Factors influencing value added tax compliance among Hotels in Nakuru County

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.