Effect of Environmental Costs on Income Tax Compliance Among Multinational Corporations in Nairobi City County, Kenya
DOI:
https://doi.org/10.70619/vol6iss8pp41-52-928Keywords:
Environmental Costs, Income Tax Compliance, Multinational CorporationsAbstract
Tax compliance is important because it directly impacts revenue for most governments worldwide. Despite the tax reforms the Kenya Revenue Authority has been undertaking to increase revenue collection, it has, of late, failed to meet its revenue targets, particularly rental income tax targets. The purpose of the study was to determine the effect of environmental costs on income tax compliance among multinational corporations in Nairobi City County, Kenya. The theories that guided this study were the Institutional Theory and the Ability to Pay Theory. The study used an explanatory research design, and the target population comprised 216 multinational corporations in Nairobi City County, Kenya. The study showed that, out of the targeted 218 respondents, only 192 (88.1%) completed and submitted their questionnaires. Primary data were collected using a structured questionnaire. Both descriptive and inferential statistics were computed using software and presented in tables and charts. The study found that environmental costs had a significant negative direct effect on income tax compliance (β = -0.357, p = 0.000). Regarding the negative effect of environmental costs on income tax compliance, the Kenyan government should introduce tax incentives that offset the compliance burden of environmental regulations, such as allowing partial crediting of environmental compliance expenditures against corporate income tax liabilities or establishing accelerated depreciation schedules for environmental protection equipment. Future studies should investigate the effect of tax policy reforms on income tax compliance, examining whether frequent unilateral changes to corporate tax legislation, including the annual Finance Act amendments, create planning uncertainty that incentivizes aggressive avoidance structures.
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