The Effect of Tax Policy Uncertainty on Private Investment in Nigeria: An Econometric Assessment

This study conducts an econometric assessment of the effect of tax policy uncertainty on private sector investment in Nigeria. Uncertainty in the tax environment, arising from frequent legislative amendments, inconsistent administration, and unpredictable revenue authority positions, is hypothesised to depress investment by increasing the option value of waiting and by complicating discounted cash flow analyses used in project appraisals. Using a time-series design covering twenty years of Nigerian macroeconomic and fiscal data, the study constructs a tax policy uncertainty index derived from content analysis of FIRS press releases, Finance Act amendment frequency, and news media references to tax policy changes. This index is included as an explanatory variable in a vector autoregression model alongside private investment, GDP growth, exchange rate, and interest rate variables. Granger causality tests and impulse response functions are employed. The study expects to find that increases in the constructed tax uncertainty index are followed by statistically significant reductions in private investment commitments with a lag of two to four quarters. It further anticipates heterogeneous effects across sectors, with capital-intensive industries showing greater investment sensitivity to tax uncertainty than service-sector firms. Methodological contributions include the development of a replicable Nigeria-specific tax policy uncertainty index. Recommendations include establishing a multi-year tax policy commitment framework, reducing the frequency of Finance Act amendments, and publishing FIRS advance ruling decisions systematically. Keywords: tax policy uncertainty, private investment, VAR model, Finance Act, investment climate.