Moderating effect of compliance cost on determinants of excise duty compliance among small and medium water bottling companies in Nairobi, Kenya.

Abstract

Over the years, full Compliance on excise tax by bottled water manufacturers has not been achieved despite several efforts by KRA to seal the loopholes. The general objective of this study was to establish the moderating effect of compliance cost on the determinants of excise duty compliance among water bottling companies by small and medium enterprises in Nairobi, Kenya. The study was guided by the following specific objectives: to determine the effect of tax Knowledge on excise tax compliance, to establish the effect of tax audits on excise tax compliance, to determine the effect of digitization on excise tax compliance and to find out the moderating effect of compliance costs on determinants of excise duty compliance. The study was anchored by the following theories, ability to pay theory, economic deterrence theory, attribution theory, unified theory of acceptance & digitization and transaction cost theory. The research employed explanatory research design. The population comprised of 110 SMEs bottling water companies, due to size of the population, the study employed census. Primary data was used and structured questionnaire employed to collect data. Data findings was presented in the form of tables and figures. The study adopted multiple regression analysis to confirm factors affecting excise tax compliance and SPSS software used to analyse the data. The study found that Tax knowledge had a positive and significant effect on excise duty compliance among Nairobi water bottling SMEs. β1 = .360 p = 0.000<0.05. The study also found that tax audits had a positive and significant effect on excise duty compliance SME β2 = .189 p = 0.000<0.05. Further the study found that digitization had a positive and significant effect on excise duty compliance β3 = .344 p = 0.035<0.05. The study finally found that compliance cost had a negative and statistically significant moderating effect on relationship between tax knowledge, tax audit, digitization and excise duty compliance by the small and medium water bottling water companies in Nairobi, Kenya. β4 = -.153 p = 0.000<0.05. The study further found that the moderating effect of compliance cost on relationship between tax knowledge and excise duty compliance by the small and medium water bottling water companies in Nairobi was significant β5 = .101 p = 0.000<0.05. Further the study found that the moderating effect of compliance cost on relationship between tax audit and excise duty compliance, was statistically significant β6 = .019 p = 0.000<0.05. Lastly the study found that moderating effect of compliance cost on relationship between digitization and excise duty compliance by the small and medium water bottling water companies in Nairobi was significant β7 = .081 p = 0.000<0.05. R square change was 0.3% showing that the variation caused was reduced from 0.466 to 0.460. The study recommends more education on tax and compliance and improved digitization. Future research could compare the factors affecting excise duty compliance across different industries and sectors in Kenya. This would provide a more comprehensive understanding of excise tax compliance behaviour in Kenya