Perceived tax fairness and turnover tax compliance: the role of ease of use of electronic tax system among small and medium enterprises in Nairobi, Kenya

Abstract

v ABSTRACT Kenyan government through Kenyan revenue authority (KRA) has been working effortlessly to improve turnover tax compliance as a result of an increase in government projects and a global economic slump. However, despite much intervention, according to KRA report compliance of turnover tax has been low with shortfall of Ksh 14.6 billion Shillings in the period 2021-2022. Therefore, the general objective of this study was to determine effect of perceived tax fairness on turnover tax compliance: the role of ease of use of electronic tax system among SMEs in Nairobi. The study specifically determined; the effect of procedural tax fairness on turnover tax compliance, effect of distributive tax fairness on turnover tax compliance, effect of retributive tax fairness on turnover tax compliance and determine moderating effect of perceived of ease of use of electronic tax system on the relationship between perceived tax fairness and turnover tax compliance. The study was informed by the equity theory and technology acceptance model. The study employed explanatory research design. The target population were 4821 registered SMEs in Nairobi Central Business District, Kenya. Stratified and random sampling techniques were employed to select 376 owners/managers SMEs. Questionnaires were used to collect data. Validity and reliability of the research instruments was tested using factor analysis and Cronbach alpha. Data was analysed using means, standard deviation, Pearson correlation and multiple regression analysis. The finding revealed that procedural tax fairness (β= 0.421, p=.000<.05), distributive tax fairness (β= 0.154, p=.000<.05) and distributive tax fairness (β = 0.439. p=.000<.05) positively influences the turnover tax compliance among the SMEs in Nairobi. Further findings revealed that perceived ease of use of the electronic tax system was found to have a moderating effect on the relationship between procedural tax fairness and turnover tax compliance (β= 0.45, p=.000<.05, R2Δ = 0.046) suggesting the importance of user-friendly and accessible digital tax systems in facilitating compliance. However, perceived ease of use of the electronic tax system did not moderate the relationship between distributive tax fairness and turnover tax compliance (β= 0.04, p>.05, R2Δ = 0.00) and retributive tax fairness and turnover tax compliance (β= 0. 5, p=.>.05, R2Δ = 0.00). Therefore, the study recommended for policymakers and the Kenya Revenue Authority to continue providing fair and transparent tax procedures, while also ensuring that the electronic tax system is easy to use and understand for SME owners. Also, emphasis should be on improving the perceived fairness of the tax system, ensuring that lower-income SMEs receive adequate support. Also, efforts should be made to improve the perception of tax fairness among SMEs by ensuring equitable distribution of tax burden