Journal of Finance and Accounting

Probability of Detection and Value Added Tax Compliance among Small and Medium Enterprises in Westlands Sub County, Nairobi, Kenya: Moderating Effect of Tax Service Quality

Davies Kipkosgei Kirwa, Dr. Nderitu Githaiga, Dr. Robert Odunga — Sat, 26 Oct 2024 00:00:00 +0000

Purpose: Value-added tax compliance has remained a challenge, especially when it comes to SMEs operating in Kenya. The high level of informality of this sector provides an incentive for most of the SMEs to evade payment of VAT, a situation that has constrained the amount of tax revenues available to finance fiscal budget. This study aimed to determine the moderating role of tax service quality on the relationship between probability of detection and value added tax compliance among small and medium enterprises in Westlands Sub County, Nairobi, Kenya.

Methodology: The study adopted an explanatory design targeting 751 SMEs operating in Westlands Sub- County, Nairobi, Kenya as registered by Nairobi City County. The sample frame was the list of SMEs in Westlands Sub- County that is available in Nairobi City County. The sample size was 261 owners of the said SMEs who were stratified into four categories based on the nature of undertaking of their business and a representative sample from each of these categories was drawn. Gathering of information was by use of a questionnaire. To analyze the collected information, descriptive statistics like means and standard deviations as well as multiple regression analysis was adopted.

Results: Regression of coefficients showed that probability of detection had a positive and significant effect on VAT compliance of SMEs (β=0.358, p=0.000). The findings also revealed that tax service quality moderates the relationship between probability of detection and value added tax compliance among small and medium enterprises (β= 0.086, ρ<0.05).

Conclusion: The study concluded that probability of detection had a positive and significant effect on VAT compliance of SMEs. In addition, the study concluded that tax service quality moderate the relationship between probability of detection, on value added tax compliance among small and medium enterprises in Westlands Sub County, Nairobi, Kenya. KRA should increase the rate probability of audit detection by coming up with new mechanisms of audit detection thus enhancing VAT compliance of VAT amongst the SMEs. The government should strive to provide SME owners in Westlands Sub County, Nairobi, with services that are of high standards for example at the tax stations as clearly stated in the corporate plan to reduce the need for spending costs to hire skilled persons such as tax consultants.

Effect of Excisable Goods Management Systems on Domestic Tax Compliance Among Small and Medium Enterprises in Thika Sub-County

Moses Waweru, Dr. Bruce Ogaga, Dr Cheboi Yegon — Sat, 26 Oct 2024 00:00:00 +0000

Purpose: Despite the rapid adoption of e-filing in Kenya, the filing system is still unreliable especially at peak period and on voluntary usage which lead to low level of compliance perceived by taxpayer. The aim of the study was to determine the effect of excisable goods management system on domestic taxes compliance among small and medium enterprises in Thika town, Kenya. The study was anchored on the standard economic theory.

Methodology: The explanatory research design was employed. The target population was 2052 small and medium enterprises in Thika town with sample size of 334 small and medium enterprises. Primary data was collected using structured questionnaires out of the 334 issued questionnaires, 261 filled the questionnaires and submitted them accordingly, resulting in a 78.1% response rate. The data was analyzed using descriptive and inferential statistics.

Results: The study found that excisable goods management system had a positive and significant effect on domestic tax compliance β = 0. 179 and p = 0.004.

Conclusion: The government should invest in further enhancing the Excisable Goods Management System to ensure it is user-friendly and accessible to SMEs

Effect of Taxpayer Sensitization on Excise Duty Compliance Among Manufacturing Firms in Embakasi West Nairobi County, Kenya

Gatimu Flavian Kung’u, Dr. Bruce Ogaga — Sat, 26 Oct 2024 00:00:00 +0000

Purpose: Although the implementation of the excise tax has the potential to enhance revenue collection, its contribution to the GDP has remained negligible in comparison to other forms of taxation. Consistently, the total amount of the excise tax collected has been below the set targets. The general objective was to determine the effect of taxpayer sensitization on excise duty compliance among manufacturing firms in Embakasi west Nairobi County, Kenya. The study was supported by the Theory of Planned Behaviour.

Methodology: The study adopted explanatory research design and target a population was 416 manufacturing firms in Embakasi West Nairobi. A sample size of 203 was drawn from this population and a response of 173which thus 85% response rate. Primary data collection was employed using closed structured questionnaires based on the study's objectives. The data was analyzed using descriptive, inferential statistics and multiple linear regression analysis.

Results: The study showed that taxpayer sensitization positively affects excise duty compliance β=0.270 p-value=0.001<0.05.

Conclusion: The government should implement nationwide educational campaigns to inform taxpayers about their excise duty obligations

Real Exchange Rate Depreciation and Domestic Tax Revenue Performance in Kenya

Isaiah Kimente M’maroo, Dr. Bernard Baimwera, PhD, Dr. Daniel Kirui, PhD — Sat, 26 Oct 2024 00:00:00 +0000

Purpose: Taxation plays a critical role in raising the resources needed for financing government activities in developing countries. On the other hand, the volatility of real exchange rates (RERs) has generated significant concern among academics and policymakers in view of its effects on macroeconomic variables such as tax revenue generation. This study therefore focused on real exchange rate depreciation on domestic tax revenue performance in Kenya. The study was guided Theory of Constraints.

Methodology: The study employed an explanatory research design. Secondary data was collected from the CBK, KRA, and the World Bank. In this study time series data ranging from 2003 – 2023 was used to analyze the determinants of domestic tax revenue performance in Kenya. The hypotheses were tested at a significance level of .05 using the multiple regression analysis. A multivariate time series ARDL regression analysis model was used to analyze the data.

Results: The study ARDL model concluded that Real exchange rate depreciation led to a notable decrease in domestic tax revenue performance, with β = -0.223945 and p = 0.000 < 0.05. This effect is intensified when considering the lagged impact, where a one-period lagged depreciation results in an even greater reduction in tax revenue performance, β = -1.927412 and p = 0.0004 < 0.05.

Conclusion: The study recommended that government of Kenya should stabilize the exchange rate and prevent excessive depreciation by fostering a favorable trade balance and maintaining investor confidence. Additionally, future research could focus on the effects of fiscal Policy Changes on domestic tax revenue performance. Also, future studies could examine Impact of Global Economic Shocks on Domestic Tax Revenue.

The Effect of Desk Tax Audit Practice on Tax Revenue Collection among Medium and Large Size Enterprises in Kenya

Mercy Nthangu Makau, Prof. Lucy Rono , Dr. Bernard Baimwera — Sat, 26 Oct 2024 00:00:00 +0000

Purpose: Tax is a major issue of discussion for both developed and developing countries. For there to be significant progress in any nation, the government should look for ways of raising income to meet the needs of its citizens. The main objective of the study was to determine the effect of desk tax audit practice on Tax revenue collection among medium and large size enterprises in Nairobi region, Kenya. The study was guided by Lending credibility theory.

Methodology: The target population was 562 employees in the Medium Taxpayer Office and Large Taxpayers Office Nairobi region, out of which 234 was sampled, and 167 respondents managed to fill and return the questionnaires implying a 71.4% response rate. Primary data was collected using structured questionnaires that was filled by employees in Medium Taxpayers Office and Large Taxpayers Office in Nairobi region. The study employed an explanatory research design. Data was then analyzed using descriptive statistics, Pearson’s correlation &regression model and finally Multiple regression model.

Results: The study further found that Desk tax audit had a positive and significant effect on tax revenue collection β =0.329 p-value =0.0000<0.05.

Recommendation: Based on the findings, the government should consider strengthening desk tax audit practices to enhance tax revenue collection. Policies could be developed to ensure regular and comprehensive desk audits are conducted to identify and address tax compliance issues promptly.