Effects of Tax Incentives on Performance of Firms in Export Processing Zones in Machakos County, Kenya
Rachel Kaleha Nguku *
Department of Public Policy & Administration, Kenyatta University, Kenya.
George K Kosimbei
Department of Public Policy & Administration, Kenyatta University, Kenya.
*Author to whom correspondence should be addressed.
Abstract
This study examined the effects of tax incentives on the performance of firms operating in Export Processing Zones (EPZs) in Machakos County, Kenya. It focused on four incentive categories: corporate tax incentives, government subsidies, export promotion incentives, and capital allowance incentives. A quantitative descriptive correlational and panel-data design was adopted to assess relationships between these incentives and firm performance. The target population comprised EPZ firms across 14 subsectors, and a sample of 272 firms was selected using Yamane’s formula and stratified random sampling. Data were collected through structured questionnaires and firm records. The study obtained 238 completed questionnaires, representing an 87.5% response rate. The data were analysed using descriptive statistics, Pearson correlation, ANOVA, and regression analysis. Reliability testing showed acceptable internal consistency for all constructs, with Cronbach’s alpha values above 0.7. The correlation results indicated positive and statistically significant associations between firm performance and corporate tax incentives, government subsidies, export promotion incentives, and capital allowance incentives. Regression results showed that the model explained 62.7% of the variation in firm performance. Export promotion incentives had the strongest reported effect on firm performance, followed by capital allowance incentives, corporate tax incentives, and government subsidies. The findings suggest that tax incentives contribute to firm performance by supporting profitability, investment capacity, operational efficiency, and competitiveness. However, the relatively lower effect of subsidies indicates that fiscal incentives may be more effective when supported by broader policy measures. The study concludes that a coherent, predictable, and well-implemented incentive framework is important for strengthening the performance of EPZ firms in Machakos County
Keywords: Tax incentives, export processing zones, firm performance, corporate tax incentives, government subsidies, export promotion incentives, capital allowances, investment capacity, operational efficiency, Kenya