Effect of revenue Enforcement Strategies On Excise Tax Compliance among Water Manufacturing Companies In Nakuru, Kenya

Abstract

Domestic excise tax performance has fluctuated over the years, with varying growth rates and inconsistencies in reported figures. In FY 2020/21, there was a 12.0% growth following a 6.4% decline the previous year, largely attributed to the reopening of the economy and increased sales in bars and restaurants. However, by FY 2022/23, growth slowed to just 2.8%. The performance discrepancies underscore the need for more consistent reporting and clear attributions in tracking domestic excise revenue. One of the key challenges in Kenya is the persistent issue of tax compliance among water manufacturing companies, marked by underreporting and fraudulent reporting, which significantly affects excise tax collection and exacerbates revenue gaps. This study explored effects of revenue collection strategies on excise tax compliance in Nakuru, Kenya's water manufacturing sector. It focused on the effects of excise stamps, audits and digital tracking systems on excise tax compliance. Using an explanatory design, the research was based on deterrence theory, agent theory, and the Technology Acceptance Model (TAM). A sample of 194 participants was selected using Yumane’s (1967) technique. Data was analyzed via multiple linear regressions, with findings presented in charts, tables, and graphs. The study's findings revealed that Excise stamps had a beta value of 0.391, indicating a positive and substantial effect on excise tax compliance; audit and inspection strategies had a strong influence, with a beta value of 0.447 and Digital tracking and tracing systems with a beta value of 0.300 also contributing positively. Overall, the model accounted for 50.7% (R² = 0.507) of the variation in excise tax compliance, suggesting that these factors play a significant role, although other variables not included in the model account for the remaining 49.3%. The study recommends improving excise tax compliance and reducing evasion, the government should enhance excise stamp design and security features while launching a public education campaign to emphasize their societal benefits. Audit and inspection strategies should be strengthened through more frequent audits, a risk-based approach, and the use of digital tools like AI to optimize resource allocation and enhance transparency. Additionally, expanding the use of digital tracking systems, investing in infrastructure, incentivizing businesses to adopt these technologies, and providing training and public awareness campaigns will ensure accurate reporting and compliance across sectors