Moderating role of tax training on the relationship between tax modernization programs and tax compliance among small and medium enterprises in Nakuru County, Kenya

Abstract

Compliance to tax laws and regulations among the SMEs vary among nations. Tax compliance for small and medium sized ventures is challenging which led to the institution of reforms in order to make it easier for the businesses to comply. Empirical data shows that Kenya has not been able to meet its revenue to optimal level. SMEs in particular have the potential of generating revenue for the government but this has been a challenge. This poses a significant problem to the government and the country’s growth as a whole. This study aimed the moderating role assessing the effect of tax modernization programs on tax compliance moderated by tax training among SMEs in Nakuru County, Kenya. Specifically, the study sought to: determine the effect of tax invoice management system on tax compliance; evaluate the effect of electronic tax returns on tax compliance; find out the effect of electronic tax payment on tax compliance and find out the moderating effect of tax training on the relationship between tax modernization programme and tax compliance among small and medium enterprises in Nakuru County, Kenya. The study was anchored on the following theories: economic deterrence, transaction cost economics theory and theory of reasoned action. The study adopted an explanatory research design. The study was carried out between August 2022 and November 2022. The target population was licensed SMEs in Nakuru County. The target population of this study was from a population of 32,272 registered SMEs from which a sample of 395 selected using simple random sampling. Data was collected through administration of pretested questionnaires to the owners of SMEs. Data was analyzed using both descriptive and inferential statistics. The study adopted the hierarchical regression models to test for moderation. Based on the regression results, the study found that tax invoice management system (β= 0.286; ρ< 0.05), electronic tax returns (β= 0.352 ρ< 0.05) and electronic tax payment (β= 0.145; ρ< 0.05) had a significant positive effect on tax compliance of SMEs in Nakuru County, Kenya with an R 2 of 33.4 percent. The study further found that tax training moderated the relationship between tax invoice management system (β= 0.068; ρ< 0.05), electronic tax returns (β= 0.053; ρ< 0.05), electronic tax payment (β= 0.455; ρ< 0.05) tax compliance of small and medium enterprises in Nakuru County, Kenya with an R 2 of 43.2 percent. The study concluded that the tax modernization are key determinants of tax compliance of small and medium enterprises in Nakuru County, Kenya and that tax training moderates that relationship. This study recommends that SME owners get basic training on simple record keeping which will not only enhance their level with compliance with tax laws, but also improve on the operational efficiency of their SMEs. Future studies should conduct a comparative study across multiple counties or regions within Kenya could reveal regional variations in tax compliance and the effectiveness of tax training programs.