Perceived effect of tax policy on income tax compliance Among selected gambling firms in Nairobi County, Kenya

Abstract

Income tax compliance is an important issue in any economy worldwide. The gambling and lottery industry has recently risen to become a very lucrative industry in Kenya that can no longer be ignored and warrants more research. Companies are required to adhere to taxation regulations set out by the Kenyan government and file accurate tax returns. However, few gambling companies comply with tax policies, implying that majority are operate in the black market evading taxation. This study, therefore, sought to determine the effect of tax policy on income tax compliance among gambling firms in Nairobi County, Kenya. The specific objectives were to establish the influence of tax regimes on income tax compliance, to determine the effect of tax rates increase on income tax compliance among gambling firms in Nairobi County, Kenya, and to effect of tax base on income tax compliance among gambling industry in Kenya. This study was based on three theories: The Ability to Pay, The Tax Morale Theory and Economic Theory of Income tax compliance. The research adopted explanatory research design. The target population for the study was gambling companies operating in Nairobi City. According to Betting and Licensing Control Board, there are 30 major sports gambling and lottery companies in Nairobi County. Therefore, the target population for this research was 250 senior and middle level managers in the 30 gambling and lottery companies in Nairobi County, Kenya. Simple random sampling technique was adopted to pick out the respondents obtained from managers of gambling companies. Furthermore, the sample size was determined by use of Yamane (1967) formula which will yield a sample size of 154. Primary data was collected through use of semi- structured questionnaires. Data was analyzed using descriptive and inferential statistics. From regression results, the adjusted R Square value was 0.191 indicating that the model explains only about 19.1% of the variability in the income tax compliance by gambling firms. Furthermore, the findings revealed that a unit increase in tax regime is associated with an estimated increase of 36.9% units in income tax compliance; a unit increase in tax rate is associated with an estimated increase of 34.9% units in income tax compliance and a unit increase in tax base is associated with an estimated increase of 19.9% units in income tax compliance. Furthermore, hypotheses testing revealed that tax regimes, tax rates and tax base have a significant effect on income tax compliance among gambling firms with (p=0.000<0.05); (p=0.000<0.05) and (p=0.011<0.05) respectively. These comprehensive findings collectively underscore the importance of thoughtful tax policy design in fostering taxpayer cooperation and compliance within the gambling sector in Nairobi. The study recommended for the Review tax regime structure, Tax rate optimization and Income tax compliance education in the gambling sector