Effect of Value Added Tax Incentives on Financial Performance of Export Processing Zone Agro-Processing Firms in Nairobi County Kenya

Abstract

Many governments employ trade laws and initiatives to increase export trade on a global scale. As a result, numerous trade incentives were introduced. Thus, one of the often-employed strategies to improve the financial performance of EPZ companies worldwide is reportedly the use of tax incentives. The objective of the study was to evaluate the effect of Value Added Tax incentives on the financial performance of EPZ agro-processing firms in Nairobi County Kenya. The study was guided by the Cluster Approach Theory. An explanatory research design was used in this study. This study's target is 203 respondents and a sample size of 134 EPZ agro-processing enterprises in Nairobi, with an 85% response rate. To achieve the goals of the study, standardized questionnaires with closed-ended questions were used for primary data collecting. The data was analyzed using descriptive, inferential statistics, and multiple linear regression analysis. The study found there is a positive and statistically significant effect of VAT incentives on financial performance, β= 0.204(p=0.049<0.05). The study recommends that the policymakers and the KRA should explore improving and increasing current incentives like VAT exemptions. Future studies may be conducted on non-EPZ firms using other factors such as export promotion incentives.