Abstract:
Technological advancement is a key driver that builds efficiency in organizational
processes as it offers cost cutting opportunities. The spread of digital services through
capabilities of the internet and Information and Communication Technology has
created an opportunity to save on costs of transactions. The motivation of this research
lied in the contrasting result and the need to document the Kenyan case in respect to
digitalization of a tax system and its effect on tax compliance. Hence, the general
objective was to investigate the effect of digitalization on value added tax compliance
among Small and Medium Enterprises in Embakasi Central Sub-County, Kenya. The
specific objectives were: To establish the effect of online filing procedure on Value
Added Tax compliance in Kenya, to determine the effect of use of electronic tax
registers on Value Added Tax compliance in Kenya, investigate the effect of digital
payment systems on Value Added Tax compliance in Kenya and to determine the
effect of Value Added Tax automated assessment system on Value Added Tax
compliance among small and medium enterprises in Embakasi Central Sub-County.
The study was anchored on these theories: Innovation Diffusion Theory, Technology
Acceptance Theory and the Economic Deterrence Theory. This study used
explanatory research design. The population of this study was 190 VAT registered
taxpayers at Embakasi Central Sub County and sample size of 129 VAT taxpayers. In
this study, primary data was obtained through issuance of a questionnaire. To
elucidate on interdependence of variables, descriptive and inferential statistics were
undertaken. The study findings indicated that online filing, electronic tax registers,
digital payment systems, VAT automated assessment systems signficantly affects
value added tax compliance with evidence of beta and ρ values of (β1) of 0.286,
ρ<0.001 for online filing, while electronic tax register had a beta coefficient (β2) of
0.329, ρ<0.000, digital payment systems had a beta coefficient (β3) of 0.311, ρ<0.000.
Lastly, VAT automated assessment had a beta coefficient (β4) of 0.296, ρ<0.000. The
study results concludes that online filing, electronic tax registers, digital payment
systems, VAT automated assessment systems had influence on VAT compliance. In
light of the statistical results and conclusions, it is recommended that digitalization
components can be further enhanced to achieve higher levels of VAT compliance.
KRA should revamp digitalization to improve capabilities such as widening digital
payment systems to include online cheques remittance, real time ETRs and improve
the VAT automated assessment systems. More studies may be done in this area to
offer more insights on other factors such as Taxpayer behavioral tendencies on tax
revenue performance.