3. 2021

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Factors Affecting Value Added Tax Compliance Among Mechanics IN Nairobi County.
(2021) Lutomia, Eliud
Taxation of the informal economy has been a challenge faced by many countries in various regions of the world. Even, though many countries especially the developing economies struggle with meeting the demand for more revenue generation, the informal economy has been left untapped appropriately. Several studies have been carried in this area and still, there is no better and agreeable way on how to tax the informal economy which seemingly has the potential to plug the revenue gap. For this reason, the study aimed at investigating the effect of value added tax on VAT compliance among mechanics in Nairobi County. The specific objectives of the study were to investigate the effect of VAT knowledge on VAT compliance, the effect of VAT imposition procedures on VAT compliance, and the effect of tools and systems on VAT compliance among mechanics in Nairobi County. The study was anchored on the ability to pay theory and systems theory. The study adopted an explanatory research methodology. The target population was a total of 428 from where a sample of 207 owner mechanic garages was drawn using the Brigit and Lewin formula. Both cluster and systematic sampling techniques were used to reach the target respondents. Primary data was collected using a self-administered questionnaire on a 5-point Liker t scale with closed ended questions. Study instrument was subjected to validity, reliability and statistical assumptions of regression tests before data were analyzed. Descriptive data was then presented in descriptive tables while inferential statistics were analyzed using regression and correlation analysis. Multiple regression analysis was established with a positive insignificant linear relationship between VAT knowledge on VAT compliance among mechanics in Nairobi County with evidence of beta 0.074, p=0.294, ρ>0.05. However, there was a positive significant linear effect of VAT imposition procedures on VAT compliance among mechanics in Nairobi County with evidence of beta -0.235, p=0.003, ρ
Factors Affecting Residential, Rental Income Tax Compliance Among Landlords In Nyeri Municipality, Nyeri County, Kenya
(2021) Wanjiku, Ngunjiri Janet
Taxation is the main source of government revenue used to finance its public expenditure. Increased government spending and the need to finance public activities have resulted to the government bringing into tax the real estate sector. However, the issue of tax compliance is a big challenge facing small, medium, large taxpayers and governments in both developed and developing countries as it threatens the capacity of tax authorities to raise the expected revenue. This is evidenced by many governments being unable to meet their target revenues collections. A report by Kenya Revenue Authority in 2012 reveals that less than 40% of landlords and other developers comply with tax requirements adding that the authority’s ability to identify and capture all landlords in the tax net was not optimal. Therefore, this study sought to determine the factors affecting residential rental income tax compliance among landlords in Nyeri municipality. The specific objectives of this study were: to determine the effect of taxpayer knowledge, taxpayer education, compliance costs and deterrence sanctions on tax compliance of residential rental income tax among landlords in Nyeri municipality. The theories supporting this study included: the theory of planned behavior and economics deterrence theory. This study adopted explanatory research design with target population of 1,909 landlords and a sample size of 330 respondents in Nyeri Municipality using simple random sampling technique. The primary data was collected by use of close ended questionnaires. Data was analyzed using descriptive and inferential statistics and presented using statistical, graphical and a combination of both. The findings of this study indicated that taxpayer knowledge had a positive and significant effect on residential rental income tax compliance (β= 0.424, p
Effects Of Tax Mobilization External Public Debts In Kenya
(2021) Gacheru, Wambui Esther
The rate at which Kenya is borrowing has been on the rise in the past five years to harmonize the budget deficit resulting from low revenue collection which cannot cater for the desired expansion of the economy and development of infrastructure. Kenya’s external public debt is on the rise and portrays a state of distress. There is therefore need to examine whether there are threats of debt overhang in Kenya and how tax mobilization can enhance external public debts servicing. Thus the current study sought to investigate the relationship between of tax mobilization and external public debts in Kenya. The study was guided by tax reforms, tax mobilization strategies and how tax mobilization resources as independent variables and external public debts in Kenya as dependent variable. Four major theories guided the study namely theory of tax smoothing, classical theory of public debt, Keynesian debt theory, and Lerner’s theory of functional finance. The study used primary and secondary data. The target population of the study comprised of 1332 domestic taxes department staff in KRA. The study employed stratified random sampling technique in coming up with a sample size of 308 respondents. Descriptive statistics was used in organizing and summarizing the data while regression and correlation analysis were used to test the study hypotheses by establishing the relationships between independent and dependent variable. In regard to primary data the study found that tax mobilization reforms (β1=0.558, p=0.02760.05). The results imply that for any unit change in tax mobilization resources would lead to a decrease in external public debt by 1.308 units holding all other factors constant. From the findings, the study recommends a multi pronged and multi agency approach towards reducing public debt. The Kenyan government should also aim to reduce its recurrent expenditure characterized by huge wage bill that stifles the mobilized revenue.
Effect Of Tax Incentives On The Performance Of Export Processing Zones Enterprises In Mombasa County, Kenya
(2021) Njoroge, Ronald ndungi
Governments around the world are keen to boost their level of exports. Tax incentives are one common tool that can boost the performance of EPZ firms across the globe. In Kenya, the performance of EPZs firms has been declining in the past decade in comparison to other EPZs in both Africa and Asia. The purpose of this study was to establish the effect of tax incentives including capital deductions, VAT incentives and corporate income tax incentives on the performance of EPZs firms in Mombasa County in Kenya. The specific objectives of the study were to determine the effect of capital deductions on the performance of EPZs firms in Mombasa, to establish the effect of VAT incentives on the performance of EPZs firms in Mombasa and to determine the effect of corporate income tax incentives on the performance of EPZs firms in Mombasa. The study explored the optimal tax theory, benefit theory of taxation and Q theory of Investment. This research adopted an explanatory research design based on panel data for a period of ten years starting from 2010 to 2019. The population comprised 28 firms registered and licensed by Export Processing Zone Authority (EPZA) as at 2019 in Mombasa Country. The study used secondary data which was collected from EPZA and which was analysed using multiple regression analysis to establish the relationship between the particular tax incentives and performance of EPZ firms as indicated by net profit. The findings of the study revealed that Capital Deduction (β=10.989, P=0.004), VAT incentive (β=1.983, P=0.023) and Corporate Income tax incentive (β=2.340, P=0.033) have a positive and significant effect on the performance of EPZs firm in Mombasa. The study concludes that Capital Deduction as measured by investment deductions has a positive and significant effect on the performance of EPZ firms in Mombasa. The study also concludes that VAT incentive as measured by VAT zero rating has a positive and significant effect on the performance of EPZ firms in Mombasa. The study also concludes that Corporate income tax incentive as measured in the form of tax holiday has a positive and significant effect on the performance of EPZ firms. Based on the findings, the study therefore recommends that the government increases the level of capital deductions, VAT incentives and Corporate Income Tax incentives allowed by EPZs firms given their positive effect. This will increase the investments by EPZs firms which will in turn spur more production in Kenya. Further studies should be conducted to identify other potential determinants of the performance of EPZs firms in Mombasa such as the presence of local skilled labour force, foreign exchange policies, foreign trade policies and employment income tax incentives.
Effects Of Exchange Of Information On Corporation Tax Performance At Kenya Revenue Authority
(2021) Kamollo, Jully Adhiambo
Corporation tax performance is an important government revenue source but has been inhibited by harmful tax practices from multinational companies who use tax havens to avoid or evade taxes from the country that income accrued. In the 2019/2020 financial year, KRA missed its target on account of the corporate tax it was to collect from MNCs by collecting corporate tax of Kshs. 167 billion from MNCs against a target of Kshs. 489 billion, which was attributed to tax evasion (KRA, 2020). KRA missed its target in the 2020/2021 financial year yet again since the corporation tax collected from MNCs was Kshs. 173 billion against a target of Kshs. 506 billion (KRA, 2021). This underperformance was as a result of illicit tax practices by multinational enterprises which can be remedied by using exchange of information as a performance enhancement tool. This study thus looked at the effect of exchange of information on corporate tax performance. The specific objectives of the study were to establish the effect of information exchange upon request on corporation tax performance, to investigate the effect of spontaneous exchange of information on corporation tax performance and to determine the effect of automatic exchange of information on corporation tax performance. The study was guided by three theories namely: the stakeholder theory, the information sharing theory and the economic deterrence theory. The study adopted an explanatory research design and used the regression analysis to explain the relationship between the variables. Simple random sampling was used to derive a sample of 60 respondents from a target population of 604 comprising of KRA officers seconded to the national treasury and those working at the large taxpayers’ office, investigations and enforcement department and the international taxation office. Primary data was collected through close-ended questionnaire, with a response rate of 81%. The data was analysed using descriptive and inferential statistics. The study findings indicated that the independent variables had a statistically positive significant effect on corporation tax performance: information exchange upon request (β1=0.298, p=0.000
Effects Of Corporate Tax Policies On Foreign Direct Investment: A Study Of The East Africa Community Partner States
(2021) George, Odhiambo Ochieng Gaya
There has been high volatility to foreign direct investment flows in East African Countries. However, this has not played an important role in the economies despite the reforms that have been undertaken and the many incentives provided to foreign investors. The current study sought to investigate the effect of corporate tax on foreign direct investments. The specific objectives were to determine the effect of corporate withholding tax rate, investment deduction and double tax elimination on foreign direct investments. The study was anchored on the optimal tax theory and normative theory. It adopted the explanatory research design. The target population was all partner states of the East Africa Community who were members during the whole period of the study. These are; Kenya, Tanzania, Uganda, Rwanda and Burundi. All the partner states were included in the study; thus, no sampling was done. The study collected secondary data on corporate tax and foreign direct investment for the five state partners over the period 2002- 2019. Panel regression procedures were applied in analyzing the data. The findings indicated that withholding tax rate had a negative and significant effect on foreign direct investments amongst East African Community partner states (β= -16.158, p=0.000). Double tax treaties had a positive and significant effect on foreign direct investments amongst East African Community partner states (β= 0.2539, p=0.000). Further, investment deduction had a negative and significant effect on foreign direct investments amongst East African Community partner states (β= -1.646, p=0.0007). The study concluded that there was a significant relationship between corporate tax policy and foreign direct investments amongst East African Community partner states. Based on the findings, the study recommended that the East African Community member states should adjust the corporate withholding tax rates on downwards in order to attract foreign investors, should strengthen the double tax treaties amongst themselves as well as with other countries, and should review their tax incentives policy, particularly, on investment deductions.
Effect of Alternative Dispute Resolution on Tax Revenue Collection in Kenya
(Kenya School of Revenue Administration_Moi University, 2021) Kinyua, Linet Njeri
The Kenya Revenue Authority has been facing challenges in meeting tax revenue collection targets. This is a clear indication that there is a serious problem. The study aimed at investigating the effect of alternative dispute resolution on tax revenue collection in Kenya. The study was guided by the following specific objectives; to assess the effect of arbitration and mediation on tax revenue collection; to evaluate the effect of litigation on tax revenue collection; and to determine the effect of negotiation on tax revenue collection. The study is supported by the conflict resolution theory, optimal tax theory, ability-to-pay taxation theory, benefit theory of taxation, and expediency theory of taxation. The study adopted an explanatory research design and targeted 874 taxpayers who had adopted alternative dispute resolution for the last 2 years. A sample of 274 taxpayers was selected using random sampling technique. Descriptive and inferential analysis were adopted. The descriptive statistics included percentage, mean and standard. Inferential statistics included correlation and regression analysis. F test, beta coefficients, t value and p value were used as test statistics. The study findings showed that there was a positive and significant relationship between arbitration and mediation and tax revenue collection (β=0.321, p=0.000). Findings also showed that there was a positive and significant relationship between litigation and tax revenue collection (β=0.304, p=0.000). In addition, results showed that there was a positive and significant relationship between negotiation and tax revenue collection (β=0.383, p=0.000). The study also concluded that negotiation was commonly used as dispute resolution mechanism between taxpayers and Kenya Revenue Authority officials. Facilitators and tax experts should be updated on current trends of mediation, effectiveness and transparency of the process. Further, Kenya Revenue Authority should invest in sensitizing taxpayers regarding the alternative dispute resolution process, and in embedding the requisite skills, motivation and resources in them to use the alternative dispute resolution process effectively. The government of Kenya should form a section in the constitution to empower Kenya Revenue Authority to settle a tax dispute on a compromise basis where it is in the best interest of the state.
Perceived effects of tax policy on organizational performance of gambling and lottery companies in Nairobi County, Kenya
(KESRA/Moi University, 2021) Liban, Shedho Mohamed; Dr. Macharia, Irungu; Dr. Koske, Naomi
Organizational performance in the betting industry can be measured by the revenue they generate. The betting companies in Kenya have been recording good performance since 2015. For instance, in 2015, betting industry made Ksh. 2.1 billion, this rose to Sh204 billion in 2018. However, the Kenyan government concern with betting companies is on tax. In 2018, the betting industry made around Sh204 billion but only remitted Sh4 billion in taxes. Moreover, most of the companies did not submit the 20% withholding tax on payouts. Sportpesa, Betin and Betway who together accounted for 85 percent of the market were accused of undercutting the tax man and ordered to close operations immediately. Due to the issues between the Government and betting companies over tax compliance issues, large betting firms in Kenya halted their operations in Kenya owing to what it termed as a hostile operating environment, with the taxation regime on the betting industry making the company‟s operations in the country unviable. Given the aforementioned, the general objective of the study was to establish the perceived effect of tax policy on organizational performance of gambling and lottery companies in Nairobi County, Kenya. Specific objectives were; to establish the perceived effects of corporate tax, withholding tax and betting tax on organizational performance of gambling and lottery companies in Nairobi County. The study adopted an explanatory research design. The target population was 250 senior managers and middle level managers from gambling and lottery companies. Simple random sampling technique was utilized to choose the respondents in sports betting companies. The study sample size was 154 managers. Primary data was gathered by the use of structured questionnaires. Quantitative data gathered was examined by use of descriptive statistics and inferential statistics and presented as percentages, means, standard deviations and frequencies. A multiple regression analysis was conducted to determine the effect of tax policy on organizational performance of gambling and lottery companies in Nairobi County, Kenya. The study found that perceived corporate tax had a negative significant relationship with organizational performance (β = -0.467, P=0.003), perceived withholding tax had a negative significant relationship with organizational performance (β = -0.455, P = 0.003) and perceived betting tax had a negative significant influence on organizational performance (β = -0.472, P = 0.002). The study was important to betting and lottery companies. The companies would comprehend the tax policy. They would be skilled to comply with the tax requirements. The government assured the companies comply with the tax policy through regular analysis. The study recommends that the government should consider striking a balance between revenue generation goals of the government and organizational goals of the gambling and lottery companies. The study recommends that another study should be conducted on challenges facing gambling and lottery companies in Kenya like regulations imposed on the firms, legislation and competition.
Effect of Psychological factors and knowledge on Tax Compliance of Micro and Small Enterprise owners in Nairobi County, Kenya
(KESRA/Moi University, 2021) Munga, Yvonne; Dr. Olweny, Tobias; Dr. Yegon, Cheboi
The concept of tax compliance has attracted the attention of quite a number of researchers in order to demystify the factors affecting it. Previous studies have linked psychological factors and Tax knowledge to tax compliance or lack of it. This study seeks to investigate the effect psychological factors and tax knowledge has on tax compliance particularly among Micro and Small enterprise owners in Nairobi County, Kenya. The small scale traders operating in the informal sector are characterized by low tax compliance level. This could be attributed to Kenya Revenue Authority inability to meet the revenue targets over the years. This study sought to investigate the effect of psychological factors on tax compliance of micro and small enterprise owners in Nairobi County, Kenya. The specific objectives were to determine the effect of taxpayer attitude, tax knowledge, and social norms on tax compliance of micro and small enterprise owners in Nairobi County, Kenya. The research was anchored on the theory of planned behavior, tax morale theory, Allingham and Sandmo theory, and Expectancy theory. The explanatory research design was utilized. The study target population was 21,100 licensed small-scale traders in Nairobi Central Business. A sample of 384 small scale traders was selected using simple random sampling technique. Primary data was collected using structured questionnaires. The collected data was analyzed quantitatively using descriptive statistics such as percentages, means and standard deviations to explain the characteristics of the study variables. Further, inferential statistics such as Pearson correlation and regression analyses were used to test the relationship between the study variables. A multiple regression model was estimated. The regression findings indicated that tax payer attitude and tax compliance were positively and significantly related (β=0.41, p=0.000). In addition, tax knowledge and tax compliance were positively and significantly related (β=0.254, p=0.000). Results further showed that social norms and tax compliance were positively and significantly related (β=0.464, p=0.000). The study concluded that psychological factors including tax payer attitude, tax knowledge and social norms had a positive and significant effect on tax compliance of micro and small enterprise owners in Nairobi County, Kenya. The study recommended that Kenyan government needs to ensure that the tax burden to the small scale business is not much and instead make it affordable to them. The government should ensure they train the business owners on the tax system so as they have adequate knowledge on technical matters and legal matters relating to tax administration. Business owners should mind whom they interact with since they are likely to influence them on tax compliance matters. The study makes significant contribution to field of tax administration in terms of policy, research and practice.
Tax behavior on growth of Micro, Small and Medium Enterprises: a case of butcheries in North of Nairobi Tax Region, Kenya
(KESRA/Moi University, 2021) Chiira, Reuben Maina; Dr. Odunga, Robert; Dr. Koske, Naomi
Despite the high level of resilience exhibited by the micro small and medium enterprise sector as evidenced by job creation abilities in a tough environment as well as significant contribution to gross domestic product, the businesses still face serious challenges that impede their growth. The firms experienced average decline of 4% in annual turnover between financial years 2018-2019. This study therefore sought to investigate the effect of tax behavior on growth of micro, small and medium enterprises: a case of butcheries in North of Nairobi tax region, Nairobi County. The specific objectives were to determine the effect of tax knowledge by taxpayers, tax compliance costs behaviour, and tax non-compliance cost behaviour on growth of micro, small and medium enterprises in North of Nairobi tax region, Nairobi County. The study was anchored on the theory of planned behaviour theory of economic entrepreneurship, and the economic deterrence theory. An explanatory design was employed. The target population for this research was 2500 licensed butcheries by Nairobi County Government in Kenya Revenue Authority tax region of North of Nairobi. The study sampled 344 butcheries using stratified random sampling. Primary data was collected using structured questionnaires. Data was analyzed by descriptive statistics (means and standard deviation), while inferential statistics (correlation and regression) helped to test the relationship between the study dependent and the independent variables. The regression results showed that tax knowledge by taxpayers (β=0.488, p=0.000) had a positive and significant effect on growth of micro, small and medium enterprises. The results further showed that tax compliance costs (β= -0.102, p=0.002) and tax non-compliance cost behavior (β= -0.223, p=0.000) have a negative and significant effect on growth of micro, small and medium enterprises. From the findings, the study concluded that it is important for micro, small and medium enterprises to employ employees that have knowledgeable on tax compliance matters. This will enhance their growth. The study further concluded that number of taxes and the amount of tax that micro, small and medium enterprises are required to pay to the government had greatly increased. In addition, the tax payment method is very clear to the micro, small and medium enterprises and this enables them to make frequent tax payments. The study recommended that micro, small and medium enterprises should invest in seeking tax knowledge and ensure that all their employees are equipped with the tax knowledge. This is because acquiring reasonable level of tax knowledge facilitates growth of their businesses. The government of Kenya needs to lower the compliance costs of the micro, small and medium enterprises. This is because high compliance costs diminish competitiveness of the country in terms of taxation attractiveness, public services which have become increasingly interested in ways to simplify their tax legislation systems. The government of Kenya also needs to lower the noncompliance costs of the micro, small and medium enterprises. This is because increase in tax compliance costs, denies the business persons the advantage to reap off economies of scale and thus little growth is envisioned.
Moderating role of Government facilitation on the relationship between extrinsic factors and Tax Compliance among SMEs in Kisumu
(KESRA/Moi University, 2021) Musyoka, Duncan Katubah; Dr. Nekesa, Marion; Dr. Ngonga, Moses
Tax compliance has remained a major issue across the world with adverse effect of the growth of economies. The consistent failure of the KRA to meet tax revenue projections and targets has sparked debate on factors contributing to tax compliance. The available literature provides evidence that extrinsic factors play an important role in tax compliance behavior among the tax payers. The study sought to establish the moderating role of government facilitation in the relationship between extrinsic factors and tax compliance among Small and Medium Enterprises in Kisumu County, Kenya. The specific objectives of the study included: to establish the moderating effect of government facilitation between social norms and tax compliance among Small and Medium Enterprises in Kisumu County, to determine the moderating role of government facilitation between culture and tax compliance among Small and Medium Enterprises in Kisumu County, to assess the moderating effect of government facilitation on tax morale and tax compliance among Small and Medium Enterprises in Kisumu County, Kenya and to find out the moderating effect of government facilitation in the relationship between extrinsic factors and tax compliance among Small and Medium Enterprises in Kisumu County, Kenya. The study adopted a descriptive research design and it shall be carried out in Kisumu County. The study targeted 3162 SMEs and respondents were owners/managers of these firms. The study used stratified random sampling to select 342 respondents as the sample size. Primary data was collected with the help of questionnaires and the analysis was done using descriptive (means and standard deviations) and inferential statistics (correlation and regression analysis). The findings were presented using tables and figures. The study revealed that social norms and tax morale have significant effect on tax compliance with the moderation of government facilitation. The study concludes that extrinsic factors have significant effect on tax compliance with the moderation of government facilitation. The study recommends that there is need to tax authorities and officials to understand and appreciate the role played by social norms as far as encouraging tax compliance among tax payers is concerned. There should be an increase in accountability of the amount of taxes collected so that the tax payers gain morale in paying taxes hence compliance. Efforts should be put in place of providing incentives as well as increasing the number tax centers where tax payers can easily access to seek for assistance as far as tax matters are concerned.
Effect of Taxpayer sensitization channels on Voluntary Compliance in residential Income Tax among registered landlords in Embu Town.
(KESRA/Moi University, 2021) Gitari, Milka
The research broadly aimed at establishing the effect of taxpayer sensitization channels on voluntary compliance in residential income tax among registered landlords in Embu Town. The specific objectives were to establish the effect of taxpayer sensitization through tax seminars on voluntary income tax compliance in residential income tax, the effect of taxpayer sensitization through media services on voluntary compliance in residential income and lastly to determine the effect of taxpayer sensitization through mobile services on voluntary income tax compliance in residential income tax. The problem that the researcher set out to solve was that, compared to Embu, the towns in its neighborhood which have witnessed almost the same level of economic growth as Embu, have similar annual targets and are interestingly comparatively smaller in size appear to be doing better than Embu in terms of residential income tax performance from 2016 - 2020. The researcher adopted a causal research design to determine how taxpayer sensitization through tax seminars, media services and mobile services affect performance of residential income tax in Embu town. The researcher used primary data collected from 120 questionnaires randomly distributed to taxpayers belonging to the sampling frame of registered landlords within Embu town. The Economic Deterrence Theory, Equal Sacrifice Theory and Financial Literacy Theory guided the study. From the findings of the multiple regression analysis, the study established that holding other factors constant, a unit increase in Tax Seminars would lead to a 0.271 unit increase in Voluntary Tax Compliance in Residential Income tax among registered landlords in Embu town as shown by (β1=0.271, p=0.002<0.05). The study also established that holding other factors constant, a unit increase in Media Services would lead to a 0.335 unit increase in Voluntary Tax Compliance in Residential Income among registered landlords in Embu town as shown by (β2=0.335, p=0.000<0.05). The study further established that a unit increase in Mobile Services would lead to a 0.242 unit increase in Voluntary Tax Compliance in Residential Income among registered landlords in Embu town as shown by (β3=0.242, p=0.013<0.05). The study concluded that taxpayer sensitization has a significant and positive effect on voluntary tax compliance in residential income tax among registered landlords in Embu Town. The study recommended that to ensure even more enhanced voluntary tax compliance, KRA should heavily invest in taxpayer sensitization through media services where the audience reached at once is highest. The study also recommended that KRA should consider setting up more satellite stations geared towards bringing taxpayer services closer to the people. Given that all the three predictor variables explain 54.7% of all changes in voluntary compliance in Residential Income tax among registered landlords in Embu town, Kenya and that 45.3% of all changes were explained by other factors not included in the study, other studies should be conducted to determine, the effect of tax clinics on voluntary income tax compliance among registered landlords in Embu Town.

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