Expert identifies non-tax, tax factors influencing foreign direct investment

There seems to be a misconception that investors’ decision in relation to direct investment in foreign location is centred on taxation and the tax system in the investment location.

This is not necessarily the case as there are other non-tax related factors that influence such decisions, according to Titilayo Fowokan, head of tax department, Oando Group.

Fowokan told participants at the just concluded 17^th annual tax conference of the Chartered Institute of Taxation (CITN) that the relative importance of the different factors varies, depending on the type of investment.

In most cases, Fowokan said, the decision to invest is largely based on the investee country’s overall investment climate.

She identified non-tax factors affecting foreign direct investment (FDI) to include market size, access to raw materials (natural resources, energy supplies). Others are availability and cost of skilled labour, access to infrastructure, transportation costs, access to output markets (high consumer demand in region, low export costs), political stability, macro-economic stability and financing costs.

She also identified tax factors that affect FDI to include transparency, simplicity, stability and certainty in the application of the tax law and in tax administration, tax rates and tax incentives.

“The host country for foreign direct investment may also be influenced by various incentives offered by governments to attract multinationals into the country, which may be fiscal (tax) incentives, financial incentives or other incentives like market preferences,” she said.

“The effectiveness of FDI in bringing about the desired growth may be constrained by the level of infrastructural developments and other macroeconomic variables. Therefore, infrastructural development, openness and domestic market size have been found to be the major determinants of FDI in Nigeria,” she said further.

 

Iheanyi Nwachukwu