The relationship between tax incentives and foreign direct investment in Kenya

Abstract

The main objective of this study was to determine the relationship between tax incentives and foreign direct investment in Kenya. In order to achieve this objective, the entire set of data for investment incentives, trade related incentives, import duty exemptions and foreign direct investments inflows for ten most recent years was collected Basic analysis begun with the determination of various measures of central tendency; namely mean, minimum and maximum. Standard deviation was used as measures of dispersion (variation). Calculations were carried out for correlation, regression and significance tests. In line with the objectives data for tax incentives and foreign direct inflows was obtained. Three measures of performance were used in arriving at the conclusion; they were loss of revenue due to investment incentives, loss of revenue due to trade related incentives, import duty exemptions and net inflows of foreign direct investment. The data for ten most recent years was computed and analyzed. The correlation and regression analysis was performed to establish the relationship between the dependent and independent variables. The results of all the measures of performance showed no significance difference when correlated with the foreign direct investment. Both investment incentives, trade related incentives and import duty exemptions showed a significance level of above 0.05. From the above results, the research concludes that there was no significance improvement in foreign direct investment as a result of implementing tax incentives in Kenya.