Factors Affecting Value Added Tax Compliance on Small and Medium Enterprises in Embakasi East Constituency, Nairobi City Count
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Date
2022
Authors
Kaniaru, Elaine
Journal Title
Journal ISSN
Volume Title
Publisher
Elaine Wairimu Kaniaru
Abstract
The current study sought to establish the factors affecting value added tax compliance on small
and medium enterprises in Embakasi East Constituency, Nairobi City County. It was guided
by the following specific objectives: - to determine the effect of enforcement measures on value
added tax compliance among small and medium enterprises in Embakasi East Constituency,
Nairobi City County; to establish the effect of taxpayers’ sensitization on value added tax
compliance among small and medium enterprises in Embakasi East Constituency, Nairobi City
County; and to establish relation between tax invoice management system and value added tax
compliance among small and medium enterprises in Embakasi East Constituency, Nairobi City
County. Three theories namely: economic deterrence theory, diffusion of innovation and theory
of planned behavior formed the theoretical framework of this study. Descriptive research
design was employed. The target population was 2846 micro and small enterprises licensed in
Embakasi East Constituency Nairobi City County. A sample of 351 Micro and Small
Enterprises-determined using Yamane’s formula-was selected using stratified random
sampling. This study used primary data collected through questionnaires. A pre-test on a
different sample was carried out and the reliability coefficients results computed. A
Cronbach’s alpha greater than 0.7 (ἁ>0.7) for all the variables was acceptable. Data analysis
was conducted by use of descriptive statistics and inferential statistics using standard statistical
techniques including pearson correlation coefficient and regression analysis. From the
descriptive statistics, it was established that most taxpayers are not aware that Tax Procedures
Act (2015) allows the Commissioner to recover any unpaid tax as a civil debt due to the state.
Also, the results showed that through the basic education in schools and colleges, most
respondents did not get basic understanding of taxation. Furthermore, the respondents indicated
that they do not keep accurate records like trial balance and journals and ledgers are not
updated. The correlation analysis established a strong positive and significant correlation
coefficient between enforcement measures and value added tax compliance, while the
regression analysis showed that enforcement measures had a significant positive beta
coefficient. The correlation analysis established a strong positive and significant correlation
coefficient between taxpayers’ sensitization and value added tax compliance, with the
regression analysis showing that taxpayers’ sensitization had a significant positive beta
coefficient. Lastly, tax invoice management system and value added tax compliance had a
strong positive and significant pearson correlation coefficient, which was supported by the
regression analysis, which established a significant and positive beta coefficient for the tax
invoice management system. The study concluded that increased enforcement efforts by the
Kenya Revenue Authority enforcement officers may lead to improved value added tax
compliance. On taxpayers’ sensitization, the study concludes that increasing taxpayers’
sensitization to small and medium enterprises through tax seminars, taxpayers’ day and social
media platforms could lead to improved value added tax compliance. To sum, the study
concludes that adoption of tax invoice management system by the small and medium
enterprises could lead to improved value added tax compliance. The current study recommends
that Kenya Revenue Authority through their social media platforms, educate the taxpayers,
especially small and medium enterprises on the content of the Tax Procedures Act (2015) so
as to ensure that the taxpayers are aware of their rights and obligations, and those of the taxman.
In addition, the government through ministry of education, should come up with curriculum
that has taxation as basic and common unit from secondary school to universities.
Description
Post Graduate Diploma in Tax Administration