Effect of ad valorem tax valuation on revenue performance, a case of secondhand motor vehicle dealers in Nairobi county, Kenya

Abstract

Tax revenues are a critical component of government resources in almost all economies as they support the role of government in providing public services, re-distribution of income, and implementing other fiscal policy concerns. However, tax revenue performance often faces challenges that deny many governments the ability to meet their economic growth and development ambitions. Some of these challenges are internal and while others emanate from the taxpayers. The study attempted to determine the effect of ad valorem tax valuation on secondhand motor vehicle dealers in Nairobi County. The specific objective of the study was to determine the effect of tax rates, the effect of the system of valuation, and the effect of policies and regulations on revenue performance. The study was anchored on the Laffer Curve theory, the technology acceptance model theory, and the theory of planned behavior. The study adopted an explanatory research design. The study targeted a population of 3055 employees of the department of customs and border control of the Kenya Revenue Authority segmented into various levels. A sample of 354 was drawn from the population using the Bridget and Lewin formula and the respondents' response rate of 72% was obtained. A questionnaire was used to collect primary data and analysis included both descriptive and inferential statistics. The study adopted Multiple Regression model for its inferential analyses. Descriptive statistics were presented in tables while correlation and regression analysis were used for inferential statistics. The findings of the study indicated that tax rates, system of valuation, and policies and regulations had positive and significant effect on revenue performance. These results were evidenced by the standardized beta values of 0.179 for tax rates, of 0.440 for system of valuation, and of 0. 308 for policies and regulations. A unit change in tax rates increased revenue performance by 0.179. A unit change in the system of valuation increased revenue performance by 0.440. A unit change in policies and regulation increased revenue performance by 0.308. Further, the findings of the study revealed that the correlation coefficient of R was 0.697 and the R square was 0.486. The model revealed an R squared of 0.486 where the factors under the study, contributed to 48.6% of the revenue performance while the remaining 51.4% can be explained by other factors which were not part of this study. These factors could include but not limited to demographic, cultural, economic and other externalities. Based on the findings of the study, it was concluded that tax rates, system of valuation, and policies and regulations influenced revenue performance. The study, thus, recommended that Kenya Revenue Authority, and the government should put in place concrete policies & regulatory frameworks that are favorable to Kenyan motor vehicle dealers. This is to work in harmony with the effects of regional and community blocks import barriers and that affect the importation and sale of motor vehicles. The study suggests the need for more studies focusing on other factors determining revenue performance not included in the study such as cultural, economic, social and other externalities across other properties valuations in Kenya.