Effects of tax education on tax compliance among the small and medium enterprises in Nairobi City County Kenya

Abstract

Governments are striving to rally greater tax revenue domestically by increasingly reaching out to inform and engage taxpayers, aiming to foster an overall culture of compliance, in which citizens understand paying taxes as an essential aspect of their connection with their government. Taxpayer education is the channel linking tax administration and citizens and a significant tool to change tax culture. Studies done on tax compliance globally revealed that the level of the SMEs tax compliance in the developed nations is higher due to tax education. In Africa, the SMEs tax compliance rate is low and majority of the revenue authorities are unable to meet the tax targets due to inadequate tax education. SMEs have the potential to produce a lot of government revenue in Kenya, but this is not the case. It poses a huge threat to the country’s growth as a whole. Against this background, the purpose of this study was to uncover the effects of tax education on tax compliance in Nairobi City County among SMEs. In particular, the study aimed to determine the effect of electronic taxpayers, stakeholder awareness programs and print media education on tax compliance among medium-sized enterprises in Nairobi City County, Kenya. The theories used are the economic deterrence theory and vroom’s expectancy theory. An explanatory research design was used. The target population was 170197 licensed SMEs in Nairobi City County. Out of this, a sample of 384 SMEs was selected. The data was distributed to administrators, compliance officers and accountants of SME companies through the use of standardized questionnaires. Using descriptive and inferential statistics, data was analysed. A multiple regression model was used to assess the relationship between the research variables. The results showed an R squared of 0.683, suggesting that 68% of differences in tax compliance are explained by all predictor variables. The outcome also revealed that electronic taxpayer education (β1 = 0.242, P = .000); stakeholder sensitization programme (β2= 0.349, P =.000); and print media education (β3= 0.132, P =.014) had a positive and significant effect on tax compliance among small and medium enterprises. The study concluded that when combined, electronic taxpayer education, stakeholder sensitization programme and print media education positively and significantly impact tax compliance among the small and medium enterprises. In particular, stakeholder sensitization programme was identified as the most significant predictor of tax compliance, followed by electronic taxpayer education and lastly print media education. The study recommended the need for the KRA management to strengthen aspects relating to electronic taxpayer education including having adequate tax materials in the internet, enhancing I tax system and use of tax advertisements. It should also strengthen strategies relating to stakeholder sensitization programme such as seminars, workshops and road shows. Finally, the management should strengthen aspects relating to print media education including taxpaying culture, ethical attitudes and public awareness. This study makes significant contribution to theory, policy and practice in the area of tax education and compliance.