Factors Influencing Tax Compliance Among Small and Medium Enterprises in Meru Town
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Date
2022-09-01
Authors
Wachira, John
Journal Title
Journal ISSN
Volume Title
Publisher
KESRA/JKUAT - Unpublished research project
Abstract
Taxes are an involuntary charge levied by the government on individual income, business profits and on transactions of goods and services. The purpose of the study was to analyze determinants of income tax compliance on SMEs. The main issue faced by tax authorities is that it has never been easy to persuade all taxpayers to comply with the regulations of the tax systems. Small and medium enterprises are the majority of businesses in Kenya yet taxes collected from this sector are considerably low. In Kenya, the biggest block of taxpayers on the business sector are the Small and Medium enterprises(SMEs) who according to IMF are 80 percent of taxpayers but remit only 5-10 percent of revenue. Their compliance rate is poor as most of the businesses are not registered and hence not paying taxes. This study aimed at assessing the tax compliance by SMEs in Meru town. The study used a descriptive research design and owing to the large population a sample size of 166 traders was drawn from the target population of around 1657 traders. To ensure that various diverse categories of taxpayers and business entities were included in the survey, stratified sampling technique was adopted. Data was collected using structured questionnaires with both closed and open ended questions and analyzed using both descriptive and inferential statistics. The research found that the SMEs know how to keep records/documents; the SMEs have obtained a taxpayer identification pin number as well as registered the business as a tax agent; the SMEs are fully aware of the tax filing procedures; and the SMEs understand that they should pay taxes due within the prescribed period from the date of issue of the Notice of Assessment or within the stipulated period. The study also found that tax authority audits and investigations are few among SMEs; the SMEs were legally not obligated to audit their books therefore successful prosecution is not possible; and the SMEs believe that the penalty is lower than their tax saving due to not complying with tax laws. The study found that automated tax systems has ensured full compliance and reduced the associated costs quantity. The study concluded that taxpayer knowledge had the greatest effect on tax compliance among SMEs in Meru Township, followed by technology strategy, and then penalties and interests had the least effect on tax compliance among SMEs in Meru Township. On taxpayer’s knowledge and tax compliance, the study recommends that tax payers learning ought to be emphasized since tax data, tax learning tends to advance tax compliance than tax organization. There is also need to enhance compliance to intensify taxpayer education in terms of increasing the number of sessions and broadening coverage to include tax consultants. The study recommends that KRA should have an office in every county that will address tax issues at county level and the services to be offered should include tax penalties, filing of tax returns, tax computation and tax differentiation.
Description
Tax Administration
Keywords
Tax Compliance, Small and Medium Enterprises