Dispute resolution mechanisms, trust and value added tax compliance among tax agents in Nairobi County, Kenya

Abstract

Taxation serves as a crucial source of government income in nearly all nations, enabling the government to provide public goods and services. As a result, tax compliance is essential for economic stability, with tax revenue playing a key role in national development. The main objective of the study was to investigate the moderating influence of trust on the relationship between tax dispute resolution processes and Value Added Tax compliance among tax agents in Nairobi County, Kenya. Specifically, the study aimed to examine the effect of negotiation, internal reviews, and alternative dispute resolution methods Value Added Tax compliance among these agents. The research was grounded in several theories, including the Theory of Optimal Taxation, Conflict Management Theory, the Unified Theory of Acceptance and Use of Technology, and Social Interest Theory. An explanatory research design was utilized for the study, targeting 321 tax agents in Nairobi County, with a final sample size of 178 respondents. Out of 178 questionnaires distributed, 134 were properly filled out and returned, yielding a 75% response rate. The study relied on primary data collected via questionnaires, which was analyzed using descriptive and inferential statistical methods. A multiple linear regression model was employed to determine the strength of the relationships between the independent and dependent variables. The first objective, which explored the effect of negotiation, found a significant positive correlation with VAT compliance (β = 0.320, p < 0.05). The second objective, focused on internal reviews, also showed a significant positive relationship with VAT compliance (β = 0.009, p < 0.05). The third objective, examining alternative dispute resolution, revealed a similarly positive effect on VAT compliance (β = 0.386, p < 0.05). The fourth objective analyzed how trust moderates the relationship between dispute resolution mechanisms and VAT compliance, showing that trust significantly amplifies the effects of negotiation (β = 0.211, p < 0.05), internal reviews (β = 0.251, p < 0.05), and alternative dispute resolution (β = 0.452, p < 0.05). Additionally, factors such as age (β = 0.235, p < 0.05) and education (β = 0.218, p < 0.05) were found to be positively linked to VAT compliance. The study recommended that the Kenya Revenue Authority (KRA) invest in extensive training programs to enhance the negotiation abilities of tax agents. the government should consider implementing policies aimed at training tax agents in effective negotiation and dispute resolution, by investing in skills development programs for tax agents, policymakers can improve interactions between agents and taxpayers, leading to higher compliance rates. KRA should invest in building trust with taxpayers by making dispute resolution mechanisms accessible and equitable. Ensuring that these mechanisms are transparent, fair, and efficient will reinforce trust, which was found to enhance the impact of negotiation, internal reviews, and ADR on compliance. Future research should explore the influence of the regulatory framework on VAT compliance.