The relationship between tax incentives and foreign direct investment inflows of listed Multinational Corporations in Kenya

Abstract

The objective of this study was to determine the relationship between tax incentives and foreign direct investments inflows of multinational corporations in Kenya. The rationale behind granting of tax incentives is to exploit investments opportunities by attracting FDI inflows, where tax system is seen as an obstacle. Empirically, the same has been proved in developed countries although it’s still at its formative stage. As such, this study focused on the impact of tax incentives towards attracting FDI inflows of listed multinational corporations in Kenya. The study collected secondary data. A time series data covering period of twenty years (1995-2015) was collected. The secondary data was collected from financial statements of listed MNCs, KNBS and KRA reports and previous studies both published and unpublished. The study further adopted a regression model to establish the relationship between tax incentives and foreign direct investments inflows of multinational corporations in Kenya. The study results indicated that there is a positive relationship between Wear and tear allowances and FDI inflows. This is an indication that the period of study (1995-2015) FDI inflows of multinational corporations in Kenya was a result of attraction from wear and tear allowances; a correlation coefficient of 0.5465 confirmed this relationship. However, investment deductions and industrial building allowances had no any significant relationship on FDI inflows. Even though the research findings prove that Wear and tear allowances have an impact on FDI inflows of multinational corporations in Kenya, analysis of percentage change in FDI inflows between years 1995 – 2015 contradict the results.