Custom Duty Incentives and Financial Performance of Manufacturing Firms in Kenya

Abstract

The purpose of the study was to determine the relationship between customs duty incentives and financial performance of manufacturing firms in Kenya. The study also determined the moderating effect of tax administration procedures on the relationship between customs duty incentives and financial performance of manufacturing firms in Kenya. The study was anchored on tax discrimination theory. Descriptive survey research design was adopted where a sample of 211 firms was selected using the Yamane formula, from a target population of 447 manufacturing firms using stratified random sampling technique. Primary data was collected using questionnaires while secondary data was collected over a period of 10 years covering 2009 to 2018. The targeted respondents were the accountants, auditors and finance officers in the organizations. The response rate was 73.5%. Both descriptive and inferential data analysis was carried out. Diagnostic tests such as multi-collinearity, heteroscedasticity and test of normality was carried out. The data violated the assumption of normality, hence the study opted for ordinal regression analysis which is a non-parametric method of analysis. Results showed that customs duty incentives had statistically significant influence on financial performance of manufacturing firms in Kenya and that tax administration procedures which was the moderating variable had antagonistic effect on the relationship between custom duty incentives and financial performance of manufacturing companies. Because customs duty incentives led to improvement in financial performance of manufacturing firms in Kenya, it is recommended that the government should review tax incentive policy to widen the scope of tax incentives to support improved financial performance of manufacturing firms in Kenya.