TAXATION PRACTICES AND PROFITABILITY: INSIGHTS FROM MANUFACTURING FIRMS LISTED ON THE NAIROBI SECURITIES EXCHANGE, KENYA
Patrick Ng’ang’a Maina - Master’s Student, Department of Accounting and Finance, Kenyatta University, Kenya
Dr. Margaret Kosgei (PhD) - Senior Lecturer, Department of Accounting and Finance, Kenyatta University, Kenya
ABSTRACT
Taxation practices are very important since it affects firms' cost structures and profitability. Manufacturing companies that are quoted on the Nairobi Securities Exchange have been encountering challenges in terms of profitability due to factors such as high tax compliance costs, irregular use of tax incentives, and inefficient tax administration. The result of these challenges is that manufacturing companies encounter a reduction in profitability measured by return on assets. In that regard, this research study is aimed at investigating the connection between taxation practices and profitability of manufacturing companies quoted on the Nairobi Securities Exchange, Kenya. The study is guided by the following specific objectives: to examine the effect of tax compliance, tax incentives and tax administration on profitability of manufacturing firms listed on the Nairobi Securities Exchange. This research is based on three theoretical perspectives: Taxation Theory, Agency Theory, and Resource-Based View Theory. In terms of research technique, the study uses a descriptive approach. The study's population consists of the thirteen manufacturing enterprises listed on the Nairobi Securities Exchange as of December 2025. Finance managers, tax managers, and senior accountants were the units of observation, resulting in a sample size of 39 respondents (three respondents per firm). For primary data collection, structured questionnaires were utilized, while secondary data on profitability were obtained from audited financial statements for five consecutive years (2021–2025) using a data extraction sheet. Data analysis consisted of descriptive and inferential statistics. The descriptive statistics consisted of mean, standard deviation, and frequencies. The inferential statistics consisted of Pearson correlation analysis and multiple linear regression analysis for the determination of the relationship between tax compliance, tax incentives, and tax administration as independent variables while profitability was measured using ROA as the dependent variable. The findings revealed that tax administration recorded the strongest relationship with profitability (r = 0.526, p = 0.000), followed by tax compliance (r = 0.501, p = 0.000), while tax incentives demonstrated a moderate but significant relationship (r = 0.424, p = 0.000). The research concluded that tax compliance, tax incentives, and tax administration are essential taxation practices that collectively contribute to improved profitability of manufacturing firms listed on the Nairobi Securities Exchange. Firms that effectively integrate these practices are more likely to achieve sustainable growth, competitiveness, and long-term financial success. The study recommends that firm management should prioritize consistent statutory compliance, fully utilize available tax incentives, and engage proactively with tax administration processes to safeguard and enhance profitability.