Effect of Tax Incentives on Rwandan Foreign Direct Investment Growth: (2012-2021)

Abstract

The increasing mobility of international corporations and the will of gradually eliminating barriers harming the global capital flows have encouraged competition among many governments to attract FDI inward mainly through tax incentives. With the time, Africa has been urged to boost its infrastructure development by attracting significant inflows of foreign direct investment. For boosting the recovery momentum, there is a need of strong investments, but the generous tax incentives aiming at attracting FDI can be a challenge for administrative efforts to restructure tax policy space. This study was about to analyze the effect of tax incentives on Rwandan Foreign Direct Investment along the period of 2012 up to 2021. Its specific objectives were to analyze the various effects of Value Added Tax incentives, the income tax incentives and the customs duties incentives on the overall inward of Foreign Direct Investment. The study used a correlational research design to establish relationship between variables. Stata software was used to analyze data and multiple regression analysis was used predict the equation showing the relationship between variables. Analytically, the variables were all positively correlated against FDI. The model has been capturing the variability of dependent variable at 88% and has been significant with coefficient it 0.0031. The predictive analytical equation has shown that a unit increase in value added tax incentives has a subsequent impact in FDI of increasing by 0.2548221 units, a unit increase in income tax incentives makes an increase of 0.132492 units in FDI while an increase of one unit in customs duties incentives leads to an increase of 0.458519 units in the global Rwandan FDI inward. The recommendations are to be addressed to MINECOFIN specifically the department of budget planning and execution. Considering the great role assigned to FDI in economic development space, the effect of significant amount of tax incentives have provided a desired and appreciable effect on FDI attraction and inward. These incentives are to be increased to attract more FDI and get a prosperous rate of economic performance.