Social cultural determinants of tax compliance among Small and medium enterprises in Kanduyi Subcounty, Bungoma County, Kenya

Abstract

Due to their historical role as the primary engine of production development and job creation in both established and emerging economies, small and medium-sized businesses are crucial for economic growth. Therefore, it is important that small and medium enterprises adhere to governmental tax laws. However, due to inefficient and incompetent tax administration, Kenya is included among the nations with the lowest tax compliance. According to KRA, the majority of SMEs do not pay taxes, and the rate of tax evasion among SMEs is still quite high. It was therefore important to investigate the factors that determine tax compliance among SMEs. The aim of this study was to determine the sociocultural determinants of tax compliance among SMEs in Kanduyi Subcounty. The study specifically aimed to ascertain the impact of education level, gender, culture, and religiosity on tax compliance among SMEs. The Theory of Reasoned Action, the Theory of Planned Behavior, and the Fiscal Psychology Model served as the study's foundation. An explanatory research design was employed in this study. 254 SMEs operating in Kanduyi Sub County were the target population. A basic random selection method was used to choose 155 SMEs from the intended audience. The respondents' information was gathered using a standardized questionnaire. Pilot research involving 39 SME owners was carried out in Kakamega County. The study employed the experts' judgment approach to ascertain the validity of the research questionnaire. The Cronbach Alpha coefficient was used to determine reliability, with a 0.7 cutoff point. The analysis of the data was done on the Statistical Packages for Social Sciences (SPSS). Descriptive statistics like percentages, frequencies, means, and standard deviations, as well as inferential analysis like regression and correlation analysis, were among the techniques used for data analysis. The assumptions of linearity, homoscedasticity, normality and absence of multicollinearity among the variables was assessed. The study identified the socioeconomic determinants of tax compliance among SMEs in Kanduyi Sub County as being gender, culture, religiosity and educational level. The study found that culture (β=0.124, p=0.009), gender β=0.165, p=0.004), religiosity (β=0.151, p=0.009) and educational level (β=0.287, p=0.000). have positive and significant effect on tax compliance among SMEs. The study made recommendations that the management of KRA should reach out to the owners and managers of SMEs to encourage them to be more tax complaint by addressing the cultural backgrounds that discourage tax compliance through more educational programs to society leaders, reaching out more to male owners and also teaching religious leaders on the benefits of tax compliance. The report also suggested that tax laws be created with the intention of penalizing religious and societal figures that actively discourage tax evasion.