Effect Of Tax Incentives On Financial Performance Of Domestic Airlines In Kenya

Abstract

Performance of domestic airlines in the past it is not encouraging and through the introduction of tax incentives, they started experiencing some sort of relief, which were based on motivation to invest which enhanced their growth. It is therefore for this reason that the researcher sought to establish on how tax incentives had affected performance of domestic airlines in Kenya. The specific research objective was based on determining the on how corporate tax income incentives had had an effect on domestic airline financial performance, to determine the effect of tax holiday incentives on domestic airline performance, and to analyze the effect of capital allowance incentives on domestic airline performance. The study employed a descriptive research design, with the target population being the 15 domestic airlines in Kenya. The sampling technique used was census technique due to the fact that the target population was manageable. Secondary data was used in this study which was collected from the financial reports of the airlines within a period of 5 years from 2015-2019. The data was analyzed with the help of SPSS version 26 whereby diagnostic test was done through multicollinearity, heteroscedasticity as well as normal test from the regression model which was used to analysis the panel data collected and the presentation was through the help of figures and tables. The study after data analysis revealed that their corporate income tax and tax holiday which were the independent variables were found to be satisfactory in explaining the financial performance (return on asset) of Kenyan domestic airlines. Because the p-values of the tax holiday and capital allowance are statistically significant. p-value of corporate income tax which was statistically insignificant b based financial results. As a result, the study recommended that because corporate income tax has an impact on return on asset of an entity, the management of Kenya's domestic airlines should make better use of other tax breaks. They should also use the tax holiday to seek additional tax relief in their investments so that they can be protected from the negative risk of operation when the corporate income tax is highly induced without taking the tax incentive perspective into account. Tax holidays in terms of aggressiveness and adverse tax shielding in order to protect themselves from harsh taxation bases. As a result, management should consider pursuing additional tax breaks in order to boost their return on asset. Kenya's domestic airline management should make better use of capital allowance when given this type of incentive. The study also recommends that the Kenyan government improve existing policies to enhance ease of undertaking business activities through reduction of bureaucracy in obtaining share and debt financing for domestic airlines.