TAX INCENTIVES AND FOREIGN DIRECT INVESTMENT ELATIONSHIP IN THE EAST AFRICA COMMUNITY PARTNER STATES

Abstract

The relationship between tax incentives and Foreign Direct Investments (FDI) isone of the unresolved issues in public finance. The existing studies on theeffectiveness of tax incentives in attracting foreign investors differ depending onjurisdiction of research and the methodological approach employed. This studywas to establish the relationship between tax incentives and FDI in East AfricaCommunity Partner States. A panel descriptive study design was used todetermine the relationship between tax incentives and foreign direct investment inEast Africa Community Partner States, which included Tanzania, Rwanda,Kenya, Burundi, and Uganda. The study used panel secondary data, whichcovered a period of 16 years from 2002 to 2017. The study revealed that taxholidays and period of losses carried forward did not have statistically significantinfluence on FDI inflow. However, investment allowances had a positivestatistically significance influence on and FDI inflow in EAC. The studyconcluded that the investment allowance had a significant influence on FDIinflows among the East African community partner states. The studyrecommended that the leadership of East Africa community partner states shouldencourage use of investment allowances to attract FDI. The study alsorecommended that tax holidays and period of losses carried forward should not beused as a means of attracting FDI since the empirical evidences shows that the twoare not significant in attracting FDI.