TAX INCENTIVES AND FOREIGN DIRECT INVESTMENT: THE PARADOX OF REVENUE GENERATION IN NIGERIA

The study examines paradox of revenue generation in the quest to attract FDI through tax incentives. The paper takes a literature review and empirical approaches. Prior literatures were reviewed with a view to outlining the outcomes and positions of existing related studies. In addition, data for sectoral performance measured as a ratio of sector contribution to GDP against Foreign Direct Investment (FDI) trends over a period of approximately 45 data points (1981-2023) were sourced from World Development Indicator (2024) and Central Bank of Nigeria (2024) Statistical Bulletin and charted on a graph with view to highlighting some key sectors contribution to GDP against FDI trends. The findings reveal that indiscriminate tax incentives in Nigeria have led to significant fiscal losses; with limited returns. In the same vein, the graph chart highlights that while tax incentives appear to significantly influence FDI inflows, their impact on sectoral GDP contributions is uneven. Some sectors demonstrate moderate responsiveness, while others remain stagnant despite generous fiscal incentives. This underscores the need for a more integrated approach combining tax incentives with infrastructure development, regulatory reforms, and institutional stability to drive sustainable sectoral growth and diversify Nigeria’s economic base. Theoretical frameworks, such as the Neoclassical Theory of Investment and the Eclectic Paradigm, underscore the need for performance-based incentives and alignment with broader economic strategies. Policy recommendations include enforcing stricter oversight, conducting periodic reviews, and incorporating sunset clauses for time-bound incentives. A shift toward addressing non-tax barriers, such as infrastructure deficits and governance inefficiencies, is essential for sustainable development. Selective, evidence-based tax incentives integrated into a comprehensive economic framework can enhance Nigeria’s investment climate and foster long-term growth without compromising revenue generation.