Tax Planning Mechanisms and Financial Sustainability: A Longitudinal Investigation of Listed Deposit Money Banks in Nigeria

Abstract

This study examined the effect of tax planning mechanisms on the financial sustainability of selected deposit money banks in Nigeria. Specifically, it assessed the effects of effective tax rate (ETR), thin capitalisation (TCAP), and capital intensity (CAPINT) on return on assets (ROA). The study adopted an ex-post facto research design, with data extracted from the audited annual financial statements of three listed deposit money banks for the period 2005 to 2022, generating 54 firm-year observations. The study employed a linear regression model estimated using Ordinary Least Squares (OLS). Findings revealed that the effective tax rate has a positive and statistically significant effect on the return on assets of listed deposit money banks in Nigeria. Thin capitalisation also had a positive and statistically significant effect on return on assets. Capital intensity, however, had a negative and statistically insignificant effect on return on assets. It was concluded that tax planning strategies, particularly effective tax rate management and thin capitalisation, significantly influence the financial sustainability of deposit money banks in Nigeria. The study recommends that banks sustain effective tax planning strategies that promote growth without contravening existing tax legislation, invest in revenue-generating rather than non-productive assets, and engage qualified tax consultants to optimise their tax positions within the bounds of Nigerian tax law