Ochieng, Vitalis Otieko2021-04-202022-06-072021-04-202022-06-072020https://ikesra.kra.go.ke/handle/123456789/1352Imports and exports remain a key segment of the Kenyan economy. Importation of goods has been and continues to be a problem faced by many countries in developing countries like Kenya, it was in the background of this problem that the researcher seeks to establish the effect of tax incentives on the financial performance of EPZ firms in Kenya. The specific objectives was to investigate the effect of corporate income tax incentive, capital allowance tax incentive and VAT incentive on the financial performance on EPZ firms in Kenya. The performance of EPZ firms was measured by profitability and gross margins. The study will be of great value to the government, KRA and financial managers of these firms. To underpin the study findings; agency theory tax incentives, normative theory and optimal theory of taxation was used. The study adopted a cross sectional research design. The study targeted 27 EPZ firms in the county, where 106 officials from these firms were used as the unit of analysis out of which Yamane’s formulae was used to determine a sample of 84 officials. The study used a stratified sampling approach because the target population can be grouped into various categories. Structured questionnaires was used to collect data from the respondents. The study used both descriptive and inferential statistics to conduct data analysis through SPSS version 24. Descriptive statistics which included frequencies, percentages, mean and standard deviations while inferential statistics included correlations and regression analysis. The study relied on 54 (64.3%) returned questionnaires for data analysis, study findings and recommendation. The study determined that corporate income tax significantly and positively affects financial performance of EPZ firms. The study further established that an improvement in corporate income tax incentives would significantly contribute to improvement in financial performance. Further it was found that that capital allowance incentives significantly and positively affect financial performance of EPZ firms in Mombasa County. The study also showed that an improvement in capital allowances incentives would insignificantly lead to an improvement in financial performance of these firms. Finally, it was determined that VAT incentives significantly and positively affects financial performance of EPZ firms in Mombasa County. The analysis showed that an improvement in VAT incentives would significantly lead to an improvement in the financial performance of the firms. The study concluded that that corporate income tax incentives, VAT incentives and capital allowance significantly and positively affects financial performance of EPZ firms in Mombasa. The study further concludes that an improvement of these incentives would significantly contribute to an improvement of financial performance, excluding capital allowance incentives. The study recommended that stakeholders in tax policy should reconsider the economic value of corporate tax incentive. These incentives had the capacity to increase the ROA of EPZ firms as well as the number of jobs. In addition, the study recommended that the government should consider the economic value of capital allowance incentives. Lastly, the government should reconsider its VAT policy by encouraging more VAT rebates to firms in order to boost their productivity and increase the volume of exports.enCapital AllowancesExport Processing ZonesTax IncentivesArticle