Tax Administration Practices and Financial Performance of Small and Medium Enterprises in Nairobi Central Business District, Kenya

2026-04-18T08:30:55+00:00

Small and Medium Enterprises in Nairobi’s Central Business District remain critical to Kenya’s economy but continue to experience fluctuating financial performance amid evolving tax administration practices. Intensified enforcement procedures, frequent audits, and complex filing requirements have increased administrative burdens, reducing profitability and threatening sustainability. This study sought to examine the effect of tax administration practices, specifically tax enforcement procedures, tax audit practices, and tax filing procedures, on the financial performance of SMEs in Nairobi CBD. The study was anchored on Compliance Cost Theory and supported by Tax Neutrality Theory and the Resource-Based View Theory, providing a comprehensive framework for understanding how administrative processes and internal capabilities influence financial outcomes. A descriptive and explanatory research design was adopted. The target population comprised 11,280 SMEs across sectors, including general business, transport and communication, agriculture, hospitality, and manufacturing, and Yamane’s formula was used to determine a sample size of 384 respondents selected through stratified random sampling. Primary data were collected using structured questionnaires and analyzed using descriptive and inferential statistics, including correlation and multiple regression techniques, in SPSS Version 27. A total of 361 questionnaires were returned, representing a response rate of 94%, which was deemed adequate for statistical analysis. The regression results revealed a strong explanatory power with an R² of 0.764, indicating that tax enforcement procedures, tax audit practices, and tax filing procedures collectively explained 76.4% of the variation in financial performance. The model was statistically significant (F = 385.686, p < 0.001), confirming its overall fit. Individually, all predictors had positive and significant effects on financial performance: tax enforcement procedures (B = 0.287, p < 0.001), tax audit practices (B = 0.336, p < 0.001), and tax filing procedures (B = 0.387, p < 0.001). The study concluded that effective tax enforcement, fair audit practices, and simplified filing procedures enhance SME financial performance by improving compliance and operational efficiency. The study recommends that the Kenya Revenue Authority adopt transparent, risk-based enforcement and audit frameworks, simplify and digitize filing systems, and implement targeted taxpayer education programs to reduce compliance burdens.

The Effect of Digital Tax Payment Platforms Integration on Turnover Tax Compliance Among Manufacturing Small and Medium Enterprises in the West of Nairobi, Kenya

2026-04-18T08:47:33+00:00

This study aimed to assess the impact of integrating digital tax payment platforms on turnover tax compliance among small and medium-sized manufacturing enterprises (SMEs) in the West of Nairobi, Kenya. The implementation of digital payment services by the Kenya Revenue Authority (KRA), including e-Citizen, Mpesa, and bank transfers, is intended to make tax administration easier, less costly to comply with, and hence result in greater voluntary compliance among taxpayers. Nonetheless, even amid these reforms, SMEs' compliance with turnover tax has been inconsistent, casting doubt on whether digital integration can improve tax outcomes. Grounded on the Technology Acceptance Model (TAM) and Economic Deterrence Theory, the research adopted a descriptive design targeting 392 manufacturing SMEs registered under the turnover tax in the West of Nairobi. Random sampling, using the Yamane formula, was used to select 198 SMEs. Structured questionnaires were used as the primary instruments for collecting data. A total of 167 valid responses were analyzed using descriptive statistics, correlation analysis, and multiple regression techniques. The results showed a strong, positive, and statistically significant relationship between digital tax payment platform integration and turnover tax compliance. According to SMEs, the ease of payment, timely payment and filing, tax remittance accuracy, and record-keeping were improved by mobile payment methods. The regression results showed that digital platform integration was a significant determinant of variance in turnover tax compliance. The study finds that the effective integration of online tax payment systems is critical to increasing tax compliance among manufacturing SMEs. The study recommends that KRA intensify its efforts to enhance system reliability, interoperability, and taxpayer support to maximize the benefits of compliance.

Journal of Finance and Accounting

Tax Administration Practices and Financial Performance of Small and Medium Enterprises in Nairobi Central Business District, Kenya

The Effect of Digital Tax Payment Platforms Integration on Turnover Tax Compliance Among Manufacturing Small and Medium Enterprises in the West of Nairobi, Kenya