Operational and deterrence determinants of excise duty compliance in Kenya; a case of bottled mineral water producers in Nairobi County, Kenya

Abstract

Excise duty compliance level in Kenya has been a major government concern. The Government through the Kenya Revenue Authority has implemented a number of policy and administrative reforms. KRA has aimed at increasing efficiency and boosting tax revenue collections. Excise duty has generally been limited to goods, which are luxuries or a risk to health or morals. However, over the years, this has become a key revenue earner contributing a sizable percentage of many countries national budgets. There has been a concern on the compliance levels of excise duty. Over the last five years, there has been a diminishing rate of increase year on year. The revenue from excise duty as a percentage of Kenya’s GDP is way below that of many Lower middle-income countries in Africa. The general objective of this study was to examine operational and deterrence determinants of excise duty tax compliance among water manufacturing companies in Nairobi County. The specific objectives of the study was to find out the effect of the reconciliation of excise duty stamps, automation of excise duty stamps, deterrence measures, and automated product marking on excise duty compliance. The study was anchored on three theories; the Allingham and Sandmo Theory, Technology Acceptance Theory (TAT), and Benefits Theory of Taxation. The study employed explanatory research design. The target population of the study was 185 registered water producers in Nairobi County in Kenya. Primary data was used with closed ended questionnaires. The data was analyzed using descriptive and inferential statistics to determine the association between variables, with the measurement of variables based on 5-point Likert Scale. The results indicated that reconciliation of excise duty stamps, automation of excise duty stamps, deterrence measures, and automated product marking is significant with an standardized beta coefficient of β1 = 0.225, p = 0.001; β2 = 0.273, p = 0.000; β3 = 0.317, p = 0.003; and β4= 0.260, p = 0.000. The study concluded that there was significant effect of reconciliation of excise duty stamps, automation of excise duty stamps, deterrence measures, and automated product marking on excise duty compliance. The study recommends that that KRA and the government should put in place policies and regulations that guide the overall growth of the economy and to come up with relevant and informed policies that enhance excise duty compliance. More importantly, the study recommends that KRA should put more efforts on systems automation as opposed to the monthly manual excise duty reconciliation. The study noted that future studies should be carried out to examine the effect of tax incentives on excise tax compliance among mineral water producers as well as including a moderating variable of compliance costs.