Moderating Effect of Taxpayers Engagement on the Relationship Between Capital Gains Tax and Tax Compliance among Real Estate Businesses in Nairobi, Kenya

Abstract

Even though there has been a progression towards realization of more taxes from CGT, the same does not still commensurate with the size of the real estate market in Kenya. Consequently, there have been proposals to increase the CGT rate from 5% to 12.5 % but the proposals have been met with resistance with some preferring stakeholders’ engagement to streamline the issues on compliance rather than increasing the rate. For this reason, the study sought to investigate the moderating effect of Taxpayers Engagement on the relationship between Capital Gains Tax and Tax compliance specifically among real estate property businesses in Nairobi, Kenya. The study adopted explanatory research design with the targeted population being 467 real estate businesses from where a sample size of 216 was drawn. The specific objectives of the study were to investigate the effect of lock-in-effect on tax compliance among real estate businesses in Nairobi, the effect of capitalization effect on tax compliance among real estate businesses in Nairobi, and to determine the effect of taxpayers’ engagement as a moderating variable on lock in effect and capitalisation effect on tax compliance among real estate businesses in Nairobi, Kenya. Data collection was through a 5-point likert scale questionnaire. Inferential statistics through the use of regression and correlation analysis was used to analyse variables. Regression analysis established a negative significant linear relationship between lock-in-effect and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of -0.119. Additionally, there was a negative significant linear relationship between capitalization effect and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of -0.293 and lastly a positive but insignificant linear relationship between taxpayers’ engagement and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of 0.189. Also, there was a positive significant linear relationship between taxpayers’ engagement moderating on lock-in-effect and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of 0.521 and a negative insignificant linear relationship between taxpayers’ engagement moderating on capitalization effect and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of -0.258. The study concluded that lock-in- effect and capitalization effect had a negative and significant effect while tax engagement had a positive and insignificant effect on tax compliance among real estate businesses in Nairobi, Kenya. However, taxpayers’ engagement as the moderating variable was found to play a significant role on the tax compliance among real estate businesses in Nairobi, Kenya. The study recommended that KRA should create more awareness to taxpayers on the impact of lock-in-effect and capitalisation effect to the economy and why it is a vital aspect for consideration.