Effect of Alternative Dispute Resolution on Tax Revenue Collection in Kenya

Abstract

The Kenya Revenue Authority has been facing challenges in meeting tax revenue collection targets. This is a clear indication that there is a serious problem. The study aimed at investigating the effect of alternative dispute resolution on tax revenue collection in Kenya. The study was guided by the following specific objectives; to assess the effect of arbitration and mediation on tax revenue collection; to evaluate the effect of litigation on tax revenue collection; and to determine the effect of negotiation on tax revenue collection. The study is supported by the conflict resolution theory, optimal tax theory, ability-to-pay taxation theory, benefit theory of taxation, and expediency theory of taxation. The study adopted an explanatory research design and targeted 874 taxpayers who had adopted alternative dispute resolution for the last 2 years. A sample of 274 taxpayers was selected using random sampling technique. Descriptive and inferential analysis were adopted. The descriptive statistics included percentage, mean and standard. Inferential statistics included correlation and regression analysis. F test, beta coefficients, t value and p value were used as test statistics. The study findings showed that there was a positive and significant relationship between arbitration and mediation and tax revenue collection (β=0.321, p=0.000). Findings also showed that there was a positive and significant relationship between litigation and tax revenue collection (β=0.304, p=0.000). In addition, results showed that there was a positive and significant relationship between negotiation and tax revenue collection (β=0.383, p=0.000). The study also concluded that negotiation was commonly used as dispute resolution mechanism between taxpayers and Kenya Revenue Authority officials. Facilitators and tax experts should be updated on current trends of mediation, effectiveness and transparency of the process. Further, Kenya Revenue Authority should invest in sensitizing taxpayers regarding the alternative dispute resolution process, and in embedding the requisite skills, motivation and resources in them to use the alternative dispute resolution process effectively. The government of Kenya should form a section in the constitution to empower Kenya Revenue Authority to settle a tax dispute on a compromise basis where it is in the best interest of the state.