Effect of Tax Incentives on Foreign Direct Investments in the East African Community

Abstract

The use of tax incentives has tremendously grown since the early 90's due to globalization and creation of common markets through regional integration. The logic behind granting tax incentives is to offer potential enterprises opportunities to invest where taxes are seen as impediments. Tax incentives are meant to foster investments into particular economic sectors or industries that are identified as crucial areas of development including export oriented sectors, mining and industrial parks. On the other hand, Foreign Direct Investment is widely regarded as an integral factor in fostering growth and advancement in both advanced and transitional economies. The study aimed to find how tax incentive affects the foreign direct investment by paying attention to the East African Community bloc. The study used the random effect panel model to carry out this investigation. The study concludes that Tax incentive significantly affects foreign direct investment in the East African Community.