Effect of tax planning strategies on the perfomance of manufacturing firms in Nairobi City Kenya

Abstract

Better performance has been the objective of all commercial manufacturing firms across the globe. However, these are not regularly realized due to high costs on taxes including multiple and double taxation which result to poor performance of manufacturing firms, mostly in developing economies. In order to manage the effects of taxes on the profitability of firms and to improve their performance, various tax planning strategies are engaged by the firms so as to reduce the impact of high tax burden. It is in this regard that this study aimed at determining the effect of tax planning strategies on the performance of manufacturing firms in Nairobi City Kenya. The study was guided by the following specific objectives; to determine the effect of Income shifting, expense deduction, Capital Intensity and firm restructuring on the performance of manufacturing firms in Nairobi city, Kenya. The study was anchored on the following theories; The Hoffman’s tax planning theory, trade off theory, stakeholder theory and benefit theory of taxation. The study adopted explanatory research design. The target population of the study was 469, registered manufacturing firms in Nairobi city Kenya. A sample of 216 manufacturing firms using stratified random sampling was employed. Quantitative; primary data was collected using structured questionnaires. Reliability of the data collection instrument was tested using Cronbach Alpha test. Data was analyzed using descriptive statistics and inferential statistics methods and the hypothesis were tested at 0.05 significant level. Multivariate correlation, and multiple regression analysis tests were also applied in data analysis. The regression results showed that income shifting(𝛽1=0.134,p=<0.05),Capital intensity((𝛽3=0.377, p<0.05),Firm restructuring (𝛽3=0.842, p<0.05) had statistically positive significant effect on on the performance of the Manufacturing firms while expense deduction(𝛽2=-0.014, p>0.05) had no statistical significant effect on the performance of the manufacturing firms in Nairobi city ,Kenya.The study findings, concluded that income shifting, capital intensity and firm restructuring tax planning strategies positively and significantly effects the performance of manufacturing firms, further the findings revealed that expense deductions had a negative effect on the performance of manufacturing firms. The study findings recommend that manufacturing firms prioritise on firm restructuring as a tax planning approach to improve their performance, tax practicing experts should advise their clients to embrace income shifting, capital intensity and firm restructuring as strategies to improve their firm performance, and also research to be done using other variables so as to establish which other factors affects the performance of the manufacturing firms in respect to tax planni