EFFECT OF TAX INCENTIVES ON FOREIGN DIRECT INVESTMENT IN KENYA

Nthiwa Alfred Mutisya, Willy Muturi, Isaac Kemboi

Abstract


This study sought to investigate the effect of tax incentives that includes investment deduction allowances, industrial building allowances and export promotion incentives on foreign direct investment in Kenya. This study adopted an explanatory research design based on a time series period of 32 years starting from 1985 to 2016. Secondary time series data was used in this study. Since the data was quantitative in nature and it was analyzed by use of descriptive and inferential statistics. Descriptive statistics included frequency distributions, mean, standard deviation and percentages. Inferential statistics included correlation analysis and multivariate regression analysis. The results showed that investment deduction allowance had a positive and significant effect on foreign direct investments in Kenya (β=0.017I, p-value=0.029). In addition, industrial building allowance had a positive and significant effect on foreign direct investments in Kenya (β=0.0086441, p-value=0.010). Further, export promotion incentive had a positive and significant effect on foreign direct investments in Kenya (β=0.0093138, p-value=0.000). The study concludes that export promotion incentive had the most significant effect on foreign direct investment followed by industrial building allowance and investment deduction allowance. The study recommends that there is need for the government to enlighten the general public of the capital allowance given to FDIs and those extended to local firms. In addition, an incentive should be a short term strategy designed for specific firms to attract FDIs while long term strategy should be to improve infrastructure, security and minimize strict policies and regulations. Key Words: Tax, Tax Incentives Foreign Direct Investment, Allowances

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