Effect of Tax Holiday on Tax Revenue Collection among Export Processing Zone Companies in Kenya: (A Case Study of Export Processing Zone Athi River)
Abstract
The purpose of this study was to examine the effect of tax holiday on tax revenue collection among the Export Processing Zone (EPZ) companies in Kenya. The study adopted a descriptive research design. The study covered eight companies in EPZ Athi River. The data was collected from secondary data (tax incentives and revenue collection) sources collected from Kenya Revenue Authority (KRA), Treasury and Kenya National Bureau of Statistics (KNBS) for a period of five years from 2009-2013. Descriptive statistics, correlation and panel regression analyses were used in data analysis, where STATA software was utilized in generating the output. Correlation results indicated that there is a positive and significant association between tax holiday and revenue collection among EPZ companies in Kenya (r=0.286*), at 10 percent level of significance. Further, repression results revealed that tax holiday had a positive and significant relationship with tax revenue collection (β=33.32375, p=0.000) at 5 percent level of significance. This implies that a unit increase in tax holiday accounts for 33.32375 unit increase in tax revenue collection among EPZ companies in Kenya. Based on the findings, the study concluded that there was a positive and significant relationship between tax holiday and tax revenue collection. This implied that an increase in tax holiday is expected to boost ax revenue collection among EPZ companies in Kenya. Further, the regression results led to the rejection of the null hypothesis that tax holiday has no significant effect on revenue collection among the EPZ companies in Kenya. The study recommended that there is need for the government to rationalize the tax incentive schemes in the county. It is important to note that this process has now begun, by the government scrapping various tax remission and exemption provisions in the VAT Act 2013 including the program and it is expected that the intended review of the Income Tax Act will also comprehensively address this issue. This will ensure that the tax incentive scheme is both efficient and beneficial to the economy. As mentioned in the introduction of this study, It is important for the government and policy makers to put in place tax reforms that ensure that its tax system achieve the main three objectives of a good tax system which include raising tax revenue for funding government operations without excessive government borrowing.
Keywords: Tax Holiday, Tax Revenue Collection Export Processing Zone Companies
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