Abstract:
Being a major source of government revenue in most countries, taxation improves the
country’s service provision and aids in economic development. As such, the
applicable laws in any jurisdiction require taxpayers to comply by paying taxes to the
government. In Kenya, the value added tax revenue collected by KRA does not match
expectations. The mis-match is particularly great in the hotel sector, hence this study.
The study in this regard aimed to determine the factors influencing VAT compliance
of hotels in Nakuru County. The objective of the study was to establish whether trust,
social norms and perceptions affect VAT compliance among hotels. Nakuru was
selected for study because it is a hotspot for hotels in the country. The data reviewed
that led to the problem statement for the study covered three years between 2016 and
2019. The Social Contract Theory, Theory of Planned Behavior and the Cognitive
Dissonance Theory were used to explain the study variables. The study used an
explanatory research design to determine the causal relationship between trust, social
norms, perception and VAT compliance. The target population of the study included
1076 hotels in Nakuru County. With stratified random sampling, 284 hotels were
selected for study. Piloting of the questionnaire was carried out in Narok Town to test
its reliability and validity. The study collected primary data which was tested for
validity and reliability and then analysed. Descriptive as well as inferential statistics
were generated to determine the association between variables, with the measurement
of variables based on 5-point Likert Scale. Correlation and regression analysis
provided an understanding of the relationship between the study variables with
findings indicating that hotel VAT compliance in Kenya remains a function of
taxpayers trust in the revenue authority, their social norms and perceptions about the
government with Beta coefficients of 0.370, 0.716 and 0.462 respectively with
p<0.05. When combined, R Square of 0.504 at p<0.05 imply that the independent
variables explained 50.4% of any change in VAT compliance. Multiple linear
regression analysis was done and yielded the regression equation of the study. The
study concluded that trust, social norms and perceptions have a significant influence
on VAT compliance among hotels. The study findings had varied implications and
confirmed the prepositions of the theories of planned behavior and cognitive
dissonance. It also highlighted to policymakers the need to improve VAT compliance
through enhancing a trust relationship. Hotel practitioners as well should initiate
positive tax compliance norms while the government ought to exercise a cautious use
of tax resources in effecting services and projects necessary for the country. The study
suggested that considering additional factors for example power of the revenue
authority will add to the explanation of VAT compliance, an insight for future
research.