The influence of tax investigations on excise duty revenue performance among corporate large taxpayers In Nairobi, Kenya

Abstract

Over the past few decades, the contribution of excise taxes to Kenya's total tax revenue has experienced a decline, posing challenges to the fiscal expectations of the Kenya Revenue Authority (KRA). Between 1991 and 2004, excise taxes contributed 17% of the total tax revenue in Kenya. However, between 2007 and 2017, this figure dropped to an average of 12.7%. Data from the Kenya Revenue Authority's (KRA) annual reports between 2015 and 2021 shows that excise taxes contributed an average of 14.5% to total revenue. Kenya Revenue Authority (KRA) has failed to reach fiscal expectations for excise tax collections despite numerous reorganization efforts aimed at doing so over the past few years. This study investigated the role of tax investigations on excise duty revenue performance among large corporate taxpayers in Nairobi, Kenya. The research was guided by three specific objectives: detection, disruption, and deterrence measures on excise duty revenue performance among large corporate taxpayers in Nairobi, Kenya. The study analyzed the role of tax investigations using four theoretical frameworks: Economic deterrence theory, the theory of planned behavior, institutional theory, and Agency theory. An explanatory research design was employed to achieve the research objectives, targeting a population of 3732 firms in the Large Taxpayer Office (LTO). A sample size of 361 was determined using Yamane's formula. Primary data collection was employed using closed structured questionnaires that meet the study's objectives. The data were analyzed using descriptive, inferential statistics, and multiple linear regression analysis to establish the role of tax investigations on excise duty revenue performance. The study findings revealed that detection, disruption, and deterrence measures had a statistically significant positive effect on excise duty revenue performance, as evidenced by the beta coefficients (detection: β1=0.221, p <0.05; disruption: β2=0.293, p <0.05; deterrence measures: β3=0.214, p <0.05). The study concluded that detection, disruption, and deterrence measures affect excise duty revenue performance. Based on the findings, the study recommends that KRA develop evidence-based policies to improve excise duty revenue performance and enhance corporate governance practices. Future research may be carried out on the strategies extensive corporate taxpayers employ to strengthen compliance in the face of tax investigations. The implications of tax investigations on tax policies related to excise duties can also be studied.