Determinants of tax compliance among residential income earners in Embakasi South Sub-County,Nairobi, Kenya

Abstract

In as much as there is exponential growth in the real estate sector, this growth hower does not match with the tax revenue generated from the collection of monthly residential rental income tax. There are several attributable factors to the noncompliance in this sector, and these factors affect revenue collection in different ways. The study, therefore, investigated factors affecting tax compliance among residential income earners in Embakasi sub-county Nairobi. Three specific objectives guided the study to establish the effect of automation of services, taxpayer perception, and level of awareness on tax compliance among residential income earners in Embakasi south sub-county Nairobi. Residential income reports indicate that less than half of property owners and developers comply with residential income tax requirements in Nairobi City County. Despite the tremendous growth from real estate in Embakasi south subcounty, the corresponding tax collection from the sector has remained very low. The contribution by residential income earners has been very low despite all the efforts to enforce residential income tax policies. In Embakasi, several residential owners are under review, which has formed the need for undertaking this study. The study was guided by economic deterrence theory and the ability to pay theory. The study adopted an explanatory research design. The target population was 11,501 residential income earners in Embakasi, South Nairobi. A sample size of 386 respondents was selected using Yamane's formula. Primary data was collected using structured five-point Likert scale questionnaires. Statistical tools for both descriptive and inferential statistical data were applied to evaluate variations as manifested in the variables and test for hypotheses. The findings of the study indicated that the independent variables had a statistically positive significant effect on residential income tax compliance; thus, automation of services (β1=0.362, p=0.000<0.05), taxpayer perception (β2=0.243, p=0.000<0.05) and level of awareness (β3=0.382, p=0.001 <0.05). The results concluded that service automation, taxpayer perception, and level of awareness positively and significantly affected residential income tax compliance. Based on the study findings, the Kenya Revenue Authority should enhance the automation of services for online registration, online filing, and online payment of tax liabilities to improve income tax compliance among earners of residential rental income. Future research was suggested on other factors not covered by this study but could potentially impact tax compliance across other economic sectors.