The Impact of Tax Incentives on Foreign Direct Investments in Kenya
Abstract
The motivation behind this project was to demonstrate the substantial impact of tax
incentives on FDI inflows in Kenya. Specifically, the paper sought to lay out the
impact of tax inducements (incentives) as the predictor variable together with interest
rate, inflation rate, and economic growth as control variables on the FDI inflows as
the outcome variable. Tax incentives were estimated using normal algorithm of yearly
tax incentives given by the government. The interest rate was estimated by the CBK
annual lending rate. Inflation rate was estimated by the annual inflation rate.
Economic growth was estimated by yearly GDP. The FDI was estimated by yearly net
inflows in Kenya. Utilizing the correlational research design, this paper gathered
secondary data from different government and inter-governmental organizations
official sources for 10 years (2012 – 2021) on annual basis. The paper adopted
descriptive statistics (mean, median, and standard deviation) to describe the center and
spread of the data and pattern plot (trend plot) examination to depict the presentation
of the data across the investigation period. The study then conducted diagnostics
analyses to ensure linear regression assumptions were met. Thereafter, the study
conducted inferential statistics to illustrate the significant impact of tax incentives on
FDI inflows in Kenya. With the aid of SPSS software version 23.0, the regression
analysis provided R-Square of .588 and F-statistics of .269. The discoveries
uncovered that though tax incentives predict nearly 59% of changes in FDI annual
inflows, the F-Statistics indicate that model did not explain the substantial impact of
tax incentives on FDI inflows in Kenya. This was also evident in the regression
coefficients output where tax incentives, interest rate, inflation rate, and economic
growth recorded significant values greater than .05. The study, therefore, concluded
that there is no significant impact of tax incentives on FDI inflows in Kenya. The
study recommends a need to review existing tax policies and laws of FDI and align
them to the long-term economic stability of the country. At the same, there is a need
for policymakers to ensure that tax incentives do not turn out to be costlier for the
government. The limitation of this study is that it approached tax incentives in totality.
Further research should attempt to establish impact of individual tax incentives on
FDI inflows in Kenya.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1411]
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