Economic deterrent, trust in government and rental Income tax compliance among landlords in Roysambu Subcounty, Kenya

Abstract

Taxes are essential to the functioning of any nation, despite the fact that it is generally unpopular and poorly understood by many people. However, even though taxpayers acknowledge the need to pay taxes and enjoy the benefits offered by the government in form of public goods, fully compliance with the set tax regulations is not favoured by the majority. In their bid to enhance tax compliance, various economic deterrents are instituted by tax authorities across the globe such as fines and penalties, tax audit, costs of compliance and tax rates. The general purpose of the study was to investigate the moderating effect of trust in government on the relationship between economic deterrent and rental income tax compliance among landlords in Roysambu Subcounty. The specific objectives of the study are to; establish the effect of fines and penalties, tax audit, cost of compliance and tax rate on rental income tax compliance and lastly establish the moderating effect of trust in government on economic deterrent and rental income tax compliance. The study was guided by fiscal exchange theory as the main theory and prospect and the rational choice as supplementary theories. The study was guided by explanatory cross-sectional research design. The target population comprised 320 landlords from the Roysambu sub-district. A final sample of 177 respondents was obtained using simple random sampling method. The study used both descriptive statistics and inferential to analyze the data. The study employed Hierarchical regression model. The regression results indicated that fines and penalties (β = 0.239, ρ <.05), tax audit (β = 0.340, ρ <.05), cost of compliance (β = - 0.077, ρ <.05), tax rate (β = -.185, ρ <.05) had a significant relationship with rental income tax compliance.The results further confirmed that trust in government had a moderating effect on fines and penalties (β = 0.109, ρ <.05), tax audit (β = 0.035, ρ <.05), cost of compliance (β = 0.027, ρ <.05), and on tax rate (β = 0.020, ρ <.05) and rental income tax compliance. The study concluded that the economic deterrents are key determinants of renal income tax compliance and that trust in government moderates that relationship. The study's conclusions have implications for managers and regulators. The study recommends that KRA should review policies relating to economic deterrent measures. In particular, KRA should strengthen fines & penalties and tax audit procedures. There is also need to reduce cost of compliance as well as review of tax rate policy for effectiveness. The study recommends that future studies may conduct a comparative analysis across different regions or countries which may shed light on the generalizability of findings.