Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 i Gusau Journal of Accounting and Finance (GUJAF) Vol. 5 Issue 2, October, 2024 ISSN: 2756-665X A Publication of Department of Accounting and Finance, Faculty of Management and Social Sciences, Federal University Gusau, Zamfara State -Nigeria Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 ii © Department of Accounting and Finance Vol. 5 Issue 2 October, 2024 ISSN: 2756-665X A Publication of Department of Accounting and Finance, Faculty of Management and Social Sciences, Federal University Gusau, Zamfara State -Nigeria All Rights reserved Except for academic purposes no part or whole of this publication is allowed to be reproduced, stored in a retrieval system or transmitted in any form or by any means be it mechanical, electrical, photocopying, recording or otherwise, without prior permission of the Copyright owner. Published and printed by: Ahmadu Bello University Press Limited, Zaria Kaduna State, Nigeria. Tel: 08065949711, 069-879121 e-mail: abupress2013@gmail.com abupress2020@yahoo.com Website: www.abupress.com.ng mailto:abupress2013@gmail.com Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 iii EDITORIAL BOARD Editor-in-Chief: Prof. Shehu Usman Hassan Department of Accounting, Federal University of Kashere, Gombe State. Associate Editor: Dr. Muhammad Mustapha Bagudo Department of Accounting, Ahmadu Bello University Zaria, Kaduna State. Managing Editor: Dr. Umar Farouk Abdulkarim Department of Accounting and Finance, Federal University Gusau, Zamfara State. Editorial Board Prof.Ahmad Modu Kumshe Department of Accounting, University of Maiduguri, Borno State. Prof Ugochukwu C. Nzewi Department of Accounting, Paul University Awka, Anambra State. Prof Kabir Tahir Hamid Department of Accounting, Bayero University, Kano, Kano State. Prof. Ekoja B. Ekoja Department of Accounting, University of Jos. Prof. Clifford Ofurum Department of Accounting, University of PortHarcourt, Rivers State. Prof. Ahmad Bello Dogarawa Department of Accounting, Ahmadu Bello University Zaria. Prof. Yusuf. B. Rahman Department of Accounting, Lagos State University, Lagos State. Prof. Suleiman A. S. Aruwa Department of Accounting, Nasarawa State University, Keffi, Nasarawa State. Prof. Muhammad Junaidu Kurawa Department of Accounting, Bayero University Kano, Kano State. Prof. Muhammad Habibu Sabari Department of Accounting, Ahmadu Bello University, Zaria. Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 iv Prof. Okpanachi Joshua Department of Accounting and Management, Nigerian Defence Academy, Kaduna. Prof. Hassan Ibrahim Department of Accounting, IBB University, Lapai, Niger State. Prof. Ifeoma Mary Okwo Department of Accounting, Enugu State University of Science and Technology, Enugu State. Prof. Aminu Isah Department of Accounting, Bayero University, Kano, Kano State. Prof. Ahmadu Bello Department of Accounting, Ahmadu Bello University, Zaria. Prof. Musa Yelwa Abubakar Department of Accounting, Usmanu Danfodiyo University, Sokoto State. Prof. Salisu Abubakar Department of Accounting, Ahmadu Bello University Zaria, Kaduna State. Prof. Isaq Alhaji Samaila Department of Accounting, Bayero University, Kano State. Prof. Sunusi Sa'ad Ahmad Department of Accounting, Federal University Dutse, Jigawa State. Prof. OnipeAdebenege Yahaya Department of Accounting, Nigerian Defence Academy, Kaduna State. Prof. Saidu Adamu Department of Accounting, Federal University of Kashere, Gombe State. Prof. Farouk Adeza School of Business and Entrepreneurship, American University of Nigeria, Yola. Prof. Fatima Alfa Department of Accounting, University of Maiduguri, Borno State. Dr. Nasiru A. Ka’oje Department of Accounting, Usmanu Danfodiyo University Sokoto State. Dr. Aminu Abdullahi Department of Accounting, Usmanu Danfodiyo University Sokoto, State. Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 v Dr. Nasiru Yunusa Department of Accounting, Ahmadu Bello University Zaria. Dr. Aisha Nuhu Muhammad Department of Accounting, Ahmadu Bello University Zaria. Dr. Lawal Muhammad Department of Accounting, Ahmadu Bello University Zaria. Dr. Bashir Umar Farouk Department of Economics, Federal University Gusau, Zamfara State. Dr Emmanuel Omokhuale Department of Mathematics, Federal University Gusau, Zamfara. State ADVISORY BOARD MEMBERS Prof. Kabiru Isah Dandago, Bayero University Kano, Kano State. Prof A M Bashir, Usmanu Danfodiyo University Sokoto, Sokoto State. Prof. Muhammad Tanko, Kaduna State University, Kaduna. Prof. Bayero A M Sabir, Usmanu Danfodiyo University Sokoto, Sokoto State. Prof. Aliyu Sulaiman Kantudu, Bayero University Kano, Kano State. Editorial Secretary Yazid Kabir Ibrahim Department of Accounting and Finance, Federal University Gusau, Zamfara State. Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 vi CALL FOR PAPERS The editorial board of Gusau Journal of Accounting and Finance (GUJAF) is hereby inviting authors to submit their unpublished manuscript for publication. The journal is published in two issues of April and October annually. GUJAF is a double-blind peer reviewed journal published by the Department of Accounting and Finance, Faculty of Management and Social Sciences, Federal University Gusau, Zamfara State Nigeria The Journal accepts papers in all areas of Accounting and Finance for publication which include: Accounting Standards, Accounting Information System, Financial Reporting, Earnings Management, , Auditing and Investigation, Auditing and Standards, Public Sector Accounting and Auditing, Taxation and Revenue Administration, Corporate Governance Issues, Corporate Social Responsibility, Sustainability and Environmental Reporting Issue, Information and Communication Technology Issues, Bankruptcy Prediction, Corporate Finance, Personal Finance, Merger and Acquisitions, Capital Structure, Working Capital Management, Enterprises Risk Management, Entrepreneurship, International Business Accounting and Finance, Banking Crises, Bank’s Profitability, Risk and Insurance Issue, Islamic Finance, Conventional and Islamic Banks and so forth. 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Finally, manuscript should be send to our email address elfarouk105@gmail.com and a copy to our website on journals.gujaf.com.ng http://www.gujaf.com.ng/ Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 vii PUBLICATION PROCEDURE After receiving a manuscript that is within the similarity index threshold, a confirmation email will be send together with a request to pay a review proceeding fee. At this point, the editorial board will take a decision on accepting, rejecting or making a resubmission of the manuscript based on the outcome of the double-blind peer review. Those authors whose manuscript were accepted for publication will be asked to pay a publication fee, after effecting all suggested corrections and changes made on the manuscript. All corrected papers returned within the specified time frame will be published in that issue. PAYMENT DETAILS Bank: FCMB Account Number: 7278465011 Account Name: Gusau Journal of Accounting and Finance FOR INQUIRY, CONTACT Dr. A.U. Farouk Department of Accounting and Finance, Federal University Gusau, Zamfara State. elfarouk105@gmail.com +2348069393824 FOR MORE INFORMATION, CONTACT The Editor-in-Chief on +2348067766435 The Associate Editor on +2348036057525 OR visit our website on www.gujaf.com.ng or journals.gujaf.com.ng http://www.gujaf.com.ng/ http://www.gujaf.com.ng/ Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 viii TABLE OF CONTENTS The Impact of Gender Diversity on Earnings Quality of Listed Financial Services Firms in Nigeria: Analysis of Two-Stage Least Squares Joseph Olorunfemi AKANDE, PhD ………………………………………………………..1-18 The Impact of Audit Quality on Firm’s Performance of Listed Consumer Goods Firms in Nigeria Fatima Shehu Giwa, Prof. Benjamin Kumai Gugong, Gloria Pam Dachomo…………...19-33 Women in Top Echelon Positions and their Effects on Carbon Emission Disclosure: Evidence from an Emerging Nation. Saheed Olanrewaju Issa, Abdulkadri Toyin Alabi, Abdulbaki Teniola Ubandawaki…....34-47 CEO Characteristics and Financial Performance of Listed DMBs in Nigeria Florence Bosede Ajagbonna, Benjamin Kumai Gugong, Augustine Ayuba, Idris Mohammed, Isuwa Dauda……………………………………………………………………………….48-69 Post Covid-19 Pandemic: Comparative Study in the Value Relevance of Accounting Information Between Listed Manufacturing Firms and Listed Service Firms in Nigeria Abbas, Abdulrahman Ngadi, Abubakar, Aliyu, Abdu, Abubakar……………………………….70-87 Environmental and Social Information Disclosure Quality and Financial Performance of Listed Manufacturing Companies in Nigeria.: Saka Tunde Abdulsalam, Ph.D………………...88-108 The Impact of Corporate Social Responsibility on Bank Performance in Nigeria Ibrahim Yinka Agbeyinka……………………………………………………………….109-123 The Impact of Firm Characteristics on Accruals and Real Earnings Management of Listed Manufacturing Firms in Nigeria: Muhammad, Aisha Chado………………………….124-142 The Impact of ESG Practices on the Risk Portfolio of Listed Oil and Gas Firms in Nigeria Using a Multilayered Criterion: Joseph Olorunfemi Akande………………………………...143-155 Effect of Selected Macroeconomic Variables on Stock Market Volatility in Nigeria Hauwa Bayero Tijjani, Prof Sheikh Ahmad Abdullahi, Dr Ibrahim Mohammed, Dr Isma’il Tijjani Idris……………………………………………………………………………156-171 Moderating Effect of Audit Quality on Value Relevance of Fair Value Measurements Hierarchy of Listed Financial Services Companies: Tesleem Olayinka Adeyemi……………….172-202 Effect of Audit Quality Attributes and IFRS Adoption on Financial Reporting Quality of Listed Manufacturing Firms in Nigeria: Muhammad, Aisha Chado………………………..203-221 Electronic Banking and Performance of Banking Sector in Nigeria Kayode David Kolawole………………………………………………………………222-234 Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 ix Do Audit Committee and Board Attributes Influence Environmental Disclosure: An Empirical Investigation of Listed Firms in Nigeria. Haruna Muhammed Musa………………………235-248 Impact of External Debts on Economic Growth in Nigeria Ibrahim Yinka Agbeyinka………………………………………………………………249-261 Effect of Compliance Cost and Tax Burden on Tax Compliance of Small and Medium-Scale Enterprises in Benue State, Nigeria Okpe Caleb John, Prof. Aliyu Nuraddeen Shehu, Prof. Bello A. Ahmad, Ahmed Aliyu Abdullahi PhD, Mohammed Musa Abdulkarim PhD…………………………………………….262-282 The Effect of Bank Sectoral Credit and Exchange Rate on Financial Performance of Listed Manufacturing Firms in Nigeria. Ibrahim Kabir Adedeji, Dr Ibrahim Muhammed, Prof. Muhammed Habibu Sabari Prof. Abiodun Popoola…………………………………………………………………283-297 The Effects of Interest rate and Money Supply on Systematic Risk Associated with Return in Nigerian Exchange Adedokun Rofiat, Prof. Sani Abdullahi, Dr. Ibrahim Mohammed, Prof. Ahmad Dogarawa……………………………………………………………………………….298-314 Effect of Firm Attributes on the Growth of Healthcare Companies Listed on The Nigerian Exchange Group Salisu Isyaku Dahiru, Adeyemi Tesleem, PhD, Suleiman Salami, PhD……………....315-331 Corporate Social Responsibility and Performance of Firms in Lagos State Nigeria Kayode David Kolawole………………………………………………………………. ...332-343 Does Taxation Affect Banks’ Profitability: Evidence from Nigeria Emmanuel Imuede Oyasor……………………………………………………………..344-356 Working Capital Management and Manufacturing Performance in Nigeria Adedeji Daniel Gbadebo………………………………………………………………...357-368 The Multidimensionality Foreign Direct Investment’s Impact on The Economy Emmanuel Imuede Oyasor……………………………………………………………..369-383 Private Capital Formation, Public Sector Capital Formation and Economic Growth in South Africa. Ahmed Oluwatobi Adekunle,…………………………………………………384-396 Macroeconomic Determinants and Stock Market Volatility amidst the Period of Economic Recession in Nigeria Hauwa Bayero Tijjani, Prof Sheikh Ahmad Abdullahi, Dr Ibrahim Mohammed Dr Isma’il Tijjani Idris……………………………………………………………………………. 397-413 Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 344 DOES TAXATION AFFECT BANKS’ PROFITABILITY: EVIDENCE FROM NIGERIA Emmanuel Imuede Oyasor Department of Accounting Science Walter Sisulu University, Mthatha, South Africa. emmanueloyasor247@gmail.com DOI: https://doi.org/10.57233/gujaf.v5i2.21 Abstract Taxation and tax policy of any economy has a major implication on the growth “and performance of businesses in every economy. fiscal policy instrument should not be rigid for the taxpayers. This is because a flexible and viable taxation system has the capacity to stimulate economic activities. The paper examines how taxation impact the profitability of commercial banks in Nigeria. To test the hypothesis, the paper applied the panel regression on published information from fifteen banks from 2011-2022. The findings reveal that the marginal tax rate, effective tax rate and the average tax rate have strong positive and significant effects on return on asset. The outcome offers corporations useful insights on tax planning strategies properly and show how their tax avoidance skills could be used without practicing tax evasion. Amongst others, the recommends that regulators should grant tax incentives and reforms to reduce the tax burden on companies. Moreso, governments should formulate unequivocal tax policies that would aid tax law and administration that would encourage business growth. Keyword: Commercial bank, return on asset, return on equity, tax rate, 1.0 Introduction Taxation and tax policy of any economy has a major implication on the growth and performance of businesses in every economy (Gallemore et al., 2017; Olanreaju & Olayiwola, 2019). Fiscal policy instrument should not be rigid for the taxpayers. This is because a flexible and viable taxation system has the capacity to stimulate economic activities, promote capital formation and investment and reduce unemployment. All these are germane for achieving long term economic growth (Olanreaju & Olayiwola, 2019). Taxation of corporate profits is an important component of a country’s fiscal policy. By imposing taxes, the state seeks to collect financial resources to the budget. Thus, the taxes represent a transfer of financial resources from the entities paying the tax to the disposal of the state (Otwani et al., 2017). Taxation policies are the rules and regulations that govern how the government collects revenue from individuals and businesses (Sobiech et al., 2021). Taxation policies can have various effects on the economy, such as influencing the allocation of resources, the distribution of income, the level of economic activity, and the stability of the financial system (Van Apeldoorn, 2018). Deposit money banks (DMBs) are financial institutions that accept deposits from customers, lend money to borrowers, and provide other services such as payment systems, foreign exchange, and wealth management (Mishkin & Eakins, 2018). DMBs are subject to taxation policies that affect their profitability, risk-taking behaviour, and contribution to the public sector. Taxation has different implications on the investment, financing and performance of a firm (Omesi & Appah, 2021). High tax burden impedes investment and productive capacity of a firm through restriction on financial resources availability (Adelegan, 2003; Fagbemi, Olaniyi & Ogundipe, 2019). Also, the financing of investments opportunity with debt has tax relief on interest payments while financing through equity results in taxation being paid from dividend; thus, creating shortage of financial resources for an organization (Gabriel & Gimenez, 2015; Nekasa et al., 2017). This process determines the investments and future growth prospects of an organization. Because corporate profits represent a corporation's income, they are one of the most important things to look mailto:emmanueloyasor247@gmail.com https://doi.org/10.57233/gujaf.v5i2.01 Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 345 at when investing. Increasing profits means either increased corporate spending, growth in retained earnings or increased dividend payments to shareholders (Doménech et al., 2023 & European Central Bank, 2022). The literature identifies some effects of higher bank taxes on bank operations and the economy. The effects of bank taxes on bank risk-taking are ambiguous: some studies suggest that taxes may reduce risk-taking (Belucci et al., 2023) while others present evidence for increased bank risk-taking (Devereux et al., 2019; Borsuk et al., 2023). Some evidence confirm that loan rates increase, and loan volumes decline (Buch et al., 2016; Célérier et al., 2017; Borsuk et al., 2023; Doménech et al., 2023). Higher bank taxes also penalize bank shareholders, and tend to induce a negative stock market response, leading to a loss of banks’ market value (Chronopoulos et al., 2019). Lower lending, in turn, induces a decrease in corporate investment (Sobiech et al., 2021) and suppresses banks’ financial market activities including interbank lending and market-making (Hryckiewicz et al., 2018; Célérier et al., 2020). Bank taxes may result in lower interest rates and higher fees for depositors (Banerji et al., 2018). In fact, the cost of bank taxes may be particularly likely to fall on households as their demand for bank services is less price-sensitive compared to other bank customers (Capelle-Blancard & Havrylchyk, 2017). These effects may be especially pronounced in concentrated markets, where banks have more ability to pass on higher costs to customers (Kogler, 2018). However, in cases when taxes are imposed specifically on bank liabilities excluding deposits, deposit rates may on the contrary increase (Buch et al., 2016). In Nigeria, the Central Bank of Nigeria has regulatory guidelines that affect the tax obligations of DMBs. Also, the tax laws governing the operations of DMBs include the Personal Income Tax Act (PITA), Companies Income Tax Act (CITA), and the Value Added Tax Act (VATA). The laws prescribe the tax rates, exemptions, deductions, and rules for the computation of taxable income (Agbonika & Agbonika, 2021). The profitability of the banks is a crucial indicator of their financial health, efficiency, and ability to generate returns for shareholders. Understanding the impact of taxation policies on the profitability of the DMBs is important for banking expansion and to provide adequate returns to investors (Hassan & Oyedele, 2022). Despite this, there is a noticeable inconsistency and gap in the existing body of knowledge. There is a lack of specific research that delves into the intricacies of how different taxation affect the financial performance of DMBs, particularly within the Nigerian context. The study investigates the impact of taxation on the profitability of banks in Nigeria. First, we determine the effect of marginal tax rate on profitability of banks in Nigeria. Second, we intend to Investigate the effect of effective tax rate on profitability of banks in Nigeria. Third, we intend to find the effect of average tax rate on profitability of Nigerian business organizations. The paper tests three hypotheses, each based on the published Nigerian data. H1: There is no significant impact of marginal tax rate on profitability of banks. H2: There is no significant impact of an effective tax rate on profitability of banks. H3: There is no significant impact of the average tax rate on profitability of bank. To test the hypothesis, the paper applied the panel regression on published information from fifteen banks from 2011-2022. The findings reveal that the marginal tax rate, effective tax rate and the average tax rate have strong positive and significant effects on return on asset. This Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 346 offers useful insights to corporate bodies as it will help them manage their tax planning strategies properly and show how their tax avoidance skills could be used without practicing tax evasion. Hence, amongst others, we recommend that governments should use the outcome to formulate unequivocal tax policies that would aid tax law and administration. The reminder of the paper follows - section two presents literature, section three offers methodology. Section four discloses the results and section five concludes. 2.0 Empirical Review Several studies have tried to identify the link between the overall level of taxes and profitability (King & Rebelo, 1990; Levine & Renelt, 1992; Mendoza et al., 1997; Agell et al., 2006). Romer (1986) finds that agriculture tends to be taxed implicitly. Where inputs to agriculture include commodities that are traded in the foreign sector and thus other taxes such as excise duty apply. Implicit taxes therefore means that the cost of production to farmers increases and raising these taxes would have adverse effects on agriculture. King and Rebelo (1990) introduced a endogenous growth model which addresses the relative distortedness of different taxes. They used different measures of marginal tax rates to explain growth but find no significant or robust correlation between tax rates and growth and conclude that the link is fragile. The conclude that taxes on income are more distortionary than taxes on consumption. Levine and Renelt (1992) fail to find any cross-country relationship between a diverse collection of fiscal policy indicator and growth. Barro and Sala-I-Martin (1992) provide a comprehensive survey on the role of fiscal policy in endogenous growth models. Kneller et al. (1999) argue that this allows them to separate the effects of policy variables on the transition from those on the steady state. Bleaney et al. (2001) find that this period averaging does not appear to isolate long-run effects fully. Besides, it is generally found that the initial level of income per capita is negatively related to the current growth rate. Mendoza et al. (1997) find that their tax variables become insignificant once they control for the initial level of GDP. Kneller et al. (1999) make a distinction between distortionary taxes, which they define as taxes on income and property, and the non-distortionary taxes, which include consumption taxes. They conclude that while the former reduce growth, the latter do not. They find that productive government expenditure is beneficial for growth while non- productive public expenditure is not. Folster and Henrekson (2001) find a negative relationship between total public expenditure as a share of GDP and growth. Agell et al. (2006) find an unstable and insignificant link between the expenditure ratio and growth. Some few studies analyzed the link between growth and tax structures rather than tax levels provide (Leed & Gordon, 2005; Gemell et al., 2006; Widmalm, 2001; Schwellnus & Arnold, 2008; Vartia, 2008; ). Widmalm (2001) finds that the proportion of tax revenues raised from taxing personal incomes is negatively correlated with growth. Vartia (2008), Schwellnus and Arnold (2008), reports on the negative effect of corporate taxes on the productivity of firms and industries across OECD countries. Lee and Gordon (2005) find a significant negative correlation between statutory corporate tax rates and growth for 70 countries during 1970- 1997. Arnold et al. (2011) investigated the effect of the tax structure on long-run GDP for 21 OECD countries over the years 1971- 004. They suggest a growth- friendliness ranking for tax instruments, which is led by property taxes, followed by consumption taxes. The personal income taxes were observed to be inferior, having the most negative effects on GDP per capita. Xing (2012) argued that the used Pooled Mean Group (PMG) estimator's assumptions might Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 347 not be valid. Challenging the validity of the homogeneity assumption, Xing (2012) first replicates the estimations by Johansson et al. (2008) using slightly different specifications and performing robustness tests and concludes that income taxes and consumption taxes are worse than property taxes. Hossain (1995) explores the income distributional impact of an alternative policy package, consisting of a basic rate of VAT with exemptions and excise taxes for certain commodity groups, in Bangladesh, and find that a revenue-neutral uniform VAT is regressive in its impact on the income of different households. Cullen and Gordon (2002) show that there are several possible routes through which taxes can affect the amount of entrepreneurial risk-taking. As suggested by Arnold et al. (2011), one possible solution is to focus on the growth effects of revenue neutral changes in tax structure, which avoids the complication that changes in total tax revenue are reacted in changes in public spending. Lanaspa et al. (2008) find that the price elasticity of demand for tobacco is low. Therefore, an increase in price from increases in taxes on tobacco products is unlikely to reduce demand by so much, while instead increasing government revenue. Several studies have been conducted by some scholars on the contribution of tax administration on economic growth. D’Archy (2011) analyzed the theoretical model of comparative treatment on tax compliance in several African countries. The result of the study revealed a considerable support for comparative treatment in tax compliance and found that to earn the right to collect tax, the state must fulfill its adjudicatory role by providing a judicial system that the citizens trust and in addition the state must be responsive to address the needs of the citizens through the delivery of services. Lee and Gordon (2004) show that tax rate are significantly negatively correlated with economic growth rate while other standard variables and other determinants of economic growth are put under control. They show that in fixed-effect regression increase in corporate tax rate led to lower future growth rate within countries. Yahaya (2009) revealed that corruption, ignorance of tax procedure and tax evasion are the major societal factors hindering effective taxation. The study also revealed that ineffective utilization of collected taxes, improper record keeping, non-enforcement of tax policies and inadequate facilities to monitor tax payment amongst others were expressed as the major administrative factors retarding effective and efficient taxation in Kwara State. Ebeke and Ehrhart (2010) found that tax revenue instability in Sub Saharan Africa is leading to public investment and government consumption instability which in turn generate lower public investment ration and therefore detrimental to the long run economic growth. They show that fluctuation in tax revenue in any nation can lead to fluctuation in economic growth and infrastructural provision for the citizen. Ogbonna and Ebimobowei (2012) show that tax reforms improve revenue generating machinery of government to undertake socially desirable expenditures that will transform to economic growth in real output and per capita basis. Adereti et al. (2011) revealed that a positive and significant correlation exists between VAT revenue and GDP. This shows that VAT is an essential component of government income generated. Unegbu and Irefin (2011) revealed that VAT allocations have a very significant impact on expenditure pattern. They find that the perception by the citizens across the administration areas of the state suggests that VAT has minimum impact level on the economic and human development of Adamawa State from 2001 to 2009. Although their study has shown the fact that VAT revenue is significant to economic growth, it also showed people’s perception about VAT and its enforcement is generally low in Nigeria. Ogbonna and Appah (2012) finds that petroleum revenue effects gross domestic product and per capita income of Nigeria Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 348 positively. Abdu-Rahomoh et al. (2013) adopted the use of multiple regressions to analyze the data on variables such as gross domestic product petroleum profit tax; inflation and exchange rate were all found to have significant effects on economic growth. This also agrees with Jubrin et al. (2012) that the abundance of petroleum in Nigeria is an opportunity for more revenue generated to the economy. This is done via petroleum profit tax if it is adequately administered. Boscá et al. (2019) examined the macroeconomic effects on banking in a small open economy under a currency union of three tax alternatives. The three tax choices produced comparable results on macroeconomic factors. In response to rising taxation, banks raised their markups and increased lending interest rates, which transferred some of the fiscal burden to individuals and companies. Despite raising government income, the tax policies resulted in longer-term GDP declines, higher loan interest rates, and lower credit volume, deposits, and bank capital. Adejumo and Sanyaolu (2020) analyzed corporate tax planning and the profitability of banks in Nigeria, using data from 2012-2018. They find that tax planning, measured had a significant negative effect on profitability. The capital adequacy ratio positively influenced profitability, while bank age and size had no significant effect. Sobiech et al. (2021) found that taxing banks’ gross profits increased bank leverage, reduced risk, and decreased credit supply. This impacted company’s financing as firms with banks subject to profit tax showed lower leverage and shifted to more costly bond financing. Greater tax exposure also negatively affected corporate investments, highlighting the importance of bank taxation in shaping corporate strategies. Omankhanlen et al. (2021) find a negative relationship with interest rates, and a positive relationship with broad money. Akeem et al. (2022) revealed that open market operations had no significant positive effect on profitability, while cash reserve ratios had a significant positive effect. They offer that monetary policies significantly influence profitability when combined. Adefunke and Usiomon (2022) found that company income tax had a positive and significant effect on profit after tax and return while change in shareholders’ funds had a negative yet significant effect. Adewole (2023) showed that company income tax and education tax had a negative significant impact on dividend per share, while profit after tax had a positive impact. A bidirectional causal relationship was found between dividend policy, company income tax, and education tax, while profit after tax showed a unidirectional relationship. Obubohebieri (2023) revealed that the cash reserve ratio and liquidity ratio had no significant effect on performance, while maximum lending rate and monetary policy rate had a significant effect. Habila et al. (2024) found that company income tax had a positive and significant effect on financial performance, while tertiary education tax and capital gains tax had a negative and significant effect. Value-added tax had a positive but insignificant effect. The study concluded that these taxes reduced the financial performance of the banks and recommended strategic tax planning and a review of fiscal policies to introduce tax incentives and reliefs. Theoretical framework The paper follows the economic deterrence theory, from Allingam and Sandmo (1972). The “theory is otherwise known as AS model of tax compliance. This theory is based on tax evasion compliance behaviour by taxpayers. The theory is of the assumption that taxpayer’s behaviour towards taxation is determined or influenced by tax audit, detection of evasion and the extent of the severity of penalties that is melted on tax evaders. In other words when severe penalties are melted on tax evaded there is the tendency that few people will evade tax. On the other hand, more people will evade tax if the penalties are relaxed thereby giving room to Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 349 noncompliance. (Andreoni et al., 1998), posited that the model relies upon a wide range of major assumptions that are generally unrealistic for determining taxpayer’s behaviour. Focusing on the use of coercion on compliance rather than the use of consensual method led to more criticism of the model. However, despite the criticism of the model, it is widely used in tax administration especially when enforcement strategies involving the use of penalties and tax audit is to be adopted as people become indifferent when it comes to taxation. There are some evidences to support the relevance of deterrence theory in addressing taxpayer’s noncompliance (Mckerchar & Evans 2009). Due to the fear of tax audit, the detection of evasion and the penalties that follows, it is seen as an effective strategy to induce taxpayer’s behaviour towards compliance. It can be therefore said that when a situation demands that coercive measures be adopted for tax compliance and penalties on defaulters these will make people to comply with the resultant effect of increase in tax revenue generation. 3.0 Model and Method The study investigates the impact of taxation on the profitability of banks in Nigeria. According to the theoretical framework, we estimate the model below: ROAi,t = β0 + β1MGTRi,t + β2EFTRi,t + β3AVTRi,t + µi,t (1) ROA is return on assets and indicates a company's profitability in relation to its total assets. MGTR is marginal tax rate, which shows the amount of tax paid on an additional dollar of income. The marginal tax rate for an individual will increase as income rises. This method of taxation aims to fairly tax individuals based upon their earnings, with low-income earners being taxed at a lower rate than higher income earners. EFTR is an effective tax rate, which is the average rate at which an individual or corporation is taxed. The effective tax rate for individuals is the average rate at which their earned income is taxed, and the effective tax rate for corporation is the average rate at which its pre-tax profit is taxed. An individual effective tax rate is calculated by dividing total tax expenses by his taxable income. The effective tax rate is computed by dividing total tax expenses by the firm’s earnings before taxes. AVTR is average tax rate, measured by the total amount of taxes paid by an individual or business divided by taxable income. This rate vary based on income received during the taxable period. To demonstrate the robustness of the estimation, we estimate equation (2). ROEi,t = β0 + β1MGTRi,t + β2EFTRi,t + β3AVTRi,t + µi,t (2) Where ROE is return on equity and represents the measure of a company's net income divided by its shareholders' equity. ROE is a gauge of a corporation's profitability and how efficiently it generates those profits. In both equation (1) and (2), β0 is the model’s constant or intercept, β1 - β3 are the coefficient of explanatory variables, and µ is the error term. To estimate (1) and (2), the paper used published information from 2011-2022 of fifteen banks on Nigerian Exchange Group (NXG). All the banks used have audited financial statements for the period under consideration. We adopted a panel regression method. The method was adopted because its computational procedure is simple and the estimates obtained from this procedure have optimal properties of linearity, unbiasedness, minimum variance and mean square error estimation. Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 350 4.0 Results Table 1 presents the pre-estimations, showing both descriptive statistics (Panel A) and correlation (Panel B). Table 1 above shows the mean (average) for each variable, their maximum values, minimum values, standard deviation. The outcome positive average return on asset of 0.0138, while the mean of return on equity is 0.0766, this means that the selected banks have a positive return on asset and equity. The table also reveals that a positive average value of 116.3 for marginal tax rate, 0.1550 for effective tax rate and 0.1575 for average tax rate for the selected banks used in the study. These values mean that within the period under review, quoted banks meet up 76% on the average within the period under review. The maximum value of marginal tax rate is -57.637 and its minimum value is 1177.4, maximum value for effective tax rate is -0.2334 and its minimum value is 0.7195; that of average tax rate is -0.2334, the minimum is 0.7195. The large differences between the maximum and minimum value shows that the banks data used for the study are homogeneous. The correlation matrix is to check for multicollinearity and to explore the association between each explanatory variable and the dependent variable. Return on asset (ROA) has a positive association with return on equity (ROE). This justifies the use of both measures as proxy for firm profitability. The table shows that return on asset has a negatively associated with marginal tax rate and average tax rate and positively associated with effective tax rate. Return on equity has a strong positive association with effective tax rate and average tax rate but weak association with marginal tax rate. Marginal tax rate is strongly associated with effective tax rate and average tax rate. Effective tax rate is positively associated with average tax rate. In checking for multicollinearity, the study observed that no two explanatory variables were perfectly correlated. The regression analysis result shows an R-sq (adj) value off 65%. This indicates that about 65% of the variation in firm performance can be attributable to the firm corporate tax rate quoted firms. Thus, 65% of the outcome of the dependent variable can be explained jointly by all the independent variables. The F- statistics shows a value of 11.389 and F-start probability value of 0.0275, this shows the appropriateness of the model used for the analysis while the probability value means that model is statistically significant and valid in explaining the outcome of the dependent variable. The Durbin Watson statistic which tests from the presence of autocorrelation has a value of 1.7898 which is approximated as 2. This reveals the absence of autocorrelation in the model used for the analysis. The regression analysis result shows an R-sq (adj) value of 60%. This indicates that about 60% of the variation in firm performance can be attributable to the firm corporate tax rate quoted firms in Nigeria. Thus, 60% of the outcome of the dependent variable can be explained jointly by all the independent variables. The F-statistics shows a value of 10.398 and F-start probability value of 0.0939, this shows the appropriateness of the model used for the analysis while the probability value means that model is statistically significant and valid in explaining the outcome of the dependent variable. The Durbin Watson statistic which tests for the presence of autocorrelation has a value of 1.7409 which is approximated as 2. This reveals the absence of autocorrelation in the model used for the analysis. The finding is consistent with past studies including Adefunke and Usiomon (2022) and Adewole (2023), but inconsistent with some others, including Adejumo and Sanyaolu (2020), Omankhanlen et al. (2021), Sobiech et al. (2021) and Habila et al. (2024). Adejumo and Sanyaolu (2020) show that tax planning, measured had a significant negative effect on profitability. Sobiech et al. (2021) found that taxing banks’ gross profits increased bank Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 351 leverage, reduced risk, and decreased credit supply. Greater tax exposure also negatively affected corporate investments, highlighting the importance of bank taxation in shaping corporate strategies. Omankhanlen et al. (2021) find a negative relationship with interest rates, and a positive relationship with broad money. Habila et al. (2024) found that company income tax had a positive and significant effect on financial performance, while tertiary education tax and capital gains tax had a negative and significant effect. Adefunke and Usiomon (2022) found that company income tax had a positive and significant effect on profit after tax and return. Adewole (2023) showed that profit after tax had a positive impact on dividend per share. He shows a unidirectional causal relationship between dividend policy and profit after tax”. Table 1: Pre-Estimation Information Variables ROA ROE MGTR EFTR AVTR Panel A: Descriptive statistics Mean 0.014 0.077 116.300 0.155 0.158 Max 0.079 1.180 1177.400 0.720 0.720 Min -0.021 -3.943 -57.637 -0.233 -0.233 St. Dev 0.018 0.861 234.200 0.185 0.186 Panel B: Correlation ROA 1 ROE 0.404 1 MGTR -0.223 0.096 1 EFTR 0.413 0.117 0.665 1 AVTR -0.398 0.125 0.663 0.198 1 Source: Author (2024) Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 352 Table 2: Result of Estimated Models Variables Coeff Estimates S.E. t p-value Panel A: Return on assets (ROA) model: Model: ROAi,t = β0 + β1MGTRi,t + β2EFTRi,t + β3AVTRi,t + µi,t Const. Β0 6.3691 0.7247 8.7891 0.0000 MGTR β1 10.6792 5.5592 1.9210 0.0750 EFTR Β2 14.0658 4.5199 3.1120 0.0062 AVTR β3 10.0205 5.2988 1.8911 0.0879 Statistics Adj R2 64.8255 F-stat 11.3980 Prob. (F-stat) 0.0275 DW 1.7898 Panel B: Return on equity (ROE) model: Model: ROEi,t = β0 + β1MGTRi,t + β2EFTRi,t + β3AVTRi,t + µi,t Const Β0 8.2368 0.6834 12.0533 0.0000 MGTR β1 12.1060 6.6714 1.8146 0.0924 EFTR Β2 13.9010 7.0847 1.9621 0.0785 AVTR β3 12.4020 2.3201 5.3455 0.0033 Statistics R.Sq (Adj) 60.0166 F-stat 10.1360 Prob. (F-stat) 0.0939 DW 1.7409 Source: Author (2024) 5.0 Conclusions The importance of the banking sector in the economic growth and development of “any nation cannot be overemphasized. Banks facilitate the exchange of goods and services, creating a network of payment services, mobilizing and pooling the savings of some investors. They provide specialized financial services, which reduce the cost of obtaining information about both savings and borrowing opportunities. These financial services help to make the overall economy more efficient. The study investigates the impact of taxation on the profitability of banks in Nigeria. The increased incidence of reduction in profitability due to heavy a heavy tax burden in Nigerian banks generated the current literature on quality of banks profitability. Though there have been reforms in the banking industry to ensure effective financial institutions, the banks’ shareholders’ funds are affected by the reduction in profitability. The findings reveal that three explanatory variables have a positive significant effect on both return on assets and return on equity. The marginal tax rate has a strong positive effect on profitability, which was significant at the 10% level. Moreso, the more the effective tax rate increases the better the profitability of quoted banks. The effect of corporate tax, the findings will assist in establishing financial policy guidelines that will mitigate financial risk in their various firms. Similarly, given the outcome of this study, the model used in this study could be used as a basis for formulating corporate tax policy in Nigeria that will indicate its effect on the firm’s profitability. The findings should be of policy relevance to tax authority in issuing out guidelines for taxation which would boost the economic activities in the market and economy in general. According to the findings, we offer some recommendations. First, the Gusau Journal of Accounting and Finance, Vol. 5, Issue 2, October, 2024 353 government should engage in a complete re-organization of the tax administrative machineries in order reduce tolerable problems of tax evasion and avoidance. Second, the government should endeavour to provide social amenities to all nooks and crannies of the country as this will boost the level of tax compliance in Nigeria. 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