Corporate Tax Compliance on the Financial Performance of Manufacturing Companies in Kenya

Abstract

Corporate tax compliance is a critical aspect of financial management in the manufacturing sector, influencing business sustainability, profitability, and overall financial performance. This study examines the relationship between corporate tax compliance and financial performance, exploring key factors such as compliance costs, enforcement mechanisms, tax knowledge, and regulatory frameworks. While tax compliance ensures adherence to legal requirements and fosters positive relationships with regulatory bodies, it also presents financial challenges, including high compliance costs and potential cash flow constraints. The study highlights how firms that adopt strategic tax management practices, leverage digital tax systems, and invest in tax education can mitigate compliance challenges and enhance financial stability. Findings indicate that although enforcement mechanisms drive compliance, an overly punitive approach can hinder financial performance, especially for firms facing economic hardships. The study recommends a balanced approach that promotes voluntary compliance through incentives, reduced tax burdens, and improved collaboration between businesses and regulatory bodies. Additionally, firms should integrate technology-driven tax management systems and strengthen governance structures to enhance transparency and accountability in tax reporting. By providing insights into the intricate relationship between tax compliance and financial performance, this study contributes to the broader discourse on corporate tax policies and their implications for business growth.