Effect of tax incentives on financial performance of construction and allied firms listed on Nairobi securities exchange
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Date
01-11-20
Authors
Muruny, Haron Ksang
Journal Title
Journal ISSN
Volume Title
Publisher
KESRA/JKUAT - Unpublished research project
Abstract
In the recent past, construction sector was ranked among the best performers in the country, buoyed by the increasing demand in housing for the expanding middle class. However, increasing economic pressures and the overall instability of both micro and macroeconomic environment, has resulted in a mixed trend within the Kenyan construction industry. Increasing prices of industrial inputs used in the allied industrial construction sub-sector has had far-reaching consequences across the whole construction sector. Different interventions have been implemented to stabilize the sector, some of which include diverse forms of incentives. This study investigated the interventions in the tax measures, looking into the aspect of tax incentives on the financial performance of the listed construction firms in Kenya. Three taxation incentives, notably; investment promotion incentives, export promotion incentives and wear and tear. The study employed descriptive statistics design utilizing quantitative data centering on the allied construction companies listed at the Nairobi Securities Exchange. Audited Financial data for the listed companies, extending for a period of 5 years (2014 – 2018) was used in this study. Data related to the different set of tax incentives, was obtained from the publications by the Kenya Revenue Authority (KRA), Kenya National Bureau of Statistics (KNBS) and the Central Bank of Kenya (CBK). The independent variable metrics for measurement in this study, including investment promotion, export promotion and wear and tear were compared against profitability ratio, return on assets (ROA) cumulatively for all the listed construction firms. Multiple regression analysis and correlation tests were performed to test for inference and association. The study established strong positive correlation between investment promotion, export promotion and wear and tear versus ROA. The study concludes that export promotion incentives and investment promotion incentives accrue partial benefits to firms in the construction sector, contributing towards partial financial performance. Also, the study establishes that wear and tear accrue a negative financial performance of construction firms listed in Kenya. The study recommends for extension of periodic timelines for the tax incentives in export promotion and investment promotion to boost production and subsequent financial stability of listed construction firms. The study recommends for the revision in the applicable formula used in the calculation of wear and tear for the firms operation in the construction sector.
Description
Unpublished Research Project
Keywords
Construction and Allied Firms