Factors affecting value added tax compliance among Wholesalers in south of Nairobi County, Kenya.

Abstract

Taxation is considered the primary source of government funding and plays a critical role in social economic and political development of any nation across the globe. “Despite ongoing tax reforms by the government, a large section of small business tends to exhibit low tax compliance even though they are eligible to pay taxes. This is evidenced by many governments being unable to meet their target revenue collections. The main objective of this study was to determine the factors that affect VAT compliance in South of Nairobi, Kenya. The specific objectives were to determine the effect of taxpayer perception on VAT compliance, establish the effect of enforcement measures on VAT compliance and to establish the effect of stakeholder sensitization on VAT compliance. The study was guided by Fiscal Psychology Theory, Economic deterrence theory and Stakeholder’s theory. The study employed explanatory research design that involved the use of a structured questionnaires in collecting primary data. A pilot study was conducted in West of Nairobi Kenya to test the reliability and validity of research instruments. The study population was 4053 licenced wholesalers with South of Nairobi. A sample size of 364 was determined by using Yamane 1967 formula and selected using stratified random sampling. Data collected was analyzed using descriptive and inferential statistics. The relationship between the independent variables mentioned above and VAT compliance was obtained by using regression analysis. Regression analysis established that taxpayer perception had a beta coefficient (β 1 ) of (0.314, P=0.000<0.05) while enforcement measures had a beta coefficient (β 2 ) of (0.253, P=0.003<0.05). Lastly, stakeholder sensitization had a beta coefficient (β 3 ) of (0.421, P=0.001<0.05). Model summary show that the predictor variables used explain 55.9% of variations in dependent variable meaning that there are still other variables that affect the wholesalers in South of Nairobi County. The study made conclusions on taxpayer perception, enforcement measures and stakeholders’ sensitization that there was a significant positive relationship between all independent variables and Value added tax Compliance among wholesalers in south of Nairobi Kenya. The study therefore recommends that the government should ensure efficient in utilization of revenue generated for the benefit of its people so that the citizens can have more confidence in them and support their administration by being VAT compliant. KRA should review its policies on court sanctions, fines and penalties on taxpayers and strictly enforce the deterrence sanctions since tax deterrence sections influence tax compliance level by wholesalers in south of Nairobi Kenya. Also, KRA should emphasize on VAT awareness of taxpayers as this will enhance their compliance levels. Therefore, there is need to undertake other studies related to the same topic with wide considerations to other determinant like technology and online filing on VAT compliance.