Korir et al
Greener Journal of Economics and Accountancy Vol. 4 (1), pp. 009-020, January 2015
ISSN: 2354-2357 © 2015 Greener Journals
Manuscript Number: 012914079
Determinants of Tax Compliance among Small Taxpayers in Western Kenya
1Japhet Korir, 2Philip Adoyo, 3Naibei Isaac, *4Fredrick Onyango Aila, 5Robert Kisavi Mule, 6Asewe Stephen Ogut,
7Dancan Mayieka Onchonga, 8Alecia Elizabeth Ochido Okungu,
9Mr. Justine Oyagi Omoke, 10Dr. Gideon Momanyi
1,2,3,5,6,7,8Department of Accounting and Finance, School of Business and Economics, Maseno University, Private Bag, Maseno, Kenya.
4,9Department of Marketing and Management, School of Business and Economics, Maseno University, Private Bag, Maseno, Kenya.
10Department of Economics, School of Business and Economics, Maseno University, Private Bag, Maseno, Kenya.
Emails: 1korirjaphet@ yahoo.com, 5kisavimule2003@ yahoo, 6asewestephen10@ gmail.com,
*Corresponding Author’s Email: fredrick.aila@ yahoo.com
In Kenya, tax revenues make up to 80% of the government’s budgetary resources with a negligible proportion coming from grants and loans owing to the stringent conditionalities adopted as part of Structural Adjustment programmes (SAPs) imposed on the Kenyan government in the 1990s by International monetary Fund (IMF) and the World Bank. Different taxation methods are used to create a tax base which forms a pool that the tax authority can tap thereby placing a tax burden on the populace. Kenyan tax system is, however, often characterized by increasing number of non compliance among the small taxpayers and as a result of this the government has started to focus reforms specifically tailored to the SMEs so as to improve the level of compliance in Kenya. The broad objective of the study was to investigate the determinants of tax compliance in Kakamega and Kisumu, Western Kenya. Specifically determine the effect of equity on tax compliance; establish the influence of fairness of tax regime on compliance level; establish the influence of cost of complying on compliance level and determine the effect of cost of compliance on the tax compliance level of small tax payers in Western Kenya. In order to achieve the objectives of the study descriptive design was adopted. The target population for this study was sampled from those registered with KRA as VAT a payer that is 5,000 taxpayers. Using simple random sampling a sample of 370 was obtained. The study used questionnaires to collect data. Descriptive statistics and multiple regression analysis were used to analyze data. The result indicate that only tax burden (B=.608, p=.040) and equity (B=-1.055, p=.005) were significant predictors of level of tax compliance among SMEs in Western Kenya. The other predictors: complexity (B=-.180, p=.098), Fairness (B=-.032, p=.780), cost of complying (B=.435, p=.138), and policy actions (B=.017, p=.927) were not significant predictors of level of tax compliance. The study recommended reduction of equity and increase of tax burden. Further study was required to assess the effectiveness of complexity, fairness, cost of complying, and policy actions in determining level of tax compliance.
Key Words: Tax Modernization Programme, Turnover Tax, Value Added Tax, Tax Compliance, Equity, Compliance Cost.
Akpo, U. (2009). The people as government: The importance of tax payment. Akwa Ibom State Revenue Summit. Uyo: Akwa Ibom State Internal Revenue Service.
Allingham, M. G., & Sandmo, A. (1992). Income tax evasion: A theoretical analysis. Journal of Public Economics 1 no.1 (November, 1972)
Alm, J., & Gomez, J. L. (2008). Social capital and tax morale in Spain. Economic Analysis and Policy , 38(1), 34-47.
Australian Tax Office (ATO) (2004). Australian Tax Office (ATO): Annual report, 2004.
Blanthorne, C., & Kaplan, S. (2008). An egocentric model of the relations among the opportunity to underreport, social norms, ethical beliefs and underreporting behaviour. Accounting, Organizations and Society, 33(7-8), 684-703.
Canada Revenue Agency (CRA). (2009). CRA 2008-2009 Departmental Performance Report.
Clotfelter, C. T. (1983). Tax evasion and tax rates: An analysis of individual returns. The Review of Economics and Statistics, LXV(3), 363-73.
Cochran W. G. (1963). Sampling techniques 2nd ed. John Wiley & Sons.
Cooper, D. R., & Schindler, P. S. (2007). Business research methods: 9th Edition, The McGraw-Hill Companies, New Delhi.
Everest-Phillip, M., & Sandall, R. (2009). Linking business tax reform with governance: How to measure sucess. Working paper, Investment Climate Department, World Bank Group.
Feld P., & Frey S. (2007). Tax Compliance as a result of a psychological tax contract: The role of incentives and responsive regulation. Law & Policy Journal, 2007
Finance Act (2004). Finance Act No. 4 of 2004, Kenya Law Reports.
KIPPRA (2008). Determinants of Kenya’s fiscal performance. Discussion Paper Series No.91: Nairobi:
KRA (2009). Fourth Corporate Plan, 2009/10-2011/2012.
Loo, E. C. (2006). The influence of the introduction on self assessment on compliance behaviour of individual taxpayers in Malaysia. PhD thesis. University of Sydney.
Mahon, J. E. (1997). Tax Reform and its determinants in Latin America, 1997-94: Implications for theories of state development, Paper prepared for the meeting of The Latin American Studies Association, Guadalajara, Mexico, April 17-19, 1997.
Mason, R., & Calvin, L. (1984). “Public Confidence and Admitted Tax Evasion”, National Tax Journal
McKerchar, M. (2002). The effects of complexity on unintentional non-compliance for personal taxpayers in Australia. Australian Tax Forum, 17(1), 3-26.
McManus, J., & Warren, N. (2006). The case for measuring tax gap. eJournal of Tax Research, 4(1), 61-79.
Moser, D. V., Evans III, J. H. & Kim, C. K. (1995). The effects of horizontal and exchange inequity on tax reporting decisions, Accounting Review, pp. 619-634.
Moyi. E., & Ronge, E. (2006). Taxation and Tax Modernization in Kenya; Institute of Economic Affairs; Nairobi, Kenya
Mugenda, O., & Mugenda, A. (1999). Qualitative and Quantitative Research Methods. Nairobi: Acts Press.
Mureithi, M. K., & Moyi, E. D. (2003). Tax Reforms and Revenue Mobilization in Kenya, AERC Research Paper 131, AERC, Nairobi.
OECD, (1996). Tax expenditures: Recent developments. OECD.
OECD, (2004). OECD Principles of corporate governance. OECD.
Ritsema, C.M., Thomas, D.W., and Ferrier. G.D. (2003). Economic and behavioural determinants of tax compliance: evidence form the 1997 Arkansas tax penalty amnesty program, paper presented at the IRS Research Conference, June, Retrieved 11 October 2010, from http://www.irs.gov/pub/irs-soi/ritsema.pdf
Slemrod, J. (1989). Complexity, compliance costs, and tax evasion. In Roth, J.A., and Scholz, J.T. (eds.) Taxpayer Compliance: Social Perspectives, Philadelphia, 2,156-181.
Slemrod, J. (2002). Small Business and the Tax System. Journal of Economic Perspectives
Wenzel, M. (2002). The impact of outcome orientation and justice concerns on tax compliance: The role of taxpayers identity, Journal of Applied Psychology, 87, 629-645. Canberra, Australia
Wilkinson, M. (1992). Taxation. The Macmillan Press Ltd, London, 1992.