Tax behavior on growth of micro, small and medium enterprises: a case of butcheries in north of nairobi tax region, Kenya

Abstract

Despite the high level of resilience exhibited by the micro small and medium enterprise sector as evidenced by job creation abilities in a tough environment as well as significant contribution to gross domestic product, the businesses still face serious challenges that impede their growth. The firms experienced average decline of 4% in annual turnover between financial years 2018-2019. This study therefore sought to investigate the effect of tax behavior on growth of micro, small and medium enterprises: a case of butcheries in North of Nairobi tax region, Nairobi County. The specific objectives were to determine the effect of tax knowledge by taxpayers, tax compliance costs behaviour, and tax non-compliance cost behaviour on growth of micro, small and medium enterprises in North of Nairobi tax region, Nairobi County. The study was anchored on the theory of planned behaviour theory of economic entrepreneurship, and the economic deterrence theory. An explanatory design was employed. The target population for this research was 2500 licensed butcheries by Nairobi County Government in Kenya Revenue Authority tax region of North of Nairobi. The study sampled 344 butcheries using stratified random sampling. Primary data was collected using structured questionnaires. Data was analyzed by descriptive statistics (means and standard deviation), while inferential statistics (correlation and regression) helped to test the relationship between the study dependent and the independent variables. The regression results showed that tax knowledge by taxpayers (β=0.488, p=0.000) had a positive and significant effect on growth of micro, small and medium enterprises. The results further showed that tax compliance costs (β= - 0.102, p=0.002) and tax non-compliance cost behavior (β= -0.223, p=0.000) have a negative and significant effect on growth of micro, small and medium enterprises. From the findings, the study concluded that it is important for micro, small and medium enterprises to employ employees that have knowledgeable on tax compliance matters. This will enhance their growth. The study further concluded that number of taxes and the amount of tax that micro, small and medium enterprises are required to pay to the government had greatly increased. In addition, the tax payment method is very clear to the micro, small and medium enterprises and this enables them to make frequent tax payments. The study recommended that micro, small and medium enterprises should invest in seeking tax knowledge and ensure that all their employees are equipped with the tax knowledge. This is because acquiring reasonable level of tax knowledge facilitates growth of their businesses. The government of Kenya needs to lower the compliance costs of the micro, small and medium enterprises. This is because high compliance costs diminish competitiveness of the country in terms of taxation attractiveness, public services which have become increasingly interested in ways to simplify their tax legislation systems. The government of Kenya also needs to lower the noncompliance costs of the micro, small and medium enterprises. This is because increase in tax compliance costs, denies the business persons the advantage to reap off economies of scale and thus little growth is envisioned.