Effect of taxpayer education on tax compliance among micro & small enterprises in Kenya: a case of tax payers in East Tax Area-Nairobi County

Abstract

Tax Compliance concerns are as old as taxes themselves and will remain an area of discovery as long as taxes exist. Taxes are the biggest source of revenue for governments to finance development. Poor tax knowledge has a number of potentially serious implications, mainly it can certainly affect tax compliance. There is therefore the need to establish whether a bridge in the knowledge gap would result in enhanced compliance. This study sought to address this gap by establishing the effect of taxpayer education on tax compliance among MSEs in Kenya. Specifically, the study endeavoured to determine the influence of taxpayer education programs on tax compliance, establish the effect of tax knowledge on tax compliance, assess the effect of use of technology on tax compliance and investigate if taxpayer’s profile affects tax compliance. The independent variable was taxpayer education whilst the dependent variable was tax compliance. The study explored the theory of reasoned action, economic deterrence theory, and the social influences theory to explain the concept of tax compliance and the various motives behind tax non-compliance. The study was conducted in Migingo Block - (Nairobi’s Riveroad and Kamukunji areas) Nairobi county as classified by KRA. The target population was 612 taxpayers with a sample size of 242. Data was analysed using both descriptive and inferential statistics. The study also used regression analysis to establish the relationship between the independent and dependent variables. The study revealed that taxpayer education programs influence tax compliance positively (β=0.402, p =0.007). In addition, tax knowledge influences tax compliance positively (β=0.402, p=0.005). Further, use of technology has a positive and significant effect on tax compliance (β=0.376, p=0.002). Finally, taxpayer’s profile had a positive and significant effect on tax compliance (β=0.227, p=0.003). The study concluded that taxpayer education programs, tax knowledge, use of technology, taxpayer’s profile influence tax compliance which is proved by the R square of 0.610, thereby rejecting the null hypotheses. The study findings forms a new body of knowledge in the stated objectives. The results also form a platform for relevant policy advocacy and change and empower taxpayers to know more and articulate their rights regarding tax compliance. The study concluded that taxpayer education affected tax compliance among MSEs in Kenya. Specifically, the study concluded that taxpayer education programs, tax knowledge, use of technology, taxpayer’s profile affected tax compliance positively. Further, the study concluded that improved taxpayer education would help to improve tax compliance. The study recommends further studies focusing on specific types of taxes such as VAT, Presumptive tax performance should be conducted. This would help to determine the difference of effect tax education on each of their performances compared to tax compliance. Further, studies focusing custom duties tax payers should be conducted since they were not targeted in this study. This would help to make comparisons.