Effect of Income Tax on Financial Performance of Hotel Industry in Rwanda

Author(s)

Jean Bosco Harelimana , Come Nahimana ,

Download Full PDF Pages: 01-17 | Views: 383 | Downloads: 115 | DOI: 10.5281/zenodo.5592711

Volume 10 - September 2021 (09)

Abstract

The study aims to assess the effect of income tax on the financial performance of hotels in Rwanda. According to the Rwanda Chamber of Tourism, taxes imposed on hotel’s Staff feeding lesser hotel’s financial performance consequently taxed on recurrent expenses rather than income raise tax avoidance or evasion to hotel investors. The general objective of this study is to assess the effect of income tax and hotel financial performance in Rwanda. During this study, a descriptive research design was used. The target population was 23 hotels selected from three to five star hotels. The data were collected from financial reports from the respondents. SPSS tool was used to analyze the data. Multiple regression analysis was used. The results of the study shown that Earnings Before Interest and Tax (r=. 290, p<0.091), net income (r=. 286, p<0.095), Net income adjusted (r=. 264, p<. 125), Return on Asset (r=. 261, p<. 130), liquidity (r=. 466**,p>. 005), Firm age (r=. 143, p<. 411. Turnover has a positive low correlation on net income (r=.367*, p>.03), Net income adjusted (r = .351*, p>.039), return on asset (r= .301, p<.000) and firm age ( r = .309, p<.16). this means that hotels has a number of expenditures thus lowered earnings though turnover can’t be influenced by net income, neither adjusted nor return on asset. All controls showed a non-significant level on financial performance, for ROA (Hotel Category, p<0.215, Hotel size, p<0.331), Turnover ( Hotel category, p<0.076, Hotel size, p<0.851) and EBIT ( Hotel category, p<0.182; Hotel size, p<0.464). however, the result indicate also that Staff feedings has a positive significant effect on financial performance, ROA (p<0.001, Turnover (p<0.015), EBIT (p<0.001Through that recommendation were drawn where government should intervene with clear policies to help hotel reinvest their liquidity while hotels should more emphasize on formal accounting of staff feedings.

Keywords

Income taxes, financial performance, Hotel industry

References

       i.        Abor, J. (2008). Determinants of the capital structure of Ghanaian firms. African Economic Research Consortium, Research paper No. 176.

ii.      Agresti, A., & Franklin, C. A. (2009). Statistics: The art and science of learning from data, (3rd Ed.). California: Pearson Education Publisher.

iii.    Amidu, M. (2007). “Determinants of capital structure of banks in Ghana: An empirical approach”.  Baltic Journal of Management, 2 (1), 67-79.

iv.     Ang, J. S. (1991). Small business uniqueness and the theory of financial management. Journal of Small Business Finance, 1 (1), 11–13.

v.       Beck, T., Demirgüç-Kunt, A., Laeven, L., & Maksimovic, V. (2006). The determinants of financing obstacles. Journal of International Money and Finance, 25 (6), 932–952.

vi.     Carey, C. (2012). International institute for sustainable development: Quick screen of potential NAMAs. Kigali: NAMA Rwanda.

vii.   Cooper, D.R., & Schindler, P.S. (2001). Business Research Methods. Boston Irwin: SAGE Publisher.

viii. De Mooij, N., Ruud, A., & Ederveen, S. (2001). Taxation and foreign direct investment. Journal of investment, 2 (3), 23-47.

ix.     Dombrovski, R., & Hodžic, K. (2010). Impact of value added tax on tourism. International Business & Economics Research Journal, 9 (10), 131–138.

x.       Engen, E., & Skinner, J. (2014). Taxation and economic growth economic. International Centre for Tax and Development at the Institute of Development Studies, 49 (4), 617–642.

xi.     Fazzari, S., Hubbard, G., & Petersen, B. (2000). Investment cash flow sensitivities are useful:A comment. Quarterly Journal of Economics, 115 (2), 695-705.

xii.   Gatsi, J. G., Gadzo, S. G., & Kportorgbi, H. K. (2013). The effect of corporate income tax on financial performance of listed manufacturing firms in Ghana. Research         Journal of Finance and Accounting, 4 (15), 118–125.

xiii. Gatsinzi, J., & Donaldson. R, (2010). Investment challenges in the hotel industry in Kigali, Rwanda: Hotel managers' perspectives. Development Southern Africa, 27    (2), 225-240.

xiv. Gleason, K. C., Jayson, G., & Johnson, K. (2000). The interrelationship between culture, capital structure, and performance: Evidence from European retailers. Journal of Business Research, 50 (2), 185-191.

xv.   Gooroochurn, N., & Milner, C. (2005). Assessing indirect tax reform in a tourism-dependent developing country. World Development, 33 (7), 1183–1200.

xvi. Greenaway, D., & Milner, C. R. (1991). Fiscal dependence on trade taxes and trade policy reform. Journal of Development Studies, 15 (27), 95–132.

xvii.                       Harelimana, J.B. (2017). The effect of budgetary control on financial performance of Kigali Serena hotel in Rwanda. Business and Economics Journal, 08 (02).

xviii.                     Jens, A., & Schwellnus, C. (2008). Do corporate income taxes reduce productivity and investment at the firm level? Cross-country evidence from the Amadeus dataset. New York: Prentice Hall.

xix. Jensen, M., & Meckling, W. H. (1976). Theory of the firm: managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3 (8), 305-360.

xx.   Jiang, T. (2003). Firm size and information technology investment: Beyond simple averages. Retrieved from http://aisel.aisnet.org/icis2003/80.

xxi. Kadapakkam P. (1998). “The impact of cash flows and firm size on investment: The international evidence”. Journal of Banking and Finance, 22 (3), 293-320.

xxii.  Kothari, C. R. (2004). Research methodology: Methods and techniques (3rd Ed.). New Delhi: New Age International Publishers.

xxiii.    Kothari, R. C. (2000). Research methodology-methods and techniques (2nd Ed.). New Delhi: Wiley & Sons Limited.

xxiv.   Kundu, S. K., & Contractor, F.J. (1999). Country location choices of service multinationals: An empirical study of international hotels. Journal of      International Management, 12 (5), 299–231.

xxv.   Manrique, S., & Marti-Ballester, C.P. (2017). Analyzing the effect of corporate environmental performance on corporate financial performance in developed and developing countries. Journal of Sustainability, 9 (11), 19-57.

xxvi.   MINECOFIN (2012). Rwanda vision 2020. Kigali: MINECOFIN.

xxvii.  Narine, B., Lourdes, C.D., & Cristina, S.M. (2014). Financial performance of Spanish hotels during the crisis. Working Papers on Operations Management, 5 (1), 15-    30.

xxviii.  Nkurayija, J. D. (2011). The impact of globalization on Africa’s development: Rwandan tourism as key to mobilize revenue and investment,  Development Southern Africa,44 (11), 1474-1482.

xxix.  Nnadi, A., & Meg, A., (2008), “The effect of taxes on dividend policy of banks in     Nigeria”, International Research Journal of Finance and Economics, 19 (7),   1450-2887.

xxx.  Onyango, M. (2015).  The effect of tax incentives on financial performance of five-star hotels in Nairobi County, (Unpublished Master Thesis) University of Nairobi, Kenya.

xxxi.  Peter, I., & Nyataya, K. (2017). Tourism a tool for poverty alleviation in Rwanda: Case of Kinigi sector of Musanze district. Tourism Review, 3 (2), 23–37.

xxxii.  PSF. (2017). Tax issues affecting the tourism sector in Rwanda. Kigali: PSF.

xxxiii.  Rohaya, M. N., NurSyazwani, M. F., & Nor’Azam, M. (2010). “Corporate tax planning: A study on corporate effective tax rates of Malaysian listed companies”. International Journal of Trade, Economics and Finance, 1 (2), 1-5.

xxxiv.  RRA. (2017). Compilation of Rwanda fiscal laws and regulations. Kigali: RRA.

xxxv.   Saldias, R. (2012). Access to credit and the determinants of technical inefficiency  among  specialized small farmers in Chile. Bogota: Prentice Hall.

xxxvi.  Salinger, M., & Summers, L. H. (1983). Tax reform and corporate investment: A micro econometric simulation study. Behavioral simulation methods in tax policy Nanalysis. Retrieved from https://doi.org/10.3386/w0757.

xxxvii.   San, O.T., & Heng, T.B. (2011). Capital structure and corporate performance of    Malaysian construction sector. International Journal of Humanities and Social Science, 1 (2), 28-36.

xxxviii.   Saunders M., Lewis P., & Thornhill, A. (2009). Research methods for business students, (5th Ed.). New York: Pearson Professional Limited.

xxxix.                  Scholes, M. S., Wilson, G. P., & Wolfson, M. A. (1992). “Firm’s responses to anticipated reduction in tax rates: The tax reform Act of 1986”. Journal of Accounting Research, 3 (4), 625-650.

xl.     Selltiz, C., Jahoda, M., Deutsch, M., & Cook, S. (1959). Research methods in social relations. New York: Holt, Rinehart and Winston, Inc.,

xli.   Sheng, L. (2017). Factors determining the success or failure of a tourism tax: A theoreticalmodel. Tourism Review,72 (3),274-287.

xlii. Tian, G., & Zeitun, R. (2007). Capital structure and corporate performance: evidence from  Jordan. Australian Accounting Business and Finance Journal, 1 (4), 782-     791.

xliii.     UNCTAD. (2004). World investment report: The shift towards services.New York: UNCTAD.

xliv.    Upneja, A., & Dalbor, M. C. (1999). An examination of leasing policy, tax rates, and financial stability in the restaurant industry. Journal of Hospitality and Tourism         Research, 23 (1), 85–99.

xlv. Zikmund, W. G., Babin, B. J., Carr, J. C., & Griffin, M. (2010). Business research methods (8th     Ed.). New York: South-Western/Cengage Learning.

Cite this Article:

Jean Bosco Harelimana , Effect of Income Tax on Financial Performance of Hotel Industry in Rwanda, American Based Research Journal 09(2021):01-17 DOI: 10.5281/zenodo.5592711