The Determinants of Value Added Tax Compliance Among Small and Medium Enterprises in Machakos Munipality
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Date
2022-09-01
Authors
Faith, Akoth Ogutu
Journal Title
Journal ISSN
Volume Title
Publisher
KESRA/JKUAT - Unpublished research project
Abstract
The study aim was to establish the determinants of Value Added Tax compliance among small and medium enterprises in Machakos Municipality, Kenya. The study was guided by the following specific objectives: - to determine the effects of tax audit on Value Added Tax compliance among small and medium enterprises in Machakos Municipality, Kenya; to determine the effects of cost of compliance on Value Added Tax compliance among small and medium enterprises in Machakos Municipality and to determine the effects of taxpayer awareness on Value Added Tax compliance among small and medium enterprises in Machakos
Municipality. The study adopted descriptive research design. The study target population was 364 Small and Medium taxpayers in Machakos Municipality. The study sample size was 191 small and medium enterprises selected using stratified random sampling. This study adopt primary data collected through questionnaires. A pre-test on a different sample was carried out to give a Cronbach’s alpha greater than 0.7 for all the variables as a rule of thumb. Data analysis will be carried out by use of descriptive statistics and inferential statistics using standard statistical techniques including Pearson correlation coefficient and regression analysis. All the
analysis was carried out using the statistical package for social sciences (SPSS Version.24).
Analysis of variance (ANOVA) was used to establish if there is a statistical significance between the observed and expected values with the Pearson Chi square. The descriptive results indicated that the cost of preparing, filing and submitting returns make significant part of indirect business costs. Further, the respondents were neutral on whether tax audit procedures by KRA are friendly and effective. However, was established that information on the aggregate taxes collected from value added tax and how they are spent is not readily available to SMEs through both print and social media. Correlation analysis showed a significant positive correlation coefficient between tax audit and Value Added Tax compliance, while cost of compliance and value added tax compliance had a strong negative and significant correlation coefficient. Lastly, correlation analysis indicated that there was a strong positive correlation between taxpayers’ knowledge and value added tax compliance. the correlation results were further supported by the regression analysis results where a significant positive regressioncoefficient was established between tax audit and taxpayers’ knowledge with value added tax compliance. however, the regression analysis results showed a negative and significant relationship between cost of compliance and value added tax compliance. The study also
concluded that taxpayers’ knowledge can help improve compliance. Also, increased use of tax audit as a deterrent measure to value added tax noncompliance would lead to increased value added tax compliance. However, increasing cost of value added tax compliance would lead to reduced value added tax compliance by small and medium enterprises in Machakos Municipality. The study therefore recommends that Kenya Revenue Authority frequently use this as a deterrent measure as it seems to produce best result in in value added tax compliance. Further, more emphasis need to be done on sharing information with taxpayers concerning the Value Added Tax collected and how it is utilised. Similar research should be done using more
variables so as to establish which other variables for example, technology and level of income affecting value added tax compliance. Similar studies can also be done in other towns in Kenya to establish whether similar findings will be obtained. A similar study can be done in Machakos Municipality but in a different sector like agriculture, service industry or even on individuals
Description
Tax Administration
Keywords
Tax Compliance