Effects of Tax Incentives on Financial Performance of Savings and Credit Cooperative Societies in Nairobi County, Kenya

Abstract

Savings and Credit Cooperative Societies (SACCOs) are regarded globally as key players in economic growth of a majority of countries. Vibrant and dynamic cooperative sectors contribute largely to the economic development of different countries. SACCOs in Kenya actively contribute to 30% of the economy, this is possible because they are well distributed all over. The purpose of this study was to establish the effects of tax incentives on financial performance of SACCOs in Nairobi County. The study focused on corruption and influence theory, agglomeration economies theory and neoclassical theory. The study adopted a descriptive research design. The study population comprised of all the registered SACCOs in Nairobi County. A sample of 41 SACCOs was arrived at using 10- 30% of target population as representative rule and stratified random sampling technique. Secondary data from SASRA was collected and analyzed to establish the association between tax incentives and profitability of SACCOs. This study established that there is a positive relationship between capital allowance, accelerated depreciation and financial performance of SACCOs in Nairobi County. From the study on correlation analysis, the results showed capital allowance and accelerated depreciation positively influenced the profitability of SACCOs. This means when capital allowance and accelerated depreciation increases, so does the profitability of SACCOs. It further indicated a negative relationship between tax and financial performance. On regression analysis, R-Squared was 0.505 which is a variation of 50.5% of financial performance explained by tax incentives and which depicts a positive relationship of financial performance and the independent variables. The analysis of variance showed that tax incentives positively impacted on the performance of SACCOs. The study therefore recommended that the government should provide more and a diversity of tax incentives to the SACCOs, especially capital allowance and accelerated depreciation and tax exemptions, since an increase in each of them increases the profitability of SACCOs. The researcher further advocates for similar studies to be conducted in other Counties apart from Nairobi County and in different sectors such as the real estate sector among others.

Keywords: Tax Incentives, Financial Performance, Savings and Credit Cooperative Societies