Socio-Psychological Determinants of Tenants Attitude towards Residential Rental Income Tax Compliance in Eldoret Municipality, Kenya

Abstract

Residential rental income tax compliance in Kenya has remained poor despite penalties, periodic audits, fines, and the geo-mapping of residential properties by KRA. Although data indicate a rapid expansion of the real estate industry, taxes on rental income have. remained the same with this expansion. Due to tax shifting by property owners, tenants. are at the core of rental income tax. In addition, tenants and property owners occasionally collaborate in evading rental income taxes. Furthermore, tenants may decide to purchase a home if high property taxes increase the amount of rent due. This could decrease the demand for rental homes and lower the amount of rental income tax collected. Additionally, as part of third party reporting, KRA requires tenants to voluntarily divulge information on property owner when submitting their annual self assessment returns. Prior studies have revealed that socio-psychological factors influence a person's attitude towards compliance with tax laws. However, few studies have assessed tenants' attitudes toward residential rental income tax compliance. Therefore, this study sought to examine the effect of perceived tax system fairness, perceived enforcement power, perceived tax knowledge, perceived trust in government and perceived social norm on tenants' attitudes toward residential rental income tax compliance. The study was grounded on the theory of planned behavior and the theory of social norms. The study adopted the explanatory and cross-sectional research design. The study’s population comprised of 119,042 tenants, however the final sample was 399 tenants. Self-administered questionnaires were used to collect data that was analyzed through descriptive and inferential statistics. The results of multiple regression were used to test the hypotheses. The findings revealed a significant negative relationship between perceived tax system fairness (β =-0 .123; ρ < 0.05), perceived enforcement power (β =-0.124; ρ < 0.05), perceived tax knowledge (β =-0 .128; ρ < 0.05), perceived social norm (β =-0 .111; ρ < 0.05) and tenants’ attitude towards residential rental income tax compliance. The study further found a positive relationship between perceived trust in the government and tenants' attitude towards residential rental income tax compliance (β =0.224; ρ < 0.05). The study concluded that socio-psychological factors are significant determinants of tenants' attitude towards residential rental income tax compliance. Based on the findings, the study makes several recommendations. First, KRA needs enhance outreach programs to create awareness of the significance of complying with the residential rental income tax. Second, the tax authority should develop effective working strategies to establish trust and cooperation with taxpayers to foster a culture of voluntary tax compliance with rental income tax. Third, government should foster a culture of voluntary tax compliance among the populace. Finally, future research may focus on other real estate industry participants, such as property managers and estate agents, as drivers of residential rental income tax compliance.