Tax Optimization and Firm Financial Performance of Consumer Goods in Nigeria

This study investigates the impact of tax optimization on firm performance of consumer goods in Nigeria from 2012 to 2023. The issue arises as firms often accuse tax authorities of excessive taxation that reduces profitability, while government complains of low tax revenue, suggesting possible aggressive tax practices. An ex-post-facto research design was adopted, using data extracted from the annual reports of 17 firms. Descriptive and inferential statistics were applied, and after conducting diagnostic tests, a Fixed Effect Robust Regression model was employed for analysis. The findings show that Book-Tax Difference (BTD), has a significant negative effect on ROA, suggesting that discrepancies between accounting income and taxable income harm performance, possibly due to increased scrutiny and legitimacy concerns. In contrast, Non-Debt Tax Shields (NDTS) such as depreciation have a significant positive effect on ROA, showing that legitimate tax-saving mechanisms improve firm profitability. The study recommends that tax authorities investigate corporate tax returns to ascertain the true position of firms’ tax compliance and impose stricter measures, including fines and legal actions, to discourage aggressive practices. Firms are advised to reevaluate their tax strategies and rely more on NDTS, since these provide non-cash tax savings that can serve as internal financing and boost profitability. By striking this balance, both firms and government can enhance sustainability and revenue generation.