Effect of Tax Policy Reforms on Financial Performance of Food Manufacturing Companies in Industrial Area, Nairobi Kenya

Tax policy reforms impact food manufacturing companies by influencing financial performance through increased operational costs, compliance burdens, and investment uncertainties. Higher taxes and reduced incentives affect profit margins, while regulatory changes strain resources. This study examined the effects of tax digitalization and regulatory changes on food manufacturers in Nairobi’s Industrial Area. It was guided by Public Choice Theory, Pecking Order Theory, and the Resource-Based View (RBV) Theory. The study adopted an explanatory research design and relied solely on primary data, utilizing a quantitative approach to analyze the relationship between tax policy reforms and financial performance. The target population comprised all registered food manufacturing companies in the Industrial Area, Nairobi City. The unit of observation consisted of all 200 owners/managers of the medium-sized food manufacturing firms targeted. Additionally, the study adopted a census method to sample all 200 owners/managers of the medium-sized food manufacturing firms. Primary data was gathered through the use of a structured questionnaire from the selected firms, while financial data provided additional information for financial performance measurement. The study's findings reveal that all four independent variables; tax digitalization and regulatory changes significantly impact the financial performance of food manufacturing companies in Nairobi's Industrial Area. The correlation results show a moderate to strong positive relationship between these variables and financial performance, with tax digitalization (r = .583) and regulatory changes (r = .544) exhibiting the strongest correlations. Regression analysis indicates that 33.2% of the variance in financial performance is explained by these factors, with regulatory changes having the most substantial impact (β = .413, p < .001). This study concludes that tax digitalization, along with new regulatory changes, is crucial for enhancing financial performance in the food manufacturing sector. Consequently, companies should invest in tax digitalization technologies and build robust compliance frameworks to optimize financial performance in an evolving regulatory environment. Future research could explore these dynamics in other sectors and consider additional variables influencing financial outcomes.