Effect of tax reforms on turnover tax compliance Among Medium-Sized Food Manufacturing Firms In Ruiru, Kenya

Abstract

Tax reforms are primarily intended to reduce tax evasion by both individual and business taxpayers. As such, analyzing a country's position prior to implementing tax reform leads in a tax system that functions well. However, the amount of tax income a government is able to collect is highly contingent on the tax payers' voluntary compliance. Consequently, tax payers are often compelled to fulfill their tax duties by accounting, computing, filling out, and paying their actual taxes to the relevant tax agency. Reform objectives aimed to enhance tax compliance vary by country and region due to differences in economic development, administrative competence, and tax base. However, despite the huge revenue potential, a sizable portion of informal sector businesses still remain untaxed or under-taxed thus making KRA to struggle in terms of meeting the set TOT revenue target. It is upon this understanding that the current study aimed to expound on this contextual gap by investigating the effect of tax reforms on TOT compliance among medium-sized food manufacturing firms in Ruiru, Kenya. The study specific objectives were administrative tax reforms, taxpayer‟s education tax reforms and technological tax reforms. The study dependent variable was TOT compliance among medium-sized manufacturing firms in Ruiru. The study was anchored on two key theories which are Allingham-Sandom Theory of tax compliance and Fiscal Exchange Theory. The study employed an explanatory research design. The target population comprised of all registered medium-sized food manufacturing firms in Ruiru, Kenya. The unit of observation was all 200 owners/managers of the medium-sized food manufacturing firms targeted. Census approach was adopted to study the whole targeted population of 200 owners/managers of the medium-sized food manufacturing firms. The study relied on a primary data set that was gathered through the use of structured questionnaire. The findings revealed that Taxpayer tax reforms, Administrative tax reforms, and Technological tax reforms combined influences turnover tax compliance by 8%. Specifically, administrative tax reform influences turnover tax compliance of SMEs by 35.3%(β=0.353, p=0.000<0.05), technological tax reforms influences turnover tax compliance of SMEs by 19.5%(β = 0.195, p=0.025<0.05) and to a very little extent taxpayer education tax reforms influences turnover tax compliance of SMEs by 1.4%(β = 0.014, p=0.756>0.05). Furthermore, hypotheses testing confirmed that administrative and technological tax reforms have a significant positive impact on turnover tax compliance with p-value of 0.000 and p-value of 0.025 respectively. Conversely, taxpayers' education reform did not show a significant effect on compliance levels with p-value of 0.756. This study recommended that policymakers and tax authorities should prioritize administrative and technological tax reforms to further improve turnover tax compliance of SMEs