Effect of tax incentives on economic growth: A case of Rwanda revenue authority in Nyarugenge District, Rwanda

Tax incentives are widely used globally to encourage investment, but their effectiveness in attracting incremental investments is often questionable; tax incentives can present challenges. The general objective of this study was to investigate the effect of tax incentives on economic growth in Rwanda. Specifically, to determine the effect of tax credit incentives on economic growth of Nyarugenge district, to examine the effect of tax deduction incentives on economic growth of Nyarugenge district, and to analyze the effect of tax exemption incentives on economic growth of Nyarugenge district. This study was guided by the agency theory of tax incentives, deduction theory, and tax competition theory. The study used descriptive and correlational research designs. A sample size of 396 respondents was drawn from 38,647 individuals involved in tax incentives and economic growth in the Nyarugenge district. The study utilized the simple random sampling. This study employed the questionnaire and interview guide for data collection. The study used descriptive and inferential statistics for data analysis. The results show that the overall high mean of 3.99 (SD=1.129) for the combined statements reflects a very strong positive perception that there is an effect of tax credit incentives on the economic growth of the Nyarugenge district, the overall high mean score of 3.93 (SD=1.302) for the combined statements reflects an overall strong positive perception that there is an effect of tax deduction incentives on the economic growth of the Nyarugenge district, and the overall very high mean score of 4.04 (SD=1.082) for the combined statements reflects a strong positive perception that there is an effect of tax exemption incentives on the economic growth of the Nyarugenge district. Additionally, the findings reveal that tax credit incentives have a positive coefficient of the estimate, which was significant (β=0.152, p=0.000˂0.05). Findings reveal that tax deduction incentives have a positive coefficient of the estimate, which was significant (β=0.109, p=0.000˂0.05), and the findings reveal that tax exemption incentives have a positive coefficient of the estimate, which was significant (β=0.657, p=0.000˂0.05). The study concludes that tax credits, tax deductions, and tax exemptions contribute to economic growth in Rwanda, focusing specifically on the Nyarugenge district. The study recommends that tax incentive managers should understand the local economic landscape and identify sectors that would benefit most from tax credit incentives; they should create awareness for encouraging investment and entrepreneurship, and the study suggests that tax exemption incentives should be strategically designed to benefit sectors with high growth potential, such as technology, tourism, and agriculture.