Relationship between increased Taxation and Financial Performance of Kenyan Firms

Abstract

Taxation plays a critical role in financing government activities, public services, and economic development. This study focuses on examining how taxation impacts the financial performance of firms in Kenya. The complex interplay between tax policies and financial outcomes is multifaceted, and understanding these dynamics is crucial for effective tax strategies and financial optimization. The theoretical frameworks of "Ability to Pay Theory," "Classical Taxation Theory," and "Political Power Theory" are explored to provide insight into the relationships between taxation and business performance. These theories help us understand how tax rates, incentives, and political influences can affect firms' profitability, investment, and overall financial performance. By reviewing existing literature and conducting empirical research, this study aims to shed light on the specific challenges and opportunities that taxation presents to businesses in Kenya. The study observed that the influence of taxation on the financial performance of Kenyan firms is significant and multifaceted. Understanding the effects of customs duty, PAYE, and VAT is crucial for informed decision-making and effective management of financial resources in the business environment. Further research should explore the specifics of these impacts and potential mitigating measures.