Moderating effect of digitalization on the determinants Of excise duty compliance among manufacturing firms in Embakasi West Nairobi County, Kenya

Abstract

Although the implementation of the excise tax has the potential to enhance revenue collection, its contribution to the GDP has remained negligible in comparison to other forms of taxation. Consistently, the total amount of the excise tax collected has been below the set targets. The broad objective of the study was to determine the moderating role of digitalization on factors affecting excise duty compliance among manufacturing firms in Embakasi west Nairobi County, Kenya. The research was guided by three specific objectives: to determine the effect of Tax audit, taxpayer sensitization and social norms on excise duty compliance among manufacturing firms in Embakasi west Nairobi County, Kenya. While the moderating variable was digitalization. The study was guided by the following theories, Technology Acceptance Theory, Theory of Planned Behaviour and Economic Deterrence Theory. The study adopted explanatory research design and target a population was 416 manufacturing firms in Embakasi west Nairobi. A sample size of 203 was drawn from this population and a response of 173which was 85% response rate. Primary data collection was employed using closed structured questionnaires based on the study's objectives. The data was analyzed using descriptive, inferential statistics and multiple linear regression analysis. The study found that tax audits have a positive and significant effect on excise duty compliance β=0.558 p-value=0.000<0.05. The study further showed that taxpayer sensitization positively affects excise duty compliance β=0.023 p-value=0.031<0.05. The study also indicated that social norms have a positive effect on excise duty compliance β=0.288 p-value=0.000<0.05. The study further found that digitization positively affects excise duty compliance β=0.125 p-value=0.028<0.05. Lastly digitization moderates the relationships between tax audit, taxpayer sensitization and social norms on excise duty compliance β=0.239 p-value=0.000<0.05, β=0.128 p-value=0.000<0.05 and β=0.076 p-value=0.000<0.05 respectively. To enhance excise duty compliance, the government should increase funding for tax audits, launch educational campaigns, and invest in digital tax infrastructure. Management should adopt internal audits, while KRA should offer regular training. Taxpayers should use digital tools for compliance. The study supports Deterrence Theory, Social Influence Theory, and the Technology Acceptance Model. Future research should explore tax reforms, incentives, and technology integration in tax administration.