5.2018

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Study on the effectiveness of tax payer education as a revenue collection strategy in KRA
(KESRA/JKUAT - Unpublished research project, 01-09-18) Rotich, Patrick Kipkemoi
Taxpayer education can be described as a method of educating the people about the whole process of taxation and why they should pay tax. It assists taxpayers in meeting their tax obligations to the government. This means that the primary existence of taxpayer education is to encourage voluntary compliance amongst taxpayers. Taxpayer education program serves to: create taxpayer awareness of laws and procedures, educate taxpayers on their tax responsibilities and rights, assist and motivate taxpayer to comply voluntarily, assist taxpayers on reporting the correct income and amount of tax, maintaining close relationship between the tax authority and the taxpayer continuously, and, instill public confidence in taxation system. It is expected that, tax education will assist taxpayers to understand tax laws and procedures as well as creating positive tax compliance attitude. It was envisaged, that with an electronic filing system implemented, KRA will increase revenue collection, reduce the time taken in verification of manual data, reduce operational costs, and thereby channel and dedicate more time to taxpayer education to increase the rate of compliance. There is a paucity of published work on the effectiveness of tax payer education as a revenue collection strategy in KRA, particularly in the context of developing countries in the dynamic African region and specifically in Kenya. This study intended to bridge this gap in knowledge that exists. The objective of this study was to establish the effectiveness of tax payer education as a revenue collection strategy in KRA focusing on Nairobi region. The study adopted a descriptive research design. The target population was the four different KRA regions in Nairobi, namely Nairobi North, Nairobi East, Nairobi West, and Nairobi South. Simple random sampling was applied in order to randomly pick 120 respondents who participated in the study. The study relied on data collected through questionnaires structured to meet the objectives of the study. Responses were tabulated, coded and processed by use of a computer Statistical Package for Social Science (SPSS) version 20.0 program to analyze the data. The study found that there exists a relationship between staff training, stakeholder sensitization program, and media education and revenue collection strategies in KRA. Therefore, study concludes that staff training, stakeholder sensitization program, and media education are statistically significant and they therefore influence revenue collection strategy in KRA. The study recommends that there is need for the more training on the reforms and modernization at KRA should be offered so as to improve on the skills, knowledge and professional capacity of the employees. This will improve service delivery in terms of clearance and increased revenue; KRA should also focus on maintaining a good corporate image to ensure that its training programs are perceived in good light by the tax- paying public; KRA should strive to facilitate participation by all sectors and categories of taxpayers. There is also need to conduct a study on the challenges facing tax payer education and sensitization in Kenya.
Effects of debt collection methods on revenue targets in Kenya Revenue Authority
(KESRA/JKUAT - Unpublished research project, 01-10-18) Muthami, Alice Waturi
The study sought to establish the effect of debt collection on Kenya Revenue Collection revenue targets among small and medium taxpayers in Central Kenya. The study employed a descriptive research design to achieve the desired objectives. The target population under the study was 600 who fall in the category of small and medium taxpayers in the Central Kenya Region, Nyeri Station. The study employed the use of questionnaires to collect the required data from the respondents who were a sample of 66. The data collected was coded, quantified, and analyzed quantitatively and qualitatively. The findings show that there was a positive relationship between revenue collected and GDP and debt collected and a negative relationship between revenue collection and rate of inflation. It was further found that GDP was statistically significant in the regression model while debt collected and rate of inflation were not statistically significant. Though debt collection is not a strong determinant to revenue collection it was concluded that use of effective tools would reduce debt portfolio and that following up on unpaid taxes will foster equity and encourage compliance amongst taxpayers. The study recommendations are: there is need for the treasury to fast track waivers processing to enable the KRA reduces its debt portfolio accordingly. Where the waiver has been denied then the authority will be better place to follow up with that debt soon rather than later and where it has been granted then the debt can be written off from the system and update its debt portfolio. The society in general is ignorant about their tax laws, hence there is need for KRA to simplify the tax system and make it easy for the taxpayers to know their tax obligations and honour them accordingly. This will avoid cases of debt arising out of audit as the taxpayer is assessed on what he was ignorant about
Factors influencing capital gains tax performance in Thika district real estate
(KESRA/JKUAT - Unpublished research project, 01-10-18) Gathuri, Jewel Wambui
Capital gains tax is a tax imposed on the increase in value of marketable assets between the date of their acquisition or some fixed date and the time of disposal, when the tax becomes payable. Policy analysts have had diverging views of the effects of Capital Gains Tax on any given economy. Capital gains tax (CGT) has been reintroduced in Kenya as part of the government’s efforts to increase revenue and plug the budget deficit following an amendment in the 2014 Finance Act. This study therefore aimed at establishing the factors influencing the performance of CGT in Thika District Real Estate namely: lock in effect, costs and level of income. Stakeholders have raised a number of concerns on the reintroduction of this tax, whereas it is not in doubt that CGT is an important aspect of Kenyan economy, concerns have arisen on a number of issues especially since the revenue from CGT collection has faced a downward trend. Agency theory states that an agency problem occurs in such a relationship when asymmetric information is available to either party. Prospect theory states that people value gains and losses differently and as such will base decisions on perceive gains rather than losses to achieve fulfilling results for this study, the study adopted the use of the questionnaires as well as reports from KRA on remittance of the CGT and 3 top developers of real estate in Thika comprised the study’s target population of 50 respondents from which a sample size of 40% was used. The study adopted regression analysis using SPSS to establish the relationship between the dependent and the independent variables. The study findings show that Capital gains tax discouraged sales of appreciated assets because assets subject to capital gains taxation are generally held for a longer time by investors who hold assets, which have increased in value thus impacting Capital Gains Tax negatively. It was also found that the use of agents and brokers lead to high compliance costs for the tax payer and would at times lead to tax irregularities. The study also found that embracing technology would suffice in minimizing this loophole as well as ensure efficiency of tax collection. The findings revealed that 46 percent of the changes in tax performance in real estate are as a result of the factors identified in the research while 54 percent are others that are not included in this particular research. The study therefore recommends that; more variables should be used to widen the scope hence more comparisons. Kenya Revenue Authority take it upon themselves being the Tax Administration Authority to employ more technical staff and train them in interpreting the tax laws. The policy makers should introduce stringent measures in form of tax penalties and fines on the real estate firms and tax payers who violate and act as an obstacle in the administration of this tax
Effect of tax incentives on performance of manufacturing firms in Kenya
(KESRA/JKUAT - Unpublished research project, 01-10-18) Musau, Gilbert Kyalo
Tax incentive is a global phenomenon for governments for attracting more investments by companies operating in different economic sectors. The main objective of this study was to examine the effect of tax incentives on performance of manufacturing firms in Kenya, taking Nairobi County as a case study. The study was guided by the following specific objectives: to identify how investment deductions affect performance of manufacturing companies in Nairobi County, to examine the impact of wear and tear allowance on performance of manufacturing companies in Nairobi County, to investigate the influence of industrial building deductions on performance of manufacturing companies in Nairobi County, to examine the effect of tax exemptions and remissions on performance of manufacturing companies in Nairobi County, and to establish how tax holidays influence performance of manufacturing companies in Nairobi County. The study adopted New Growth Theory, Tax Discrimination Theory, and Theory of Investment Behaviour. Employing descriptive research design, the study’s target population was manufacturing companies in Nairobi County. There are approximately 343 manufacturing companies in the county spreading across different sectors (KAM). This study focused on three domains namely consumer goods, industrial goods, and healthcare goods companies. A sample of 137 respondents comprising of top managers, mid-level managers and junior managers was used in the study. Stratified and simple random sampling techniques were used to pick participants. Through a structured questionnaire, the study mainly used quantitative data collected through both face-to-face and self-administered interviews. Quantitative data was analyzed using Statistical Package for Social Sciences (SPSS) and Excel Worksheets. Qualitative data was organized using NVivo software and a thematic critical discourse and content analysis was done. Data was then presented through frequency tables and graphs as well as through narrative reports. The study adhered to ethical considerations, observing the principles of confidentiality and beneficence. The study established that tax incentives had a significant effect on company performance. However, it also emerged that not all manufacturing companies were aware of tax incentives and their effect on company performance. Besides, not all tax incentives had similar impact on company performance. It is anticipated that the study findings will help the government and tax agencies to address taxation in companies dealing in all sectors. The findings will also add to the existing literature in the area of tax incentives and company performance.
Factors influencing capital gains tax revenue collection in Kenya
(KESRA/JKUAT - Unpublished research project, 01-10-18) Ogega, Margaret Nyakoboke
The imposition and collection of taxes is simply one of the fundamental policy instruments used to achieve governmental social and economic goals. The Finance Act 2014 reintroduced capital gains tax effective January, 2015 with applicable rate of 5% in order to widen the tax base, promote equity in taxation and obtain funds to bridge the budget deficit. Capital gains tax is levied on net gains realized on sale of land, sale of building, privately traded shares and intangible assets with respect to companies. The general objective of the study was to determine the factors influencing capital gains tax revenue collection in Kenya. The influencing factors were classified under headings; capital gains tax rate, capital gains tax structure, capital gains tax knowledge and capital gains compliance strategies. The respondents were staff in Kenya Revenue Authority which is in charge with the responsibility of administration of tax laws and collection of revenue. The study focused on one of the domestic taxes the capital gains tax. The research design adopted was a descriptive research design. The target population comprised of One hundred fifty (150) employees of the Kenya Revenue Authority that are charged with the responsibility of administration and collection Capital gain tax. The study took a census approach targeting all the officers charged with the responsibility of CGT excluding the commissioners countrywide. The total number of respondents was one thirty-three (133) employees involved directly in capital gains tax collection. The study collected data using a structured questionnaire, which consisted of four sections. Primary data was obtained directly from the respondents, where the researcher used both personal administration and drop and pick later method. Before the actual data collection process, a pilot test was carried out to determine validity and reliability of the data collection tool. In data analysis, both descriptive and inferential statistics that entailed conducting Pearson’s correlation analysis was used to measure the relationship between variables. The analysis was done with the aid of SPSS software. The study revealed that Capital gains tax rate had significant contribution to capital gain tax revenue collection. The structure of capital gains tax including the inflation and indexation, historical documentation and understanding of the CGT computation was found to impact on the capital gains tax revenue collection. The CGT compliance strategies on twining of CGT with stamp duty payment, Stakeholder engagements, has improved Capital Gain Tax collection marketing, stakeholder engagements, Automation of CGT processes and review of tax laws on capital gains tax laws contributed to enhanced CGT, thus enhancing income tax revenue collection. The study recommends that in view of the fact that CGT administration changes have an impact on CGT revenue collection, Kenya Revenue Authority and the associated stakeholders such as National Treasury, should establish measures to mitigate the challenges of structure of the CGT such as taking into account inflation and indexation, harmonization of the capital gains tax system with the East Africa member states and alignment of the Stamp Duty tax laws and Income Tax laws so as to enforce the simultaneous payment stamp duty and capital gains tax. There are also gaps in the 8th Schedule of the Income Tax laws and there is a need to review the law to seal the gap that has led key stakeholders to take legal actions on the process of collecting capital gains tax. The changes in the Finance act need to be incorporated in the iTAX system to mitigate taxpayers’ challenges when declaring CGT. There is also need for maintaining a single portal for collection of capital gains tax and stamp duty tax to promote efficiency, accuracy and accountability.
Factors influencing tax compliance among small and medium enterprises in Nairobi county
(KESRA/JKUAT - Unpublished research project, 01-10-18) Ngove, Beatrice Mwikya
The main objective of the study was to examine factors influencing tax compliance among small scale enterprises in Nairobi County with special focus on SMEs in Toi market. The study contributes to the larger literature in the field of tax compliance and also industry players will understand some of the factors that are likely to influence tax compliance among small scale enterprises. The study was guided by the following objectives: To examine the influence of tax knowledge on tax compliance among small scale enterprises in Toi market, to establish the influence of tax rates on tax compliance among small scale enterprises in Toi market, to find out the influence of compliance cost on tax compliance among small scale enterprises in Toi market and to examine the influence of perception on tax compliance among small scale enterprises in Toi market. In examination of factors influencing tax compliance, this study utilizes two theories: Deterrence Theory and Psychology Theory. The target population was all SMEs operating within Toi market who are approximately 500 and 26 KRA Compliance staff based in East of Nairobi Station that is in charge of taxpayers in East of Nairobi areas where Toi market falls under. Considering nature of the study, a sample of 30% of the population (53) was used and a simple random sampling was adopted with questionnaire as the data collection instrument. The study analyzed both quantitative and qualitative data and the findings are presented using frequency tables, pie charts and graphs. The study had high response rate of 92%. The survey data indicate that regarding at least certain elements of the relationship between how fair individuals perceive the tax system to be and their levels of tax compliance, there may be distinct differences.
Effects of technology adoption on vat and excise duty compliance in Kenya
(KESRA/JKUAT - Unpublished research project, 01-10-18) Bifwoli, Chrisantus Barasa
In the current world, technology adoption is very important and is one of the key elements to the success of most economies in terms of quality delivery of products and services, operations and the provision of services. Therefore, most organizations are trying to take advantage of the increasing technological adoption to counter the ever increasing competition from other organizations. In Kenya, as an example of a growing economy, organizations such as the Kenya Revenue Authority (KRA) has shown tremendous growth in revenue collection because that have been enabled by the adoption of advanced technology. This research paper presents the current trend of which KRA is trying to adopt advanced technologies in its activities so as to improve its services to Taxpayers and generate revenue for the Government of Kenya. This research also proved that the adoption of new technologies by KRA has shown significant changes over the period of time in the quality of services delivered and the amount of revenues collected. The clarifications and data analysis of how KRA uses Information technology in their operations was well illustrated in the literature review and the observations. Three variables was applied in the implementations of Information technology that is used in this research paper. The three variables include; -The degree of which the new technologies are being adopted -The degree of utilization of these technologies -The changes that the technologies have brought to the Kenya Revenue Authority in revenue growth. During the study, the participants were assured of confidentiality and anonymity of the information they provided. Informed consent was obtained from them. The high response rate was obtained in this study by giving enough time to participants to fill the questionnaires and personal visits made by the researcher on follow up calls to the participants. The objectives of the research was; to assess the effect of itax down times on VAT and Excise tax compliance, to investigate the effect of technological coverage on VAT and Excise tax compliance and to evaluate the effect of cost of technology on VAT and Excise tax compliances. The study was conducted in Nairobi in the main offices of the Kenya Revenue Authority, Domestic Taxes Department Large taxpayer office. Most of the direct questions were directed to the compliance and recruitment officers with over 5 years working experience, the tax agents and newly Vat/Excise registered taxpayer into the K.R.A systems. The sample frame for this study was drawn from compliance and recruitment officers of KRA’s Domestic Taxes Department- Large Taxpayers Office. Email lists were used as a sampling frame to obtain the names of Tax agents and new taxpayers that are being introduced into the KRA system. Sample and Sampling Technique, the participants were equally distributed to the various KRA Domestic Taxes Department-LTO section, compliance and recruitment programs and new taxpayers in this area of study. Each participant was expected to have at least a sample of 5 respondents. The sampling procedure was not discriminate on matters such as gender and race. This study was based mainly on primary research and therefore the most appropriate instrument to collect data for the study was questionnaires. This is because questionnaires are considered more reliable compared to other methods and also provides references with very little alterations (Cooper & Schindler, 2001). Some questionnaires were hand delivered while others were filled online as some of the respondents were not available at that time but only accessed through emails. Secondary data was administered through examining the previous statistical records relating VAT and Excise recruitment and revenue growth associated with technology adoptions over the specific period of time. Data collection procedure, in order to ensure validity and reliability of the research, the questionnaires were constructed carefully with no ambiguity. This helped to facilitate answers to all research questions presented. The questionnaires were pre-tested through a pilot study after which corrections and adjustments was made, which ensured reliability. These results was not be included in the study, but the time that the participants will took to complete the questionnaires was noted and informal feedback obtained. Data Processing and Analysis, the quantitative data collected was analyzed using the basic analysis procedures such as tabulating which is the best method when it comes to the comparison of figures. The qualitative data was analyzed using conceptual content analysis because it is the best analysis method for qualitative data. The data analyzed was presented in bar graphs for the quantitative data and pie charts for the qualitative data. Tables and figures and suitable illustrations were also used.
Impact of iTax System On Vat Compliance: A Case of North of Nairobi Station
(KESRA/JKUAT - Unpublished research project, 2018) Seroney, Edwin K
The objective of this research study was to find out the impact of the tax system on VAT compliance in North of Nairobi Station. The objective of the study was answered using three research questions which revolved around e-registration, e-filing, and e-payment and how each is affected by the iTax system in order to enhance VAT compliance. The study was based on three theories that provide the theoretical background of this research study. The theories include; Theory of Reasoned Action (TRA), Psychological Theory and Theory of Planned Behavior (TPB). This was followed by the review of existing empirical literature for each variable and a conceptual framework of the same. In order to come up with the research gaps, critique of existing literature as advanced by different scholars was carried out and discussed at length. A summary was then drawn from the literature review. The research problem was solved using descriptive study design. The target population for the study was 142 KRA DTD officers stationed at North of Nairobi, KRA headquarters Times Tower building. The Fishers model was used to select 103 respondents for the study. A four-point Likert scale structured questionnaire which covered all variables of the study was used to collect primary data. A pilot test was conducted to assess validity of the research instruments, whereas Cronbach’s coefficient alpha was used to determine reliability of the research instruments. Data obtained was subjected to quantitative methods of data analysis using SPSS (version 25). The results obtained were presented using tables and graphs for ease of understanding and interpretation. In addition, both correlation and regression analyses were done and summaries presented. Both descriptive and inferential statistics were used to analyze the data. The statistical significance of relationships among selected variables was determined using multiple regression analysis. The study established that e-registration, e-filing and e-payment have a significant contribution on VAT compliance at North of Nairobi station. The study concluded that the iTax system has an impact on VAT compliance in North of Nairobi station, though KRA DTD officers at North of Nairobi station feel that taxpayers are still faced with system challenges
Determinants of Residential Rental Income Tax Compliance by Property Owners in Thika Town
(KESRA/JKUAT - Unpublished research project, 2018) Mbeni, Caroline Kalunde
Tax compliance has been a crucial subject to researchers in many countries around the globe. In most third world countries house rental taxation has been classified as economic. In Kenya, statistics indicate that less than half of property owners and developers comply with rental income tax requirements. Thus, this study sought to examine the determinants residential rental income tax compliance by property owners in Thika town. The study employed a descriptive research design and collected data from a sample of 58 property owners using questionnaires. The data collected was analyzed using descriptive and inferential statistics with the help of Statistical Package for Social Sciences version 21 for evaluation of relation between dependent and independent variables. Multiple regression model was adopted. The findings of the study found a significant positive relationship between tax rate, tax knowledge and residential rental income tax compliance and an insignificant positive relationship between attitude and perception and residential rental income tax compliance. The study also found an insignificant negative effect between income levels, fines and penalties and residential rental income tax compliance by property owners. The study concluded that tax rate, tax knowledge, attitude and perception positively influence residential rental income tax compliance while income levels, fines and penalties negatively influence residential rental income tax compliance by property owners. It was recommended that KRA develops training programs to create awareness on residential rental income tax compliance by property owners and that the tax authority in Kenya (KRA) should develop effective working policies to develop a positive relationship and trust with taxpayers. It was recommended that further study be carried on the other factors that affect compliance with residential rental income tax and study to cover other areas besides Thika Town.
Impact of iTax On Vat Revenue Collection in KRA: A Case of Machakos Station
(KESRA/JKUAT - Unpublished research project, 2018) Okello, Fredricke Bryan
The objective of this research study was to establish the impact of the iTax system on VAT revenue collection at KRA Machakos station. The objective of the study was answered using three research questions which revolved around online filing, online payment and online monitoring and how each is affected by the iTax system in order to enhance VAT revenue collection. The study was based on three theories that provide the theoretical background of this research study. The theory includes; technology acceptance model (TAM), Theory of Planned Behavior (TPB) and theory of reasoned action (TRA). This was followed by the review of existing empirical literature for each variable and a conceptual framework of the same. In order to come up with the research gaps, critique of existing literature as advanced by different scholars was carried out and discussed at length. A summary was then drawn from the literature review. The research problem was solved using descriptive study design. The target population for the study was DTD staff at Machakos station. The study targeted 78 employees. The Fishers model was used to select 65 respondents for the study. A four-point Likert scale structured questionnaire which covered all variables of the study was used to collect primary data. A pilot test was conducted to assess validity of the research instruments whereas Cronbach’s coefficient alpha was used to determine reliability of the research instruments. Data obtained was subjected to quantitative methods of data analysis using SPSS (version 25). Results obtained were presented using tables and graphs for ease of understanding and interpretation. In addition, both correlation and regression analyses were done and summaries presented. Both descriptive and inferential statistics were used to analyze the data. Statistical significance of relationships among selected variables was determined using multiple regression analysis. The study established that online filing, online payment and online monitoring have a significant contribution on VAT revenue collection at Machakos station. The study concluded that iTax system has an impact on VAT revenue collection in Machakos station though KRA DTD officers at Machakos station feel that taxpayers are still faced with system challenges
Factors influencing value added tax compliance in the construction firms in Kiambu county
(KESRA/JKUAT - Unpublished research project, 2018) Munyaka, Bonface Mbogo
Tax compliance is the degree to which the taxpaying community meets the tax obligations set out in the appropriate legal and regulatory provisions. The construction industry contributes approximately 4.2% to the Gross Domestic Product. The main objective of the study is to establish factors influencing Value Added Tax compliance among the construction firms in Thika District. The researcher employed a descriptive design to collect a large quantity of information about the population being studied. The study targeted all registered construction firms within Thika District. The researcher collected primary data from the sampled construction firms using self-administered questionnaires. Data collected was analyzed using Statistical Package for Social Sciences and the study findings presented in the form of tables. The results show that all the established factors have a significant influence on the Value Added Tax compliance among the construction firms. The findings revealed that tax understanding and knowledge has a significant effect on tax compliance. Better understanding of VAT laws encourages voluntary compliance. Reduced tax compliance cost is associated with high levels of tax compliance. The study findings reveal that effective imposition of fines and penalties play a vital role in improving tax compliance. The findings of the study show that taxpayer perception and attitudes has a significant effect on tax compliance. It is therefore prudent for KRA to enhance their taxpayer education activities to enable businesses have better understanding of various factors affecting tax compliance. These study findings will help KRA and the government develop interventions that will encourage voluntary tax compliance that will lead to increased revenue collection to enable the government provide goods and services to its citizens. Key Words: Tax compliance; construction industry; Value Added Tax.
Effects of Tax Incentives in The Development of Manufacturing Industries in Nairobi, Kenya
(KESRA/JKUAT - Unpublished research project, 2018) Wangu, Munene Rosemary
This paper investigated the effects of fiscal incentives such as corporate tax incentives, capital allowance incentives, and VAT incentives on the development of the manufacturing industries in Nairobi. The study used Return on Assets (ROA) as the proxy for development. The researcher was motivated by the fact that many developing nations, like Kenya, often use fiscal incentives to attract foreign direct investment (FDI) through export processing zones (EPZ). The companies that invest in this zones often receive unique treatment and incentives for a given period of time. However, several researchers have investigated the effects of the incentives on the EPZs but not on the general manufacturing environment. Therefore, this research sort to understand if the fiscal incentives on the manufacturing sector without focusing on a specific are of production of zone. The study employed a descriptive survey research design. For data collection, the researcher employed random sampling to gather a sample of 51 respondents from an initial target sample of 80 respondents. The study used a questionnaire as the main data collection instrument. The data collected was analyzed using descriptive statistics and was regressed to give a statistical meaning to the results. The final regression equation was, ROA = 22,892,923 + 4.952 (corporate income tax incentive) + 9.344 (Capital allowance incentive) + 0.254(VAT Incentive). This showed that the various fiscal incentives all have a positive and significant effect on the development of manufacturing industries in Nairobi. The study concluded that even though these incentives are effective in stimulating development, they require other policies in order to maximize their effects on the manufacturing sector. The researcher recommended that the government should implement other policies that improve the business environment for the manufacturing sector. The government should focus on the local manufacturers and the reduction in the cost of doing business in order to maximize the effectiveness of the fiscal incentives in the economy as a whole. Keywords: Return on assets, corporate tax incentives, capital allowance incentives, VAT incentives, and export processing zones.
Factors Affecting Compliance of Medium Taxpayers in Nairobi County
(KESRA/JKUAT - Unpublished research project, 2018) Mutsiambo, Phelistas Ludia
Tax compliance remains a key area of focus in most governments all over the world and revenue collecting institutions. In Kenya, tax revenue has remained low compared to registered taxpayers in the KRA tax system. This scenario is the same even after continuous field audits, compliance checks, debt monitoring, enforcement, and market surveillance among other initiatives. Revenue collection stands at 19.5% of Gross Domestic Products (GDP). The main objective of this study was to investigate factors affecting compliance in revenue collection by medium taxpayers in Nairobi County. The study was guided by the following specific objectives, that is, to determine the influence of literacy level, business performance, tax law complexity and technology influence of tax compliance among medium taxpayers in Nairobi County. Most of the research done so far have always placed emphasis on compliance, tax evasion and avoidance, recent research indicates that taxpayers are ridden with challenges, which are often overlooked. This study adopted a descriptive research design. The study targeted medium enterprises operating their business in Nairobi’s Industrial area. There are 500 Medium Scale Enterprise operating in this area. This study adopted simple random sampling technique and this is chosen because the researcher focuses on traders operating in a given area. The nature of data that was used in this study was primary data. The data was presented in tables and graphs and explanation will be presented in prose. The study found that a majority of the medium taxpayers have moderate to slightly high levels of understanding of their tax obligations. Filing tax returns and comfortably engaging in various tax calculations without assistance. Majority of medium taxpayers, taxes paid are somewhat less than the profits they make. The study concludes that majority of the medium taxpayers have moderate to slightly high levels of understanding of their tax obligations particularly with regard to filing tax returns and comfortably engaging in various tax calculations without assistance. Majority of medium taxpayers, taxes paid are somewhat less than the profits they make. The tax laws are however moderately complex in respect to tax obligation as set out in various tax laws and comfortably engaging in filing tax returns as required by law. The study further concluded that deduced that technology has significantly enhanced revenue collection among a majority of medium taxpayers in the country particularly in registration of taxpayers using the electronic tax registers and in filing tax returns using the iTax System. The government should sensitize the taxpayers on the importance of paying tax. The study also recommends that Kenya Revenue Authority should embark on public awareness campaigns to educate the public on their role. Medium taxpayers should also be educated on basic tax calculations to reduce the indirect costs associated with compliance with this policy.
Effectiveness of Time Series Models On Forecasting of Value Added Tax Revenue in Kenya Revenue Authority
(KESRA/JKUAT - Unpublished research project, 2018) Kithure, Muthuri Evans
Taxation is one of the means by which governments finance their expenditure by imposing charges on citizens and corporate entities. Tax revenue forecasting plays a central role in annual budget formulation. It provides policy makers and fiscal planners with the data needed to guide borrowing, use accumulated reserves, or specify monetary measures to balance the budget. Therefore, it is necessary for a government to forecast the revenue it collects for planning purposes. Kenya Revenue Authority (KRA), is an agency of the government of Kenya that is responsible for the assessment, collection and accounting for of all revenues that are due to government, in accordance with the laws of Kenya. The main objective of this study was to fit time series models in the data series of revenue collections and establish their effectiveness as far as revenue forecasting is concerned. The study used the monthly Value Added Tax (VAT) collections data from the financial year 2009/2010 to 2015/2016 with the general objective of exploring patterns in the data such as trend, seasonal components, cycles among others and further establish a suitable forecasting model which can be used to predict the amount of VAT revenue to be collected in a certain specified period. The first step was to check if the series was stationary by using Dickey Fuller Test, thereafter transformation by differencing if the series was not stationary. The order of the models was tentatively chosen by analyzing the ACF and PACF plots of the data. This resulted to AR(3) model, MA(1) model, ARMA(3,1) model and ARIMA(3,1,1) model which were fitted to the data series. In order to select the best potential model, different statistics were used like BIC, AIC, AICc, and forecast accuracy measures like ME, MAE and MPE. ARIMA(3,1,1) was selected as the best model compared to the other models. Diagnostic check was made to test for correlation and normal distribution of the residuals using Box-Ljung test, Q-Q plots and Shapiro wilk test and the results showed normal distribution of the residuals with no correlations for all the models. Using the models, forecast of VAT revenue collection in the financial year 2016/2017 was made and the forecasted values compared with the revenue collections that were made in the respective financial year. ARIMA (3,1,1) produced better forecasted values as compared to the other models. Therefore ARIMA (3,1,1) was chosen as the best effective model to fit the data series and forecast the VAT revenue collections.
Challenges Facing Value Added Tax Refunds Payment Process by Kenya Revenue Authority
(KESRA/JKUAT - Unpublished research project, 2018) Mohamed, Fatuma Milgo
Delay in VAT refunds payment has led to businessmen and traders accuse KRA of being quick to collect tax, but slow in refunding. In recent past KRA has put in place several measures to ensure that VAT refunds are timely processed and paid. These include staff training, introduction of tax audit, information technology, compliance checks, legislation and compliance laws. These measures are geared towards accelerating VAT refund processes. However, this has not been the case, and majority of taxpayers have to wait for upto three years before receiving tax refunds. The objective of the study was to establish the perceived challenges facing Value Added Tax (VAT) refunds payment process by Kenya Revenue Authority with an aim of establishing administrative impediments facing the process. The study used both qualitative and quantitative research methods to collect and analyze data. Structured questionnaire was administered to collect primary data from a population of 200 employees of Kenya Revenue Authority in the Domestic Taxes Department, Refund section. Ethical consideration was adhered to when collecting data from respondents. The study found that the further improvements are required in the area of increasing VAT refund administration capacity with an aim of increasing timely refund application, processing and payment. The Tax Authority needs to pay attention to taxpayer education, VAT refund compliance and timely audits. Finally, there is the need to recruit more staff and embark on training of newly engaged staff.
Effects of Enforcement Measures On Compliance of Turnover Tax in Kenya a Case of Muranga Town Turnover Tax Payers
(KESRA/JKUAT - Unpublished research project, 2018) Muthoni, Dolline Wanjiru
Turnover Tax was introduced in Kenya in 2007, in a bid to mobilize revenue from the informal sector and incorporate the SMEs in the national taxation system. Available literature indicates that there is a strong relationship between the informal sector and the inability of the Government to collect the requisite taxes. From the informal sector point of view, tax evasion is driven generally by a perception that the tax burden is too high. This poses a number of problems to tax systems, raising difficult questions over how tax policies and tax administration may influence tax compliance incentives and behavior (IEA, 2012). This study sought to identify the effects of enforcement measures on compliance of turnover taxes a case of Muranga Town Turnover taxpayers. The researcher identified the variables for this research to be Audit, penalties and interests, legal sanctions and compliance of TOT. The target population was 240 registered turnover taxpayers in Muranga town, a total sample size of 48 was picked as representative, to be the focus of this study. A descriptive survey design was used. Stratified sampling technique was used to create a sampling frame ensuring that different and diverse types of entities were included in the survey. Data was collected using self–administered questionnaires. The collected data was analyzed using Statistical Package for Social Scientist software and findings presented using tables. The Findings reveal that audit and penalties as enforcement measures have a direct influence on turnover ta tax compliance. The study recommends that K.R.A should increase frequency of audit and compliance check on turnover taxpayer to increase compliance. The insights of this research will help understand the effects of enforcement measure on compliance of turnover tax among Muranga TOT payers
Effect of Tax Amnesty On Rental Revenue Collection: A Case Study of South of Nairobi
(KESRA/JKUAT - Unpublished research project, 2018) Mbithe, Jacinta
Tax revenue remains the most significant source of finance for both developing and developed countries. Numerous developing countries have conducted tax amnesties in their fiscal policy to promote revenue collection. Taxation is the principal source of government revenue for budgetary purposes. Tax amnesty is a limited-time opportunity for a specified group of taxpayers to pay a defined amount, in exchange for forgiveness of a tax liability (including interest and penalties) relating to a previous tax period or periods and without fear of criminal prosecution. It typically expires when some authority begins a tax investigation of the past-due tax. Tax amnesty only collects taxes in arrears previously undeclared. This measure helps to boost short term revenue collection for the governments but does not affect long term compliance. It therefore acts as debt management strategy in addition to helping the government collects the overdue taxes to finance budgets and reduce deficits. ). A number of scholars have researched on the subject of the use of tax Amnesty as a tool of expanding the tax base of an economy. Kwatemba, (2016), study on the impact of tax amnesty on revenues in Kenya, concluded that through the amnesty, tax evaders are encouraged to pay their dues. . A descriptive study was appropriate for this study as it sought to portray accurately the characteristics of a particular situation or a group. The target population was 8000 landlords who are earning rental income both compliant and non-compliant. The analysis was both descriptive and inferential. The descriptive analysis involved frequencies and percentages. Regression analysis and correlations was conducted to determine the relationship between the dependent variable and the independent variables of the study. The findings of the study reveal that effective tax education can change the attitude and perception of property owner towards tax compliance and that the the KRA as an administration body should reducing taxpayer burden by simplifying the tax laws and administration. There is a positive correlation between the variables of the study as shown by the 47.1% while 22.2% of variations in the dependent variable can be explained by changes in the independent variables hence, the remaining 77.8% is representative of other factors not accounted for in the study. The study therefore recommends that, KRA ought to create a database through agents who collect data relating to buildings and their owners and embrace enhanced recovery measures for charges over properties.
Challenges Facing Taxation of the Informal Sector in Kenya: Case Study of Nairobi County
(KESRA/JKUAT - Unpublished research project, 2018) Memu, Pamela Kitinga
The large number of potential taxpayers in the informal sector, and the difficulties of monitoring “hidden” entrepreneurs and small-scale firms, can give rise to serious revenue collection costs for tax authorities in developing countries. At the same time, the revenue potential of taxpayers in the informal sector is fairly modest, as their taxable incomes are usually quite low. According to a World Bank study in year 2006, Kenya’s informal sector constituted 98 percent of all businesses in the country, absorbed annually up to 50 per cent of new employment seekers and had an employment growth rate of 12-14 percent. In the endeavor to realize this goal, KRA faces several problems when dealing with the informal sector. Some of these problems include financial literacy level of the taxpayers, book keeping and capital requirements. Fischer tax compliance model provides a framework for understanding the influence of socio-economic and psychological components on taxpayer’s compliance decision. AS theory holds that the government deters tax evasion through a sanction arrangement and audits. A tax payer will decide to violate the fiscal laws and evade his or her tax obligations when he or she perceives that the cost of evading tax is too low, believing he or she does that he or she is unlikely to be detected or audited. The SMEs are prone to tax evasion as they face difficulties in complying with tax laws. They are expected to comply with strict deadlines, keep proper books of accounts. This kind of environment leads to tax evasion. The study adopted a census research design with a target population of 79. This study used primary data collection through questionnaires while Secondary data was collected from published materials containing the relevant information on revenue collected from the informal sector over a period of stipulated time. The study was analyzed by use of inferential statistics and descriptive statistics by use of SPSS version 24 and the multi regression model was adopted. Findings revealed that there is a strong positive correlation between the variables of the study as shown by the 69.4% while 48.1% of variations in the dependent variable can be explained by changes in the independent variables hence, the remaining 51.9% is representative of other factors not accounted for in the study. Findings reveal that problems like tax complexity; low tax morale, low tax compliance and shadow economy may all be reduced by increasing the level of taxpayers' (individuals') financial literacy. Findings also reveal that most micro-enterprises do not keep books of accounts that will allow them to extract useful accounting information due to lack of accounting knowledge. The study thus recommends that policy makers should introduce stringent measures with respect to tax penalties and fines on the informal sector firms and tax payers who violate and act as an obstacle in the administration of this tax.
Factors affecting rental income tax compliance among landlords in Nyeri municipality.
(KESRA/JKUAT - Unpublished research project, 2018) Kering, Beda Kipkoech
Taxation is the primary source of revenue for governments throughout the world to implement their social and political agendas and to deliver services to the citizens. The general objective of this study was to investigate factors affecting rental income tax compliance among landlords in Nyeri Municipality in Kenya. This study adopted a descriptive survey design. This study was carried out to establish factors affecting voluntary rental tax compliance among the landlords in Nyeri municipality, and the cost of compliance. The study aimed to reach out to a sample of at least 285 respondents but only 156 responded and returned the questionnaires. Primary information was gathered by use of structured questionnaires. The Kenyan landlords will understand the importance of voluntarily tax compliance and reduce noncompliance costs. This in return is going to improve the performance of the government and they will enjoy the low cost of doing business due to improved services by the government. The findings on the attitudes of the Kenya landlords towards taxation, attitude and perception that politicians misuse taxes, peers and financial and family obligation had strong positive responses. Also the landlords did not have a very healthy perception towards the revenue authority and the Government in regards to taxation matters and approach. The study recommended that the government should sensitize the tax payers on the importance of paying taxes. It is also recommended that the government ought to be transparent on how the revenue collected from taxation is being utilized and KRA need to carry out tax reforms by factoring in the views of all the taxpayers. The researcher recommends that further study be carried on the other factors that might influence the voluntary tax compliance on rental income. Again further study also need to be done on the same topic but covering a different location other than Nyeri.
Effect of Revenue Collection Strategies On Financial Performance of County Governments in Kenya
(KESRA/JKUAT - Unpublished research project, 2018) Wahome, Anthony Matiru
The purpose of this study was to investigate the effects of revenue collection strategies on financial performance by the county governments in Kenya. The specific objectives of the study were to determine effects of E-payment system, penalty waiver and agency notice on financial performance of the county government. In research methodology, the study focused on descriptive research design where a target population of 334 respondents was retrieved from employees in revenue collection departments (middle level management) in Nairobi County Government, Kiambu County Government and also Machakos County Government. Sampling was conducted using stratified random sampling techniques where a sample size of 100 respondents was retrieved using 30% of the target population. Questionnaire and secondary data was used as data collection tool where data analysis was conducted using Microsoft excel with presentation being carried using percentage tables and figures. In data analysis, the study identified that Nairobi county recorded 58% effectiveness in e-payment revenue collection strategy, Kiambu county government recorded 53% effectiveness in e-payment revenue collection while in Machakos county government recorded 47% effectiveness in e-payment system. The study also identified that penalty waiver was effective at a rate of 20%, 17% and 22% in Nairobi County government, Kiambu county government and also Machakos county government respectively while agency notice was effective in Nairobi County government, Kiambu county government and also Machakos county government at a rate of 17%, 24% and 26% respectively. The study concluded that e-payment system, penalty waiver and also agency notice are effective revenue collection strategies in county governments and that there is relationship between financial performance of county governments’ and e-payment system, penalty waiver and Agency notice. It was however recommended that for effective implementation of this strategies, effective monitoring and evaluation, management commitment and also stakeholders’ engagement should be enhanced. County governments were also recommended to review their agency notice policies.

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