The Effect of Access to Financial Institutions on Income Tax Compliance Among Small and Medium Enterprises in Marginalized Areas. Case Study of Tana River County
DOI:
https://doi.org/10.70619/vol5iss10pp41-59-684Keywords:
Access to financial institutions, Income tax compliance, SMEs, Financial inclusion, Digital transactions, Tana River CountyAbstract
This study aimed to assess the effect of financial institution access on income tax compliance among small and medium enterprises (SMEs) in marginalized regions with specific reference to Tana River County, Kenya. Although SMEs play a significant role in the economic growth and revenue collection, their rate of income tax compliance is very low, which is partially explained by the lack of access to financial institutions and digital financial services. The study adopted a quantitative research design where a sample of 267 SMEs was targeted with the help of structured questionnaires to gather primary data. With the aid of SPSS version 26, the data were examined using descriptive statistics, correlation, and regression analysis. The findings showed that access to financial institutions, as measured through financial inclusion, proximity to financial services, digital transaction capability, and mobile money platforms, has a significant effect on income tax compliance. In particular, better access to financial services by SMEs is associated with an increased possibility of timely, accurate, and consistent tax payments. The results are consistent with the Institutional Theory and Financial Intermediation Theory that put an emphasis on the role of institutional structures and financial access in the development of economic behaviour. The study emphasized the ability of financial inclusion in improving voluntary tax compliance, especially in marginalized areas where the formal financial infrastructure is not well developed. It concludes that by increasing access to financial services and increasing digital transactions, government revenue collection can be improved, as well as facilitate the growth of SMEs. The study suggests policy measures to increase financial infrastructure, management approaches to incorporate tax systems into financial platforms, and additional research on various types of taxes in different marginalized regions.
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