Abstract: Tax incentives have become a global phenomenon as more governments try to attract multinational companies and enhance the associated technology spillovers. Although hardly new, this trend appears to have strengthened since the early 1990s. It is assumed that tax incentives play a major role in attracting investments inflows especially in developing countries. The same has been proofed empirically in developed countries. However, in developing countries the research is at its infancy stage. The main objective of this study was to establish the effect of tax incentives on investment using private sector manufacturing companies in Kigali special economic zone, Rwanda. Specifically, the following objectives guided the study: to examine the tax incentives available for private companies in Rwanda, to assess the level of investment by the private companies in Rwanda and to establish a relationship between tax incentives and level of investment by private companies. The study adopted descriptive research design and the study population comprised of thirty-nine manufacturing companies in free zone in Rwanda which are registered by the private sector. A sample size of 36 private companies was determined from a total population of 39 individuals. Only two employees that are acquainted with decision making from each manufacturing companies registered by the private sector were targeted hence the target population respondents was 72 respondents. Stratified random sampling technique was used to select the respondents. Data was collected from both primary and secondary data using questionnaires and documentation. Data collected was analyzed using SPSS version 21. Data analysis involved statistical computations for averages, percentages, and correlation and regression analysis. Ordinary least squares (OLS) regression method of analysis was adopted to determine the inferential statistics. The findings in the study revealed that tax incentives have significant positive effect on investment in private sector manufacturing companies in Kigali special economic zone, Rwanda. The p -values for all the variables are lower than 0.05%. which implies they are significant. This implies foreign investors can maximize their investment by taking advantages of the available tax incentives allowed by the government to create an enabling investment environment. From the study the p-values are 0.009, 0.000, 0.003 and 0.000 for company income tax, capital allowance, value added tax and capital gains tax incentives respectively. The capital allowance incentive has the highest t value of 4.656, followed by company income tax incentives with 3.954, next is capital gains tax incentives with 3.184, while the lowest is the value added tax incentives with 2.954. The capital allowance incentives have the highest effect on investments while the VAT has the lowest effect on investments private sector manufacturing companies in Kigali special economic zone Rwanda. The positive and statistically significant relationship between the various tax incentives and investment implies foreign investors can maximize their investment by taking advantages of the available tax incentives allowed by the government to create an enabling investment environment. Based on the empirical evidences and results of the analysis, there is positive and statistically significant relationship between the tax incentives and investments. The study concludes that tax incentives have been adopted by governments as a policy tool for accelerating investment in specific economic sectors and shaping the investment environment of the country. The study recommends that Government and policy makers should concentrate on efforts at ensuring that more VAT incentives and strategies are introduced to improve the flow of investments into the manufacturing companies. Policies that will generate employment and increase investment should be pursued. Rwanda Revenue Authority (RRA) as the regulatory authority of VAT should analyze the effect of VAT on investment. Further the study recommends that the investors should be encouraged to make use of the roll over tax relief under capital gains tax by replacing their old machines with the modern machine to improve their efficiencies.
Keywords: Tax incentives, Investment, Company income tax incentives, Capital allowances incentives, Value added tax (VAT) incentives, Capital gains tax incentives.
Title: EFFECT OF TAX INCENTIVES ON INVESTMENT IN RWANDA: A CASE STUDY OF PRIVATE SECTOR MANUFACTURING COMPANIES IN KIGALI SPECIAL ECONOMIC ZONE (2013 - 2016)
Author: Anitha MUKAYIRANGA, Dr. Daniel TWESIGYE
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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