Effect of Tax Audit on Value Added Tax Compliance Among Commercial Property Owners in Central Business District, Nairobi, Kenya
DOI:
https://doi.org/10.70619/vol6iss3pp56-67-805Keywords:
Tax Audit, Value Added Tax Compliance, Commercial Property OwnersAbstract
Taxation is a major revenue source for governments worldwide; therefore, tax authorities must continuously implement measures to ensure maximum revenue collection. Despite KRA's measures, Value Added Tax compliance has remained low, and therefore, KRA consistently fails to meet annual targets. The main objective of the study was to determine the effect of tax audits on Value-Added Tax (VAT) compliance among commercial property owners in Nairobi's Central Business District, Kenya. The study was guided by the following theories: the Ability-to-Pay Theory of Taxation and Economic Deterrence Theory. The study employed an explanatory research design, targeting a population of 9,785 commercial properties in the Central Business District of Nairobi, Kenya, and a sample of 384. The study used primary data collected via questionnaires administered using the drop-and-pick-later method. The data were analyzed using hierarchical moderated regression, with descriptive and inferential statistics generated. A linear regression model was used to establish the strength of the relationship between independent and dependent study variables. The study found that tax audit had a significant positive effect on Value Added Tax compliance (β = 0.471, p-value = 0.000). The study recommends that the Kenya Revenue Authority (KRA) should prioritize maintaining and communicating a credible audit presence. Policy should focus on strategically allocating audit resources to high-risk segments while publicly highlighting audit activities to reinforce the perception of detection risk among all commercial property owners. Future research should examine the effect of tax incentives, such as prompt-payment discounts or credits for specific investments, on VAT compliance.
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