Factors affecting residential rental income Tax compliance among Landlords in Nyeri Municipality, Nyeri County, Kenya

Abstract

Taxation is the main source of government revenue used to finance its public expenditure. Increased government spending and the need to finance public activities have resulted to the government bringing into tax the real estate sector. However, the issue of tax compliance is a big challenge facing small, medium, large taxpayers and governments in both developed and developing countries as it threatens the capacity of tax authorities to raise the expected revenue. This is evidenced by many governments being unable to meet their target revenues collections. A report by Kenya Revenue Authority in 2012 reveals that less than 40% of landlords and other developers comply with tax requirements adding that the authority’s ability to identify and capture all landlords in the tax net was not optimal. Therefore, this study sought to determine the factors affecting residential rental income tax compliance among landlords in Nyeri municipality. The specific objectives of this study were: to determine the effect of taxpayer knowledge, taxpayer education, compliance costs and deterrence sanctions on tax compliance of residential rental income tax among landlords in Nyeri municipality. The theories supporting this study included: the theory of planned behavior and economics deterrence theory. This study adopted explanatory research design with target population of 1,909 landlords and a sample size of 330 respondents in Nyeri Municipality using simple random sampling technique. The primary data was collected by use of close ended questionnaires. Data was analyzed using descriptive and inferential statistics and presented using statistical, graphical and a combination of both. The findings of this study indicated that taxpayer knowledge had a positive and significant effect on residential rental income tax compliance (β= 0.424, p<0.05). Taxpayer education had a positive and significant effect on residential rental income tax compliance (β= 0.372, p<0.05). Compliance costs had a negative and significant effect on residential rental income tax compliance (β= -0.218, p<0.05). Lastly deterrence sanctions had a positive and significany effect on residential rental income tax compliance (β= 0.477, p<0.05). The study concluded that tax knowledge, taxpayer education, cost of compliance and deterrence sanction affected residential rental income tax compliance among landlords in Nyeri municipality. Based on the findings, the study recommends that KRA should formulate policies on deterrence measures and taxpayer education to improve on revenue collection. Therefore, the study suggested that other areas for further research included effect of stakeholder sensitization program on tax compliance of residential rental income tax in Nyeri municipality.