Effect of Tax Knowledge on Pay as You Earn (PAYE) Tax Compliance Among Micro, Small, and Medium Enterprises (MSMEs) in Ruiru Town
DOI:
https://doi.org/10.70619/vol5iss5pp67-78Keywords:
Tax Knowledge Pay as You Earn (PAYE), Tax Compliance, Micro, Small, and Medium EnterprisesAbstract
Tax compliance is an important government policy for Kenya, as tax revenue is the single largest source of government revenue. According to KRA reports, the informal sector employs around 15 million people and represents 83% of the country's total labour force, and has tremendous revenue potential. However, despite there being many administrative reforms to enhance tax compliance, the PAYE compliance level has remained low, with KRA falling short of meeting the revenue collection targets for the past three years. Particularly, in the Ruiru town in April 2020 report, a total of 220 SMEs that are registered filed nil returns, while others did not file the returns at all. The overall goal of this research was to determine the effect of tax knowledge on Pay as You Earn (PAYE) tax compliance among micro, small, and medium-sized businesses in Ruiru Town. The study was influenced by Vroom's expectancy theory. The study's target population consisted of 597 micro, small, and medium firms in Ruiru Town. The specific responders were the managers of SMEs. The sample size was 239 managers of SMEs in Ruiru Town, chosen using stratified and purposive sampling methods. This study used primary data obtained through the use of a questionnaire. Quantitative data were analyzed using both descriptive and inferential statistics. Descriptive statistics included mean, standard deviation, percentages, and frequencies. To demonstrate the relationship between variables, inferential statistics such as regression and correlation analysis were performed. The statistical program for social sciences (SPSS version 22) was used to compute and analyze research results. The study discovered that knowledge had a favorable and significant impact on pay-as-you-earn tax compliance among micro, small, and medium-sized businesses in Ruiru Town. In order to boost tax compliance and, consequently, government revenue generation, the research recommended that measures be made to enhance taxpayer knowledge. In order for business owners to be aware of the legal and technical facets of tax administration, the Kenyan government should also make sure that they receive adequate training on the tax system.
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