Abstract:
Value Added Tax compliance is presently a topical coverage issue, mainly in growing
nations, as governments are in search of approaches to enhance performance in tax
revenues to finance their budgets. It is a challenging issue to many SMEs, mainly for
SMEs engaged in E-commerce businesses hence the focus of this study. Therefore,
this study was to determine the factors affecting value-added tax compliance among
e-commerce small and medium enterprises in Kenya, a case of small and medium
enterprises in Westlands Nairobi County. The specific objectives of this study were to
establish the effect of tax knowledge, tax Moral, technological factors and
enforcement measures on VAT in SMEs engaged in E-Commerce businesses. The
data reviewed that led to the problem statement for the study covered three years
between 2018 and 2020. The theories supporting these study variables included the
Economic deterrence theory, Fiscal psychology theory, Tax morale theory and Ability
to pay theory. This study adopted explanatory research design to determine the causal
relationship between tax knowledge, tax Moral, technological factors, and
enforcement measures and VAT compliance. The target population of study included
1,223 small and medium enterprises E-commerce businesses in Westlands Nairobi
County. Yamane formula was used to determine the sample size selection of 301
respondents for this study systematic sampling technique was used. Piloting of the
questionnaire was carried out on SMEs in Nairobi central business district to test its
validity and reliability. The study collected primary data through close-ended
questionnaire, with a response rate of 83%. The data was analyzed using descriptive
and inferential statistics 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.
On Regression, tax knowledge, tax Moral, technological factors and enforcement
measures had a strong positive correlation with value added tax compliance up to
61.3% or (R= 0.613). (R
2
) of 0.375 reveal that when other factors are held constant,
tax knowledge, tax Moral, technological factors and enforcement measures caused a
variation of 37.5% on VAT compliance. The study findings indicated that tax
knowledge, tax Moral, and enforcement measures had a statistically positive
significant effect on VAT compliance as per Beta coefficients of tax knowledge (β1=-
0.220, p=0.000<0.05), tax Moral (β2=0.449, p=0.000<0.05) and enforcement measures
(β4=0.221, p=0.003 <0.05). However, technology factor showed no significant
relationship with VAT compliance (β3= 0.075, p=0.302>0.05). The study results
concluded that tax knowledge, tax Moral, and enforcement measures affect VAT
compliance. Based on the findings, the study recommended that the government
should adopt modern tax remittance platforms for ease of value added tax remittance.
The study further recommends future studies can be conducted on different variables
such as on effect of administrative reforms on VAT compliance among E-commerce
large taxpayers to provide additional insights and add to the existing understanding of
issues explored in this study.