Foreign Investment and Tax Revenue in Sub-Sahara African Countries

The influence of foreign investment on tax revenue has been widely examined in extant literature, albeit with mixed findings across developed and developing economies. While some studies highlight a positive correlation, others underscore negative or context-specific impacts, reflecting the complex dynamics at play. This study examined the effect Foreign Investment and Tax Revenue in Sub-Sahara African Countries. Secondary was used for the analysis. The data sample consists of 22 years from 2002 to 2023, including 726 panel observations and 33 cross-sections. The study employed Pooled Ordinary least Square Regression with Panels Corrected Standard Errors (PCSEs). The findings reveal that foreign direct investment and portfolio investment exhibit a statistically significant negative impact on tax revenue, which can be explained by the challenges of tax avoidance, profit repatriation by foreign companies, and weak institutional frameworks. Interestingly, trade openness and GDP growth positively drive tax revenue while governance quality showed only marginal significance, emphasizing the need for comprehensive institutional reforms. These results highlight the dual nature of foreign investment as both a catalyst for economic growth and a potential challenge to effective tax revenue mobilization in the region.