Relationship between Income Tax and Profitability of the Hotel Sector in Kenya

Abstract

Taxation is a global economic phenomenon of paramount importance, serving as a shared fiscal responsibility between citizens and governments. This comprehensive review explores the intricate relationship between income tax and profitability, focusing on corporate tax, Pay as You Earn (PAYE), withholding tax, and their impact on businesses, particularly star-rated hotels in Kenya. The theoretical frameworks of Tax Incidence Theory and Labor Market Theory provide valuable insights into understanding the complex interplay between taxation and profitability in the hospitality industry. Drawing from empirical literature, this review explores studies from Nigeria, Kenya, and Romania, shedding light on the complex relationship between income tax and profitability. It discusses how corporate tax rates, employee income taxes, and other tax-related factors can influence a company's financial performance. This study concludes that there is an intricate negative relationship between income tax and profitability in the context of Kenyan star-rated hotels, considering corporate tax, PAYE, and their implications. The study aims to contribute to effective tax policies that support the industry's sustainable growth in Kenya and potentially other similar industries globally.