Tax Reforms And Foreign Direct Investments In Kenya

Abstract

This study sought to establish the relationship between tax reforms and foreign direct investment in Kenya. Descriptive research design was applied in the study. The primary and secondary data was utilized. Primary data was collected via structured questionnaire while data on foreign direct investment was collected from Ministry of Industrialization website. Secondary data covered the period between 2014 and 2018. The study used the both descriptive statistics and inferential statistics. Finally analyzed data was depicted descriptively through graphs, tables, mean and standard deviation. Inferential statistics was presented by multiple regressions. Statistical Package for Social Science (SPSS) was used for data analysis. Also, Pearson regression was used for showing the relationship between variables. The findings revealed that R-Square was 0.819. This means that 81.9% of the variation in the model used to explain FDI was as a results of the independent variables ITMS, payment of taxes through mobile money, tax mechanisms and electronic cargo. This also suggests that 18.1% of the variation in FDI is explained by other factors not captured in the study and due to error terms. Further, the findings show that the model level of significance is 0.000 which is less than the p value 0.05. Thus, the model is statistically significant in predicting how ITMS, payment of taxes through mobile money, tax mechanisms and electronic cargo affect FDI in Kenya. The study through regression analysis concluded that that integrated tax management system (ITMS), payments of taxes via mobile money, electronic cargo tracking system (ECTS) and tax enforcement mechanisms had an effect on FDI had a positive impact on the FDI in Kenya. However, it was also noted that all the variables influenced FDI with different magnitudes with electronic cargo having the highest impact on FDI and ITMS having the least influence on ITMS. Foreign direct Investment is critical in the growth of any country’s economy. The study therefore recommends that the government should be keen in monitoring all factors that influence FDI. This is because foreign investor response is critically shaped by the tax provisions faced by the foreign investor in his home country, and by the effects of tax reform on pre-tax asset return. Thus, this informs the need for dynamism in Kenya tax system in order to fit into the changing international economies.