THE EFFECTS OF TAX INCENTIVES ON ECONOMIC GROWTH OF MANUFACTURING SECTOR IN KENYA

GAKAYA MAINA,

PhD student,

Kenyatta University, Kenya

AMBROSE JAGONGO, PhD

Senior Lecturer

Kenyatta University, Kenya

CITATION: Maina, G. Jagongo, A. (2016). The Effects Of Tax Incentives On Economic Growth Of Manufacturing Sector In Kenya. International Journal of Economics and Finance. Vol 5, (1), 97-116.

ABSTRACT:

Taxation is the key source of revenue that the government of Kenya uses to provide public goods and services to its citizenry. Over the last decade, though revenue collections have increased, the revenues collected have not been sufficient to fund the budget proposals resulting into budget deficits. Raising adequate tax revenues remains a key objective of Kenya’s tax system. It is in this light that the researcher aims to fill the existing gap by carrying out a research on the effect of tax incentives in enhancing the growth of manufacturing companies in Kenya. The study employed a descriptive design. The researcher targets the entire manufacturing sector in Kenya. A sample of 223 respondents were selected from within each group in proportions that each group bear to the population as a whole will be taken using stratified random sample. The study used both primary and secondary data. Primary data was collected using questionnaires. The researcher employed secondary data from such sources like Kenya National Bureau of Statistics, Company registry, company website, Public libraries and national budget and other government records. The data collected using questionnaires were edited for completeness and consistency. The data was then analyzed using descriptive statistics. The findings will be presented using tables and charts. Data analysis was done using statistical packages for social sciences (SPSS vr, 21). .Further inferential statistics using linear regression models was used. The models were used to determine the relative effect of tax incentives on the growth of manufacturing industry Tables were used to summarize responses for further analysis and facilitate comparison .The study concluded that it is important for the government and policy makers to put in place tax reforms that ensure that its tax system achieve the main three objectives of a good tax system which include raising tax revenue for funding government operations without excessive government borrowing, ensuring equitable distribution of income in a nation and encouraging or discouraging specific activities. There is also need for the Government and KRA to put in place proper system to capture accurate data for purposes of monitoring and proper decision making as far as tax incentives or exemptions is concerned. In particular there is no adequate data on the EPZ enterprises. Both KRA and the EPZ authority do not capture adequate or complete financial data on these businesses and therefore it is difficult to review the performance of these businesses.

Keywords: Economic growth, Tax incentives, Cost effectiveness, direct economic benefit, productivity of investments, Return optimization

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