CORPORATE INCOME TAX AND PROFITABILITY OF MANUFACTURING FIRMS IN NIGERIA

Abstract

This study examined corporate income tax and profitability of manufacturing firms in Nigeria over a ten-year period spanning 2016 to 2025. The specific objectives were to assess the effect of income tax expense, tax payable and deferred tax on the net profit margin of manufacturing firms in Nigeria. The study employed secondary data sourced from the annual reports and audited financial statements of selected manufacturing firms listed on the Nigerian Exchange Group. An ex-post facto research design was adopted, since the study relied on historical financial data that could not be manipulated by the researcher, and panel least squares regression analysis was used to test the formulated hypotheses on a balanced panel of forty firm-year observations. The regression results revealed that income tax expense has a negative and statistically significant effect on net profit margin, with a coefficient of −0.268514, a t-statistic of −3.612408 and a probability value of 0.0009, implying that higher tax obligations reduce retained earnings and overall profitability. The results further showed that tax payable has a negative and significant effect on net profit margin, with a coefficient of −0.231906, a t-statistic of −2.974115 and a probability value of 0.0039, indicating that increased short-term tax liabilities place pressure on liquidity and depress profit performance. Deferred tax, by contrast, returned a positive and significant effect, with a coefficient of 0.294317, a t-statistic of 3.885602 and a probability value of 0.0004, suggesting that effective management of deferred tax positions enhances profitability through timing advantages and improved financial flexibility. The study concludes that corporate income tax significantly influences the profitability of manufacturing firms in Nigeria, with income tax expense and tax payable operating negatively while deferred tax contributes positively. It recommends that manufacturing firms adopt efficient tax planning strategies to minimise current tax burdens, manage tax payable obligations more effectively, and optimise deferred tax arrangements in order to enhance overall profitability.