Firm-level Determinants of Deferred Taxation in Manufacturing Sector of Sub-Saharan Africa
Ibrahim Luka Tumba *
Taxation Department, College of Private Sector Accounting, ANAN University, Kwall 930113, Plateau State, Nigeria.
Ovbe Simon Akpadaka
Financial Management Department, College of Private Sector Accounting, ANAN University, Kwall 930113, Plateau State, Nigeria.
Dagwom Yohanna Dang
Public Sector Accounting Department, College of Public Sector Accounting, ANAN University, Kwall 930113, Plateau State, Nigeria.
*Author to whom correspondence should be addressed.
Abstract
The importance of investigating deferred taxation in Sub-Saharan Africa (SSA) lies in the region’s rapid economic transition, combined with weak institutional enforcement and highly heterogeneous regulatory frameworks. Manufacturing firms are central to industrial development, and their financial statements often feature deferred tax components that can mask or reveal important information about future tax obligations and asset recoverability.
This study investigates the determinants of deferred taxation among Sub-Saharan Africa (SSA)-listed manufacturing firms, analysing deferred tax assets (DT1), liabilities (DT2), and net differences (DT3). The research covers an eleven-year period (2012–2022). Secondary data were extracted from audited financial statements of listed manufacturing firms, sourced from AfricanFinancials, Proshare, MachameRatios DataPC, and official stock exchange websites. The final sample includes 186 manufacturing firms from 14 SSA countries, yielding 1,800 firm-year observations. The study employs Tobit regression to address data censoring and Ordinary Least Squares (OLS) for robustness checks. Key independent variables include firm size, leverage, board characteristics, asset tangibility, and profitability. The results reveal that firm size, leverage, and asset tangibility significantly shape deferred tax outcomes. Larger firms accumulate more deferred tax assets (DT1: 0.257*) but exhibit higher net liabilities (DT3: -0.913*), reflecting scale-driven tax strategies. Leverage consistently amplifies deferred tax positions (DT1: 0.017; DT2: 0.046), aligning with temporary book-tax differences from debt structures. Asset tangibility increases liabilities (DT2: 0.157*) while reducing net deferred taxes (DT3: -0.127*), underscoring depreciation-driven tax exposures. Profitability reduces assets (DT1: -0.070*) but elevates liabilities (DT2: 0.124), signalling strategic deferral practices. Governance variables, such as board independence, show limited influence except on net positions (DT3: -0.079*). Theoretical insights link findings to Agency Theory (governance oversight), Signalling Theory (fiscal narratives), and Positive Accounting Theory (efficiency-driven strategies). Diagnostic tests confirm robustness. The study advocates for enhanced tax transparency mandates, standardised regional reporting frameworks, and proactive firm-level tax compliance units. Policymakers are urged to implement anti-abuse rules targeting aggressive deferral, particularly in leveraged firms. By bridging empirical and theoretical insights, this study contributes to understanding deferred taxation in emerging markets, offering actionable pathways for sustainable fiscal governance in SSA. This study identifies firm size, leverage, asset tangibility, and profitability as pivotal determinants of deferred taxation among Sub-Saharan Africa (SSA)-listed manufacturing firms, with governance mechanisms exerting context-dependent influence.
Keywords: Deferred Taxation, manufacturing firms, tobit regression, Sub-Saharan Africa (SSA), Deferred tax assets (DTAs)