Balancing Tax Burden and Financial Stability: Evidence from the Nigerian Oil and Gas Sector

This study investigates the impact of tax burden on the financial stability of Nigerian oil and gas firms, a sector critical to national revenue and economic development. Despite its importance, the sector faces persistent challenges from complex tax regimes, frequent regulatory reforms, and volatile global oil prices. Using panel data from all listed oil and gas firms on the Nigerian Exchange Group between 2012 and 2024, this research employs an ex-post facto design and fixed effects regression to examine how effective tax rate (ETR) and cash effective tax rate (CETR) influence financial stability, proxied by the interest coverage ratio (ICR), while controlling for firm age. Descriptive statistics reveal a moderate average tax burden (ETR: 0.2850; CETR: 0.2527) and an average ICR of 4.12, indicating reasonable debt-servicing capacity. Correlation analysis shows that both ETR and CETR are negatively associated with ICR. Regression results confirm that higher ETR and CETR significantly reduce ICR (ETR coefficient = -4.32, p = 0.008; CETR coefficient = -3.11, p = 0.012), while firm age positively affects financial stability (coefficient = 0.045, p = 0.015). Diagnostic tests affirm the robustness of the model. These findings highlight that excessive tax burdens undermine the ability of oil and gas firms to service debt, threatening sectoral stability. The study recommends that policymakers moderate tax rates and enhance targeted incentives to support financial resilience, while firms should prioritize effective tax planning. This research contributes sector-specific empirical evidence, informing balanced tax policy and sustainable growth in Nigeria's oil and gas industry.