Abstract:
This study investigated the effect of tax incentives on the performance of manufacturing
firms in Nairobi County, Kenya, addressing the critical challenge of declining
manufacturing sector contribution to GDP, which has stagnated at 8% over the past six
years despite various tax incentive implementations. The study examined three specific
objectives: to determine the effect of investment allowances, excise duty incentives,
and customs incentives on manufacturing firms' performance. Anchored in Optimal
Tax Theory, Political System Theory, and Resource-Based View Theory, the study
employed an explanatory research design using both primary and secondary data. From
a target population of 150 large manufacturing firms in Nairobi County, a sample size
of 109 firms was selected using Yamane's formula, with data collected through
structured questionnaires administered to general managers. The study utilized
descriptive statistics and multiple regression analysis to test hypotheses, with results
indicating that investment allowances (β = 0.280, p < 0.05), excise duty incentives (β =
0.314, p < 0.05), and customs incentives (β = 0.101, p < 0.05) all have positive and
significant relationships with manufacturing firms' performance. This study contributes
to existing literature by establishing empirical evidence of the relationship between
specific tax incentives and manufacturing firm performance in Kenya, leading to
recommendations for policymakers to enhance and streamline these incentives while
ensuring their accessibility. Future research should explore the long-term sustainability
of these tax incentives and their comparative effectiveness across different industrial
sectors.
