Tax complexity, practitioner engagement, and compliance behaviour: evidence from five-star hotels in Nairobi County, Kenya

Abstract

In many developing nations, policymakers are increasingly concerned with low levels of tax compliance, which limit governments’ capacity to generate sufficient revenue for recurrent expenditure and development investments. Tax compliance remains a challenge in both developed and developing countries, with tax complexity being a key determinant of noncompliance. This study examined the moderating effect of practitioners’ engagement on the relationship between perceived complexity of various Taxes and compliance behaviour among five-star hotels in Nairobi County, Kenya. The study was anchored on the economic deterrence theory and adopted an explanatory research design. The target population comprised 36 five-star hotels, with 180 respondents drawn from hotel managers, financial managers, and accountants. Primary data was collected and analyzed using descriptive statistics, regression analysis, and hierarchical regression at a 5% significance level. The findings revealed that knowledge complexity (β = -0.382, p = 0.000) and uncertainty complexity (β = -0.266, p = 0.000) negatively affect tax compliance. Practitioners’ engagement positively moderated the relationship between knowledge complexity (β = 0.036, p = 0.002), uncertainty complexity (β = 0.047, p = 0.007), and tax compliance. The study concludes that reducing tax complexities and strengthening practitioners’ involvement are crucial for improving compliance. It recommends that the Kenya Revenue Authority streamline tax laws, adopt digital solutions, and conduct regular workshops, while hotel management should invest in efficient tax systems, train staff, and engage qualified tax practitioners. The study provides insights for policymakers in simplifying tax administration, for tax authorities in regulating and promoting the engagement of qualified practitioners, and for hotel managers in mitigating the risks associated with noncompliance.