Effect of Digital Payments on Value Added Tax Compliance among Manufacturing Firms in Athi River, Machakos County, Kenya
DOI:
https://doi.org/10.70619/vol5iss10pp1-12-680Keywords:
Manufacturing Firms, digital payments, Value Added Tax ComplianceAbstract
Tax compliance is important as it has a direct impact on revenue for most governments around the world. Despite the reforms that the Kenya Revenue Authority has been undertaking to increase revenue collection, it has, of late, failed to meet its revenue targets, particularly VAT targets. This shows that there is a problem with VAT compliance in Kenya, and this challenge forms the main motivation for undertaking this study. In realization of this situation. This study aimed to determine the effect of digital payments on value-added tax compliance among manufacturing firms in Athi River, Machakos County, Kenya. The study was guided by the following theories: The study was guided by the Ability to Pay theory and the Innovation Diffusion theory. The study adopted an explanatory research design, and the target population was 263 manufacturing firms in Athi River, Machakos County, Kenya, and a Census survey was used for this study. After collection and analysis of the responses, 218 respondents correctly filled and submitted their questionnaires, indicating an 82.9% response rate. Questionnaires were used to collect primary data, and analysis included both descriptive and inferential statistics. The hypotheses were tested at a significance level of 0.05 using multiple regression analysis to analyze the data. The findings revealed that the digital payments exhibited a positive and significant effect on VAT compliance (β = 0.185, p = 0.011). The findings of this study provide policy recommendations for the government to improve value-added tax compliance. The study recommends that the government develop policies that incentivize cashless transactions while ensuring equitable access to digital financial services. Future studies should examine the effect of taxpayer sensitization on VAT compliance.
References
Ameyaw, B., & Dzaka, D. (2016). Tax compliance in Ghana: A case of small and medium enterprises in the Accra Metropolis. Journal of Economics and Finance, 7(1), 1–9.
Arner, D. W., Barberis, J., & Buckley, R. P. (2016). The evolution of fintech: A new post-crisis paradigm? Georgetown Journal of International Law, 47(4), 1271–1319.
Arner, D. W., Barberis, J., & Buckley, R. P. (2022). The RegTech book: The financial technology handbook for investors, entrepreneurs, and visionaries in regulation. Wiley.
Bird, R., & Wilkie, J. (2021). Designing tax policy for developing countries. Cambridge University Press.
Bryman, A., & Bell, E. (2011). Business research methods (3rd ed.). Oxford University Press.
Chigbu, E. E., Akujuobi, L. E., & Appah, E. (2012). An empirical study on the causality between economic growth and taxation in Nigeria. Current Research Journal of Economic Theory, 4(2), 29–38.
Cooper, D., & Schindler, P. (2014). Business research methods. Boston: McGraw-Hill
Cooper, D.R. and Schindler, P S (2000), Business research methods, seventh edition, New York: Irwin/McGraw-Hill
Dwenger, N., & Treber, L. (2022). Shaming for tax enforcement. Journal of Public Economics, 204, 104547.
Gliem, J. A., & Gliem, R. R. (2003, October). Calculating, interpreting, and reporting Cronbach’s alpha reliability coefficient for Likert-type scales.
Hyman, D. N. (2014). Public finance: A contemporary application of theory to policy. Cengage Learning.
International Monetary Fund. (2021). World economic outlook: Managing divergent recoveries. International Monetary Fund.
Ismail, N. W. (2006). Tax compliance in Malaysia. Journal of Business Management, 2(1), 29–41.
Kennedy, P. (2012). A guide to econometrics (6th ed.). Wiley-Blackwell.
Kenya Revenue Authority (KRA). (2021). Annual taxpayer perception survey report. Nairobi: KRA Publications.
Kothari, C. R. (2004). Research methodology: Methods and techniques,2nd Revised Edition, New Age International Publishers, New Delhi.
KRA (2024). Tax Annual report. Retrieved from KRA https://www.kra.go.ke/en
KRA Seventh Corporate Plan (2018/19-2020/2021) Revenue mobilisation through transformation
Li, S., & Sui, W. (2011). The institutional determinants of China’s outward foreign direct investment. Asia Pacific Journal of Management, 28(2), 281–301
Limerick, D., Cunnington, B., & Crowther, F. (2013). Managing the new organization: Collaboration and sustainability in the post-corporate world (3rd ed.).
Mascagni, G., et al. (2021). Digital payments and tax compliance: Evidence from Ethiopia. World Development.
Mugenda, O. M. & Mugenda, A. G. (2003). Research methods: Quantitative and qualitative Approaches. Nairobi: African Centre for Technology Studies
Muthoni, L., & Were, M. (2023). The impact of digital payments on tax compliance: Evidence from Kenyan firms. African Journal of Economic Studies, *8*(2), 112-128
OECD (2019). Update on Voluntary Disclosure Programmes: A pathway to tax compliance. https://www.oecd.org/ctp/exchange-of-tax-information/update-on-voluntary-disclosure-programmes-a-pathwaypto-tax-compliance.html.
OECD (2022) Successful Tax Debt Management: Measuring Maturity and Supporting Change.http://www.oecd.org/tax/forum-on- tax-administration/publications-and- products/successful-tax-debt- management-measuring-maturity-and- supporting-change.pdf.
OECD. (2022). Tax administration: Comparative information on OECD and other advanced and emerging economies. OECD Publishing.
Okunogbe, O., & Pouliquen, V. (2022). Technology, taxation, and corruption: Evidence from the introduction of electronic tax filing in Rwanda. American Economic Journal: Economic Policy, 14(3), 341–366.
Robinson, L. (2019). Changeology: How to enable groups, communities, and societies to do things they’ve never done before. Scribe Publications.
Rogers, E. M. (1995). Diffusion of innovations (4th ed.)
Singh, A., & Rana, R. (2021). Digital payments and governance: Reducing corruption through financial transparency. Journal of Public Administration and Policy Research, 13(2), 45–56.
Tarus, M. K., & Koori, J. (2024). Effect of online tax payments on tax compliance among large taxpayers in the North Rift region, Kenya. Kenyatta University Institutional Repository.
Zetzsche, D. A., Buckley, R. P., Arner, D. W., & Barberis, J. N. (2020). Decentralized finance (DeFi). Journal of Financial Regulation, 6(2), 172–203.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Faith Ndanu, Josephat Cheboi, Peter Githaiga
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
