TAX ADMINISTRATION AND FINANCIAL PERFORMANCE OF OIL MARKETING COMPANIES IN MOMBASA COUNTY, KENYA
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Abstract
Kenya is among the countries with the highest fuel taxation globally, surpassing larger economies such as South Africa and the United States. As of 2024, taxes account for approximately 40% of the retail fuel price in Kenya, compared to 14% in Illinois—the U.S. state with the highest fuel tax—and 30% in South Africa. To raise revenue, the Kenyan government has implemented multiple levies on fuel, including the Road Maintenance Levy, Excise Duty, Gasoline Tax, and the Railway Development Levy. These tax measures have significantly increased the cost of doing business, particularly for oil marketing companies. The purpose of this study was to investigate the effect of tax administration on the financial performance of oil marketing companies in Mombasa County, Kenya. Specifically, the study examined the influence of tax planning, tax incentives, tax compliance costs, and tax policies on financial performance. The study was guided by Kalecki’s Theory of Taxation, the Theory of Tax Planning, and the Benefit Theory of Taxation. A cross-sectional descriptive research design was employed. The target population consisted of all six medium-sized oil marketing companies licensed by the Energy and Petroleum Regulatory Authority (EPRA) and operating in Mombasa County as of December 2024, according to the Petroleum Institute of East Africa. A census approach was adopted due to the relatively small population size. Primary data was collected using structured questionnaires. Data was analyzed using the Statistical Package for Social Sciences (SPSS) version 29, employing both descriptive statistics (means and standard deviations) and inferential analysis through multiple regression to examine the significance of relationships between variables. The findings revealed that tax planning, tax incentives, and tax policies have a statistically significant positive effect on financial performance. In contrast, tax compliance costs were negatively related to financial performance but did not exhibit a statistically significant effect in this context. The study concluded that strategic tax administration practices are essential for enhancing the financial performance of oil marketing firms.
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References
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