Government Taxation and Growth of Large Manufacturing Firms in Nairobi City County, Kenya Registered with Kenya Association of Manufacturers

Abstract

Purpose: This article explores the intricate relationship between government taxation and the growth of large manufacturing firms. Specific objectives of this study were to investigate effect of corporate income taxes, excise duty taxes and custom duty taxes on growth of large manufacturing firms. Finally, to examine moderating effect of firm size on the relationship between government taxations and growth of large manufacturing firms.

Methods: The research was guided descriptive research design with secondary data obtained from audited financial statements. The researcher employed stratified and systematic sampling to select 73 organizations from Nairobi City County's large manufacturing firms for the study. Panel data analysis was employed.

Results: The findings indicated that corporate income taxes had a negative and significant effect on growth of manufacturing firms (β=-0.002, p=0.045); excise duty taxes had a positive and significant effect on growth of manufacturing firms (β=0.004, p=0.000); and custom duty taxes had a positive and significant effect on growth of manufacturing firms (β=0.005, p=0.005). Further, the interaction between government taxations and firm size had a negative and significant effect on growth of large manufacturing firms in Kenya (β=-0.0028, p=0.000). 

Conclusion: The study found that corporate taxes positively impact growth, as higher taxes correspond with increased income and tax contributions from rapidly growing firms. The relationship between excise duty and growth was positive but not statistically significant, suggesting little effect on large manufacturing firms. The study recommends maintaining current corporate tax rates for large manufacturers, as they do not impede growth. Policymakers should consider the minimal effects of these taxes when designing fiscal policies, and future research could investigate other tax-related factors. Additionally, firms are encouraged to expand their asset bases to enhance investment potential, improve funding security, and achieve economies of scale.