1.2 Research ProblemThe government of Kenyahas continued offering tax incentives to various sectors of theeconomy despiteslow growth in GDP within the last four years. Lack of evaluation on theperformance in relation to contribution to development has resulted to majorloss of income which could have otherwise been used in social welfare of Kenyancitizens. This study is focused on establishing whether reforming taxincentives structure in Kenya would aid in exploiting the full potential of thekey economic sectors.
Studies have been doneon tax incentives and investments and their results have beendifferentdepending on the countries where they have been carried out and methodology adopted. A study conducted by Musyoka (2012), determiningthe relationship between tax incentives and foreign direct investment in Kenya.It was concluded that there was no significant improvement in foreign directinvestment as a result of implementing tax incentives in Kenya.
A study byHaiyambo (2013) investigated tax incentives and foreign direct investment; theNamibian experience. The study reviewed the FDI inflows into Namibia byassessing the benefits and costs through an investigation of related indicatorsand making inferences. The results showed that tax incentives offered as wellas other factors might have played a complimentary role in the investmentenvironment of country. Gathaiga (2013) looked at the impact of tax incentiveson FDI inflows of listed firms at the NSE and the results revealed that therewas strong relationship between wear and tear allowances and FDI inflows. Butinvestment in securities is different from EPZ industries.
Wanjiku (2016) alsolooked at the impact of FDI generally on the economic growth in Kenya but therewere still gaps in the EPZ industries. Thisstudy therefore aims atinvestigating the tax incentives and foreign direct investments in Kenya, withEPZs in Mombasa serving as a case study.