Determinants of corporation tax performance among small and medium enterprises in nairobi central business district, Kenya

Abstract

Corporation tax is a key source of revenue for most governments across the globe that enables them to provide public goods and services such as free education, subsidized medical services and infrastructure. However, its performance in Kenya has been below target. This is majorly attributed to the SMEs who despite contributing significantly to the GDP are under taxed. This study was to determine factors affecting corporation tax performance among small and medium enterprises Nairobi central business district, Kenya. The objectives of the study were Specifically, to determine the effect of taxpayer education on corporation tax performance among small and medium enterprises Nairobi central business district, to establish the effect of system automation on corporation tax performance among small and medium enterprises Nairobi central business district, to determine effect of tax audit on corporation tax performance among small and medium enterprises Nairobi central business district and to establish the effect of deterrence sanctions on corporation tax performance among small and medium enterprises Nairobi central business district. The study was supported by three theories of taxation namely; Ability to pay theory, Economic Deterrence Theory and Theory of Technology Acceptance. The study adopted an explanatory research design. The target population was 3461 who are small and medium enterprises in Nairobi central business district and Sample size of 358 respondents The primary data was collected by use of questionnaires, Regression analysis was used to determine the significance and relationship of the variables. Statistical tools for data analysis comprising descriptive and inferential statistics were applied to evaluate variations in manifestations of the variables and to test the hypotheses respectively. The findings indicated that the independent variables had a statistically positive significant effect on corporation tax performance: taxpayer education (β 1= 0.237, p=0.000<0.05), system automation (β 2= 0.275, p=0.000<0.05) tax audit (β 3= 0.359, p=0.002 <0.05) and deterrence sactions (β 3= 0.281, p=0.000 <0.05) The results concluded that taxpayer education, system automation, tax audit and deterrence sanctions significantly affect corporation tax performance. Based on the findings, the study recommends that KRA to pay more attention on tax audit that would enhance corporation tax performance. Therefore, future research can be done on other variables such as the effect of compliance cost on corporation tax compliance among SMEs in Nairobi County Kenya.