporate tax on financial performance conducted on deposit money banks (Obi., et al 2022;
Eze., et al 2022; Omodero & Ogbonnaya 2018) reported that company income tax has significant
positive effect on performance and profitability. While Muhammad and Ahmad (2019) showed
that company income tax rate has no effect on investment decision of listed deposit money banks
in Nigeria. Other were on development banks Olurankinse & Mamidu (2021) and agricultural
companies Vržina & Dimitrijeviæ (2020) carried out in Serbia, thus offering limited insights on
deposit money banks particularly in Nigeria.
However, we extend the literature by investigating on the mixed variables on the effect of tax
liabilities on financial performance of listed deposit money banks in Nigeria. It is this gap we seek
to close. Also this research is particularly important considering the increase in tax burden
following the amended tax reform in Nigeria. It also offers managers a better understanding of the
dynamics of taxation in the banking sector as well as potentially guiding future tax policies.
Thus, the main aim of the study is to determine the effect of tax liabilities on financial performance
of listed DMBs in Nigeria. Other specific objectives of this study are to:
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i. Determine the effect of company income tax on financial performance of listed DMBs
in Nigeria.
ii. Ascertain the effect of tertiary education tax on financial performance of listed DMBs
in Nigeria.
iii. Examine the effect of value added tax on financial performance of listed DMBs in
Nigeria.
iv. Explore the effect of capital gain tax on financial performance of listed DMBs in
Nigeria.
In order to achieve the objectives stated above, the following hypotheses were formulated in null
forms to guide the study:
i. H01: Company income tax has no significant effect on financial performance of listed
DMBs in Nigeria.
ii. H02: Tertiary education tax has no significant effect on financial performance of listed
DMBs in Nigeria.
iii. H03: Value added tax has no significant effect on financial performance of listed
DMBs in Nigeria.
iv. H04: Capital gain tax has no significant effect on financial performance of listed
DMBs in Nigeria.
The rest of the paper is structured as follows. Section 2 reviews the literature. Section 3
methodology. Section 4 presents the results and discussions. In section 5, we concluded the paper
and offer recommendation.
LITERATURE REVIEW
This section reviews previous conceptual, empirical literature and theoretical literature concerning
the effect of tax liabilities on the financial performance of deposit money banks in Nigeria.
Concept of Tax Liabilities
Tax liabilities consist of income tax, other direct taxes and indirect taxes levied by the government.
Tax liability is a legal obligation as per tax law of a particular jurisdiction or country. However,
tax laws are applicable to the residents of the country as well as to the non-residents. Tax liability
may be an estimate of annual tax dues to be paid in quarterly installments or as advance tax, sweta,
(2024). this tax is levied at a definite rate or range of rates on taxable income as defined within the
system. Most systems tax both domestic and foreign companies. Often, domestic companies are
taxed on worldwide income while foreign companies are taxed only on income from sources within
the jurisdiction.
Concept of Company Income Tax
The term company income tax refers to the tax that corporate organisations must pay globally. The
earnings of businesses presumed to have amassed, generated or imported into a nation are subject
to mandatory payment of company income tax over several years. Nwaeke., et al (2022) observed
that, the Companies and Allied Matters Act (CAMA) 2020, as amended, defines Nigerian
companies as those incorporated in the country. Any revenue generated by such firms may be
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presumed to have amassed, been obtained from, or been transferred into the country. Additionally,
for foreign companies, that is, companies founded under laws that are not legally binding in
Nigeria, any revenue generated by such companies may be considered to have amassed, been
sourced from, or been raised outside of Nigeria to the degree of not ascribable to operations within
Nigeria. Therefore, within 18 months of the date of incorporation or, if later, within six months of
the conclusion of the accounting period, the newly created firm must file its income tax return or
income tax reports. However, Best of Judgment (BOJ) could be applicable: When the tax payable
has no financial records or returns filed to the tax authority to support the assessment, the tax is
determined in this manner by the applicable tax authority. In line with the Finance Act 2019,
companies with a turnover of less than N25 million are exempt from paying company income tax.
Therefore, the only businesses subject to 30% taxation are those whose yearly revenue exceeds
N100 million.
Concept of Tertiary Education Tax
Tertiary Education Tax (formally Education Tax) is a tax imposed on the assessable profits of all
companies registered in Nigeria (including companies subject to tax under Petroleum Profits Tax
Act) for the enhancement of tertiary education in Nigeria. It is established by the Tertiary
Education Trust Fund (Establishment, Etc.) Act No 16, of 2011. According to Section 1 of the
Tertiary Education Tax Act, the rate of tertiary education tax has been raised from 2% of assessable
earnings to 2.5% of assessable profits. For a company subject to tax under the PPTA, the education
tax paid is an allowable deduction under Section 10 of the PPTA in arriving at the adjusted profits
of the company for tax purposes. Thus, the recovery, consolidation, and restoration of higher
education in Nigeria are funded by the Education Tax revenue. The funds are allocated in the
following ratios: 2:1:1 to universities, polytechnics, and colleges of education. Tertiary education
tax returns must be filed by the same deadline as company income taxes and petroleum profit taxes.
The Primary objective of the Education Tax is to achieve restoration, rehabilitation, consolidation
and development of tertiary education in Nigeria
Concept of Value Added Tax
Value added tax (VAT) is a consumption tax applied to goods whenever value is added at any
point along the supply chain, from the point of production to the point of sale. Adewole., et al
(2021). Obviously, some changes made to the VAT Act will be relevant to the tax liability of the
investee banks in a private equity transaction. For instance, the effective tax rate for VAT in
Nigeria is 7.5%, as well as the expansion of the meaning of products and services (to address the
challenges associated with efficiently taxing the digital economy) will undoubtedly have
noticeable effects on a number of different types of transactions, including private equity. VAT is
applicable to all services provided in Nigeria, with the exception of those that are expressly
exempted by law. Services provided by lawyers, engineers, accountants, contractors, consultants,
etc. Charges arising from the consumption of services rendered by banks and financial institutions
ordinarily are subject to VAT. M, T, Abdulrazaq (2016) and these include: commissions and fees
charged on foreign exchanges or remittances, banks charges, commissions on turnover, ledger fees
and so on, fees charged for advisory services (for example; mergers and acquisitions, financial
strategy counselling and so on), debt conversion fees, commissions on the sale of bank drafts and
certified cheques, fees chargeable on public/private issues etc.
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Concept of Capital Gain Tax
Tax on Capital Gains in Nigeria, the profit or gain from the sale or disposal of assets, such as
stocks, real estate, and other investments, is subject to capital gains tax (CGT). The Federal Inland
Revenue Service (FIRS) is responsible for its administration and regulation under the Capital Gains
Tax Act (CGTA). When a non-inventory asset is bought at a lower cost than it is sold for, the profit
earned on its sale is referred to as capital gains and is subject to taxation (Wikipedia, 2016.
According to Afuberoh and Okoye (2014). Capital gains tax is a tax levied on the profit realized
when selling an asset; this profit is calculated as the difference between the item's original purchase
price and its sales price. Section 2(1) of the Act put the rate of capital gains tax in Nigeria at 10%
on accrued gains on the disposed capital asset. Corporate entities in Nigeria are required to pay
capital gains tax on their profits from movable assets. Capital Gains Tax is imposed in Nigeria by
the Capital Gains Tax Act, Cap. C1 Volume 3 LFN 2004 (as amended).
Financial Performance
According to (Farah., et al 2016 as cited in Eneisik., et al 2023) financial performance is a degree
to which a company financial fitness over a period of time is measured. In other words, it is a
financial exploit used in order to create greater sales, profitability and value of a business entity
for its shareholders through managing its current and non-current assets, financing, equity,
revenues and expenses. One of the major ways for measuring financial performance of an
organization is the usage of profitability financial ratios. Firm financial performance is studied and
measured by different researchers (Hammami et al., 2020; Cui et al., 2021) using different
measures. Cui et al. (2021) used return on equity (ROE) and profit margin (PM) for the
measurement of firm performance. Market based measures of companies ‘financial performance
was done by Hammami et al. (2020) measured by Market value of equity divided by book value
of equity and Tobin’s Q (market value of equity + book value of debt/total of assets - in book
value). However, this study will utilize return on assets as the matrix for measurement of financial
performance. According to Singh et al; (2024), ROA is defined as the ratio of net income plus
interest expense to the total book value of the firm’s assets.
Theoretical Framework
There are various theories which explain the relationship between the effect of tax liabilities and
financial performance of listed deposit money banks in Nigeria. Such theories include ability to
pay, benefit theory and stakeholder theory.
Ability to Pay Theory
Taking the major objective of the study into consideration, which is aimed to examining the effect
of tax liabilities on the financial performance of listed deposit money banks in Nigeria, the ability
to pay theory is the best theory that explained the findings of current study.
Ability to pay theory brings to the fore the concept of tax liabilities on financial performance. This
theory was developed by Smith and Pigou (1903). The theory states that “the subjects of every
state ought to contribute towards the support of the government, as nearly as possible, in proportion
to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under
the protection of the state.” The ability-to-pay principle requires that the total tax burden will be
distributed among individuals according to their capacity to bear it, taking into account all of the
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relevant personal characteristics. Omodero and Ogbonnaya (2018) Someone who earns more
should pay more tax while an individual who earns less should pay less tax.
Empirical Review
Eze., et al (2022) examined the impact of corporate taxation on the financial performance of deposit
money banks in Nigeria from 2011 to 2020. A sample consisting of 7 deposit money banks and
cross sectional data were obtained from their annual reports and financial statements were used for
the analysis. The findings indicate that- in the short run, CIT was not only significant, but exerted
a positive impact on profit for the year of deposit money banks.
Similarly, Obi et al (2020) empirically investigated the impact of taxes on the performance of
deposit money banks in Nigeria. The data employed in the study were extracted from audited
financial reports and shareholders reports of banks for the period of 2007-2017. The result of the
study revealed that company income tax, withholding tax and stamp duty tax have different and
significant impact on banks performance in Nigeria.
In the same vein, Omodero and Ogbonnaya (2018) examines the impact of corporate tax on
profitability of Deposit Money Banks in Nigeria. The research adopted a causal research design
and a sample of 12 banks were selected out of the currently existing 21 banks based on Authors’
judgment and data availability. The panel data used in this study covers a period from 2006 to
2016. The regression result on the data for Access Bank Plc., Diamond Bank Plc. and GTB Plc.,
revealed a positive significant impact of CIT on PAT and existence of a positive relationship
between PAT and CIT. While the rest of the other 9 banks showed both negative and lack of
impact of CIT on PAT.
The relationship between corporate tax and financial performance of manufacturing companies
was also examined by Eneisik., et al (2023) they ascertained the effect of companies income tax
on financial performance of quoted manufacturing companies in Nigeria. Secondary data was
obtained from audited annual financial reports of quoted manufacturing companies in Nigeria from
2006-2020. Findings show that company income tax had a negative and insignificant effect on net
profit margin of quoted manufacturing companies in Nigeria. Capital gains tax had positive and
significant effect on net profit margin of quoted manufacturing companies in Nigeria. Tertiary
education taxes had negative and insignificant effect on net profit margin of quoted manufacturing
companies in Nigeria.
Conversely, Williams et al., (2023) examined the effect of corporate tax on the financial
performance of Nigerian listed consumer goods companies from 2011 to 2021. A sample of sixteen
(16) consumer goods firms was used for the study. The random effect panel regression results
revealed that company income tax negatively affects financial performance. The study also
revealed that education tax has a significant positive effect on financial performance. While Value
Added Tax (VAT) has a significant negative effect on financial performance.
Other studies attempt to compare the impact of corportate tax and financial performance of
agricultural companies. Vržina and Dimitrijeviæ (2020) analyzed the financial performance of
agricultural companies and corporate income tax as key determinants of financial performance in
Vojvodina. They carried out a simple descriptive statistics test which showed that effective
corporate income tax rates (ETRs) in agricultural companies are significantly lower than the
statutory corporate income tax rate. They further used Panel regression which showed that
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agricultural companies with lower effective tax rates are more profitable than companies with
higher effective tax rate.
METHODOLOGY
This study adopts ex-post facto research design. This is because the events studied have already
taken place. In this context, secondary data which already existed were used to ascertain the link
between the explanatory variables and the dependent variable. All the 14 deposit money banks
listed on the floor of Nigeria Exchange Group (NGX) as at 2022 constitute the population for this
study and 10 were sampled using judgmental sampling techniques. The secondary data were
collected from the annual reports of the banks for the period 2013-2022. The study adopted panel
Least Squares Regression these include the robust pooled OLS, fixed effect and the random effect
regression model, the hausman test was further used to select the model that best fit for analyses
and the research hypotheses.
Table 1: Variables and their Measurement
Variable Name Acronym Measurement Source
Return on Assets ROA 𝐸𝐵𝐼𝑇
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
𝑋 100
(Obi, 2020; Adegbite & Amashalu, 2017;
Singh et al; 2024)
Company Income
Tax
CIT 𝑁𝑎𝑡𝑢𝑟𝑎𝑙 𝐿𝑜𝑔 𝑜𝑓 𝐶𝐼𝑇 𝑝𝑎𝑖𝑑. (Omodero et al., 2018; Taiwo et al., 2022)
Education Tax
Value Added Tax
EDT
VAT
Natural Log of Education Tax Paid
Natural Log of Total VAT paid
(Nwaorgu et al., 2020; Nwubia & Okolo,
2020)
Olatunji & Oluwatoyin (2019)
Capital Gain Tax CGT Natural Log of Total CGT paid (Taiwo et al., 2022; Omodero et al., 2018;
(Nwaorgu et al., 2020)
Source: Author’s Compilation, 2024
Model Specification
The study adopted similar regression model of Nwaorgu, Oyekezie and Abiahu (2020) which is
expressed as follows:
ROA = f (CIT, EDT, VAT, CGT,) ……………………………...……....……………………... (i)
ROA =𝛽0 + 𝛽1𝐶𝐼𝑇𝑖𝑡 − 1 + 𝛽2𝐸𝐷𝑇𝑖𝑡 − 1 + 𝛽3𝑉𝐴𝑇𝑖𝑡 − 1 + 𝛽4𝐶𝐺𝑇𝑖𝑡 − 1 + 𝜀……… (ii)
Where:
ROA = Return on Assets
CIT = Companies Income Tax
EDT = Education Tax
VAT = Value Added Tax
CGT = Capital Gain Tax
𝛽0 = 𝐶𝑜𝑛𝑠𝑡𝑎𝑛𝑡
𝛽1 − 𝛽3 = Coefficients of independent variables
𝜀 = error term
it = Residual
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RESULTS AND DISCUSSIONS
This section reports and discusses the results emanating from the analysis of data generated for the
study. The one unit root test method known as Levin, Lin & Chu test for all the variables are less
than 0.05 which indicate the variables are stationary in order to avoid spurious regression and
interpretation of coefficient estimates. Breusch-Pagan Test for heteroskedasticity shows that the
data are heterogeneous at less than 0.05.
Table 2: Descriptive Statistics
Variable Obs Mean Std. Dev. Min Max
ROA 100 1.057 1.841 -4.605 3.99
CIT 100 14.942 2.695 8.294 23.314
TET 88 15.436 3.752 7.554 24.357
VAT 100 18.109 4.41 7.948 27.499
CGT 100 15.65 4.055 6.236 25.316
Source: STATA 17, Author’s Computation (2024)
The descriptive statistics of this study has been illustrated in Table 2. it can be seen that a total of
100 observations were recorded. The table shows the minimum, maximum, mean and standard
deviation of the variables of the study. The range of returns on assets, from a minimum of -4.605
to a maximum of 3.99, indicates a significant extent of possible returns in financial performance
among the studied entities. The mean return on assets of 1.057suggests that, on average, the entities
in the sample generates or earn approximately 1.06% on their assets. The standard deviation of
1.841 which is greater than the mean signifies a slight variability or dispersion in returns. The wide
range in company income tax, from 8.294 to 23.314, underscores the heterogeneity in tax burdens
among the sampled entities; this could be due to various factors such as differences in profitability.
While the mean income tax of 14.942million Naira indicates the average tax obligation. The
substantial standard deviation of 2.695million Naira, suggests that the tax payment deviate from
the average by approximately 2.695million Naira. The same interpretation is applicable to tertiary
education tax; value added tax and capital gain tax based on their respective disparity.
Table 3: Correlation Matrix
Variables (ROA) (CIT) (TET) (VAT) (CGT)
ROA 1.000
CIT 0.385 1.000
TET -0.335 0.038 1.000
VAT 0.008 -0.179 0.141 1.000
CGT -0.265 -0.097 0.086 0.043 1.000
Source: STATA 17, Author’s Computation (2024)
Table 3 shows the Pairwise correlations between the dependent and the independent variables;
company income tax has a moderate positive relationship with return on assets (ROA) with a
correlation coefficient value of 0.385. This indicates that as company income tax increases,
financial performance in terms of ROA tends to increase, suggesting that higher tax burdens are
associated with lower financial performance. Tertiary education tax has a moderate negative
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relationship with return on assets with a correlation coefficient value of -0.335, suggesting that an
increase in education tax is moderately associated with a decrease in financial performance. It can
also be seen from the table that value added tax has weak positive relationship and capital gain tax
has a weak negative relationship with return on assets (ROA) with a correlation coefficient value
of 0.008 and -0.265 respectively.
Table 4: Panel Least Squares (Fixed Effect) Regression
ROA Coef. St.Err. t-value p-value [95% Conf Interval]
CIT 0.27 0.0426531 -1.79 0.000 -.1611857 .0087907
TET -0.183 0.0219354 -0.94 0.000 -.0643347 .0230796
VAT 0.06 0.0187758 -0.33 0.141 -.0435732 .0312501
CGT -0.103 0.0251419 -0.68 0.011 -.0673031 .0328895
Constant 0.311 0.8872739 3.15 0.812 1.029181 4.565044
Mean dependent var 0.580 SD dependent var 1.176
R-squared 0.710 Number of obs 100
F-test 4.967 Prob > F 0.001
Akaike crit. (AIC) 367.049 Bayesian crit. (BIC) 273.463
Source: STATA 17, Author’s Computation (2024)
Table 4. We ran three models (pooled OLS, fixed effect (FE), and random effect (RE) in order to
determine the model that best fits our modeled relationship between the dependent and the
independent variables. The F-statistics for individual regression effects suggests that random effect
is preferable to the pooled OLS at 5%. Furthermore, the Hausman test result reveals that fixed
effect cross section random probability value is 0.0313 less than 5% which makes it more
preferable to the random effect. Thus, our model of choice based on the various tests conducted is
the fixed effect model. It can be seen that the relationship between return on assets and company
income tax is significant at 5% (0.000) level of significance. This indicates that company income
tax affects financial performance of deposit money banks in Nigeria in terms of (ROA). Therefore,
the Ho1 hypothesis is rejected. This is in tandem with the findings of Obi., et al (2020) and Olaoye
& Alade (2019). Tertiary education tax was found to exert a significant negative effect on the
financial performance of DMBs at the 5% (0.000) significance level indicating that higher tax
burdens impede the financial performance of these banks thus, the null hypothesis is also rejected.
this contradicts the findings of Eze., et al 2022. However, value added tax has a positive and
insignificant effect on the financial performance of DMBs at the 5% (0.141) significance level
which implies that it has no effect on their financial performance and we thereby accept the null
hypothesis. This finding is in close collaboration with that of Ironkwe & Peter (2015) and it is
inconsistent with the findings of Olatunji &Oluwatoyin (2019) and Invkovic et al (2004). Capital
gain tax was also found to exert a significant negative effect on the financial performance of DMBs.
This implies that variations in capital gain tax do have a statistically significant influence on the
banks' return on assets within the specified significance conventional level of 5% (0.011), the Ho1
hypothesis is also rejected. This finding agreed with the work of Eneisik., et al (2023).
The coefficient of determination which measure goodness of fit of the regression model as
indicated by R-square is 0.710 seems to fit the data reasonably well. This implies that about 70.1%
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of the variation observed in the independent variable (company income tax, tertiary education tax,
value added tax and capital gains tax) seems to fit the data the dependent variables (return on
assets) while only 29.9% of the changes were explained by unknown variable. The f-statistic value
of 4.967and the p-value of 0.001 less than 0.05 level of significance indicates strong evidence that
the variances between variables are statistically significant.
CONCLUSION AND RECOMMENDATIONS
Conclusion
The study reveals a robust and statistically significant positive effect of company income tax on
the financial performance of listed DMBs in Nigeria. This implies that higher company income tax
is associated with a decline in financial performance, as measured by metrics such as return on
assets (ROA) same is applicable to tertiary education tax the study finds a significant negative
effect of tertiary education tax on the financial performance of listed DMBs in Nigeria. However,
the study finds an insignificant positive effect of value added tax on the financial performance of
listed DMBs in Nigeria. This implies that its effect on financial performance does not reach
statistical significance within the specified threshold. In the same vein, the study finds a significant
negative effect of capital gain tax on the financial performance of listed DMBs in Nigeria. This
suggests that changes in capital gain tax are among the decisive factor in explaining variations in
financial outcomes among DMBs.
Recommendations
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.
Suggestions for Further Studies
Here are some areas suggested for future studies, researchers can explore on other variables by
including the minimum tax, National fiscal stabilisation levy paid by banks. More so, others could
examine whether a moderating or a control variable would cushion the effect of tax liabilities on
financial performance. another interesting area to explore is using different matrix like return on
equity and profit margin. Lastly, a longer period of study may reveal more results.
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