Moderating effect of taxpayer awareness on the relationship between digitalization of system and rental income tax compliance among landlords in Makadara Constituency, Nairobi County, Kenya

Abstract

Property developments are very crucial to providing shelter and to an extent, ensuring comfortable living. It is also an important contributor to the economy of nations. Despite the tremendous growth in real estate, the corresponding tax collection from the sector has remained low. The contribution by rental income earners has been low despite all the efforts to enforce rental income tax policies. The study examined the moderating effect of taxpayer awareness on the relationship between digitalization of system and rental income tax compliance among landlords in Makadara constituency, Nairobi County, Kenya. It was guided by three objectives: to establish the effect of perceived ease of use of digitized system, perceived benefit of digitized system and perceived usefulness of digitized system on rental income tax compliance among landlords in Makadara Constituency, Nairobi County, Kenya. While the moderating variable was tax awareness on the relationship between digitalization of system and rental income tax compliance among landlords in Makadara constituency, Nairobi County, Kenya. It was guided by Theory of Technology Acceptance, unified theory of acceptance and use of technology and Ability to Pay Theory and adopted explanatory research design. The target population was 4,927 landlords in Makadara Nairobi County. The sample size of the study was 369, the study questionnaires that were correctly filled and returned were 230. The study used primary data which was collected using structured questionnaires with close ended questions and a pilot test was conducted to test reliability and validity. Both descriptive and inferential statistics were carried out. The study adopted multiple regression analysis to confirm the effect of digitalization of service and rental income tax performance. It found that perceived ease of use of digitized system has a positive and significant effect on rental income tax compliance, β=0.970, p-value = 0.000 <0.05. The study found that perceived benefit of digitized system has a positive and significant effect on rental income tax compliance β=0.150 p-value =0.000<0.05. The study also found that perceived benefit of digitized system has a positive and significant effect on rental income tax compliance β=0.085 p- value =0.024<0.05. The study further found that taxpayer awareness moderates the relationships between perceived ease of use of digitized system, perceived benefit of digitized system, Perceived usefulness of digitized system and rental income tax compliance, β=0.203 p-value =0.003<0.05, β=0.104 p-value =0.007<0.05 and β=0.053 p- value =0.007<0.05 respectively. The study shows that the perceived ease of use, perceived benefit, and perceived usefulness of a digitized system positively impact rental income tax compliance. All three factors are significant, with ease of use showing the strongest effect. Additionally, taxpayer awareness significantly moderates these relationships, enhancing the impact of perceived ease of use, benefit, and usefulness on compliance. These findings suggest that simplifying digital systems and improving awareness can boost tax compliance. The recommendations of the study are such that the KRA should ensure that the digitized tax system is intuitive and easy to navigate for all users, including those with limited technological proficiency. The KRA should launch widespread awareness campaigns to educate landlords about the benefits and ease of use of the digitized tax system. Consequently, it is recommended that KRA enhances the use of digitalization to increases tax revenue compliance. A study should be conducted to determine the impact of tax reforms on rental income tax compliance. A study on the effects of tax incentives on rental income tax compliance could benefit the research field.