Capital Allowance and Financial Performance of Manufacturing Firms


  • Bony Gitonga Dedan Kimathi University of Technology
  • Dr. Muchemi Allan Kuria (PhD) Dedan Kimathi University of Technology
  • Dr. George Riro Kamau (PhD) Dedan Kimathi University of Technology

Abstract views: 135
PDF downloads: 41


Tax Incentives, Financial Performance, Manufacturing Firms


Purpose: The main objective of this study was to ascertain how tax incentives affected the financial performance of manufacturing firms in Nyeri County. The study's goal was to look into the impact of tax incentives, corporate income tax incentives, capital allowance incentives, and custom duty incentives on the financial performance of manufacturing firms in Nyeri County.

Methodology: The study adopted a descriptive research design. The population for the study comprised of all the 15 manufacturing firms in Nyeri County that were registered by Nyeri County finance department; licensing office 2023. The target population's information was gathered using census methodologies. The data was gathered using questionnaires with likert scales to capture the primary data. The questionnaires were split into two sections that captured the demographic information in the first part, and the second part capturing data on the study variables. The study collected secondary data from the audited annual financial reports for the targeted manufacturers and the internal sources for a six-year period, focusing on the specific variables under investigation. Drop and pick method was used to distribute the questionnaire to the participants. Descriptive statistics including the mean, standard deviation, and frequency were used to analyse the data.

Findings: The study findings established that there exists a significant relationship between capital allowance and the financial performance of manufacturing firms in Nyeri County. Capital Allowance emerged as the most crucial predictor of Financial Performance (Beta = 0.766), followed by Custom Duty Incentive (Beta = 0.498) and Tax Holiday (Beta = 0.359). On the other hand, Corporate Income Tax Incentive had the least effect (Beta = 0.323) on the financial performance of these firms. Participants expressed a positive perception regarding the influence of capital allowances on their respective firms' financial performance, with strong agreement on investment deductions, wear and tear allowance, capital allowance incentives, and overall satisfaction with the current level of capital allowances. The study concluded that customs duty incentives positively affect the financial performance of manufacturers in Nyeri County.

Unique Contribution to Theory, Practice and Policy: It recommends revisiting customs duty tax policies to gain industry support. Strategic custom duty incentives aligned with economic goals can boost industrial enterprises and stimulate growth. Tax holiday incentives have the potential to increase employment and profitability, encouraging investment and job creation. Corporate income tax incentives were found to enhance manufacturing firms' financial performance, suggesting their prioritization and offering additional incentives, like reduced tax rates, to foster growth. The study suggested further research to explore factors beyond tax incentives that influence the financial performance of manufacturing firms. Additionally, the research recommended conducting similar studies in sectors other than manufacturing to assess the effects of these tax incentives across different businesses. This comparison could help identify the most suitable incentives for each organization.


Download data is not yet available.


Amakom, U. (2012). Manufactured exports in Sub-Saharan African economies: Econometric tests for the learning by exporting hypothesis. American International Journal of Contemporary Research, 2(4), 195-206.

Basu, A., & Srinivasan, K. (2002) Foreign Direct Investment in Africa- Some case studies,

Chang, C. H., & Chang, R. C. (2005, April). A novel current sensing circuit for a current-mode control CMOS DC-DC buck converter. In VLSI Design, Automation and Test, 2005. (VLSI-TSA-DAT). 2005 IEEE VLSI-TSA International Symposium on (pp. 120-123). IEEE

Garcia-Fuentes, P. A., Ferreira, G. F., Kennedy, P. L., & Perez, F. (2016). Economic Performance of U.S. Multinational Manufacturing Firms: The linkages between Foreign Direct Investment and firm strategy. International Business Research, 10(1), 240. doi:10.5539/ibr.v10n1p240

Glaeser, E. L. (2001). The Economics of Location-Based Tax Incentives. Retrieved from

Gomes, A. P. M. (2016). Corporate governance characteristics as a stimulus to tax management. RevistaContabilidade&Finanças, 27, 149-168.)

Hemels, S. (2017). Tax incentives as a creative industries policy instrument (pp. 33-64). Springer Singapore.

IEA. (2012). taxation in Kenya - Institute of Economic Affairs. Retrieved from Institute of Economic Affairs: IMF WP/09/157.

Jacques, M., & Neda, P. (2004). How Tax Policy and Incentives Affect Foreign Direct

KAM. (2018). Manufacturing in Kenya Under the ‘Big 4 Agenda’ A Sector Deep-dive

KAM. (2019). Manufacturing Priority Agenda. Nairobi: Kenya Association of Manufacturers. Retrieved May 19, 2019, from content/uploads/2019/02/KAM-Priority-Agenda-2019.pdf

KAM. (2021). Manufacturing Priority Agenda. Nairobi: Kenya Association of Manufacturers. Retrieved April 27, 2021, from content/uploads/2021/02/KAM-Priority-Agenda-2021.pdf

Kiaritha, W. (2015). Determinants of the financial performance of savings and credit co-operatives in the banking sector in Kenya, unpublished Phd project, Jomo Kenyatta University of Agriculture and Technology.

KNBS. (2018). Economic Survey. Nairobi: Kenya National Bureau of Statistics.

Memba, S. (2011). The Impact of Venture Finance on Performance of Small and Medium Enterprises in Kenya. Unpublished Phd Thesis. Jomo Kenyatta University of Agriculture and Technology.

Murage, J.D. (2012). The effects of Tax Incentives on investments of export processing zones firms in Kenya: University of Nairobi.

Mwangi, J. (2016). Effects of Financial structure on Financial Performance at East African Securities Exchange. Unpublished Phd Thesis. Jomo Kenyatta University of Agriculture and Technology.

Na, H. (2018). The expansion of FDI by emerging countries in the manufacturing sector and the industrialization of East Africa. SSRN Electronic Journal. doi:10.2139/ssrn.4204274

Network-Africa, T. J. & Action Aid International (2012). Tax competition in East

Njeru, W. (2012). Effect of entrepreneurial mindset on the performance of small manufacturing firms in Nairobi Industrial Area, unpublished PhD project, Jomo Kenyatta University of Agriculture and Technology.

OECD. (2005), Model Tax Convention on Income and Capital: Condensed Version, Organization for Economic Cooperation and Development, Paris

OECD. (2015). Taxation of SMEs in OECD and G20 countries. OECD Tax policy studies No 23. Paris.

OECD. (2020). Statutory income tax rates. Organization for Economic Cooperation and Development statistic.

Ongore, V. O., Peter, O. K., Ogutu, M., & Bosire. (2015). Board Composition and Financial Performance: Empirical Analysis of companies Listed in Nairobi.

Onyango (2015). Effects of tax incentives on financial performance of five star hotels.

Tembur, N. C. (2016). Effect of Tax Incentives on Financial Performance of Export Processing Zone.

Tirole, J. (2010). The theory of corporate finance. Princeton university press.

Uwaoma, I. (2016). The Impact of Tax Incentives on Economic Development of Nigeria (Evidence of 2004-2014). International Journal of Economics, Commerce and Management., 686-737.




How to Cite

Gitonga, B. ., Kuria, M., & Kamau , G. (2023). Capital Allowance and Financial Performance of Manufacturing Firms. International Journal of Finance and Accounting, 8(2), 24–34.