Effect of Tax Audits on Tax Compliance of Small and Medium Sized Enterprises in Nairobi County, Kenya
Keywords:
compliance, Kenya, Nairobi, Small and medium enterprises, tax auditAbstract
The purpose of this study was to investigate the effect of tax audits in enhancing taxation compliance among small and medium-sized enterprises (SMEs) in Nairobi County, Kenya. The study was grounded on the economic theory of tax compliance and the target population was small and medium-sized enterprises in Nairobi County from which a sample of 399 constituting the managers and owners of SMEs in the County was obtained. The research applied the positivism research philosophy and descriptive cross-sectional design making use of a structured questionnaire for data collection. The data obtained were analyzed through descriptive and regression analysis using SPSS. The findings indicated that there was a moderate positive relationship between tax audits and tax compliance (R = 0.318). Moreover, tax audits had a significant positive influence on tax compliance among SMEs in Nairobi County, Kenya (β = 0.423, t = 7.656, p < 0.05). This, therefore, depicted that tax audit is key in enhancing tax compliance of SMEs in Nairobi County, Kenya. This study recommends that tax administrators should structure their audits to ensure at least every three years the SMEs are subjected to a tax audit. The audits can be sectoral based or based on embedded risk parameters identified by the tax administration. Besides, tax administration should have a systematic risk-based methodology that quickly identifies taxpayers to be audited and has an elaborate system of monitoring the results that come from these auditing initiatives.
References
Alexander, P., & Balavac-Orlic, M. (2022). Tax morale: Framing and fairness. Economic Systems, 46(1). https://doi.org/10.1016/j.ecosys.2021.100936
Allingham, M. G., & Sandmo, A. (1972). Income tax evasion: a theoretical analysis. Journal of Public Economics, 1(3–4), 323–338.
Alm, J., Cherry, T., Jones, M., & McKee, M. (2010). Taxpayer information assistance services and tax compliance behavior. Journal of Economic Psychology, 31(4), 577–586. https://doi.org/10.1016/j.joep.2010.03.018
Amah, C. O., & Nwaiwu, J. N. (2018). Tax audit practice and down south tax revenue generation in Nigeria. International Journal of Innovative Finance and Economics Research, 6(1), 99–112.
Ayers, B. C., Seidman, J. K., & Towery, E. M. (2019). Tax reporting behavior under audit certainty. Contemporary Accounting Research, 36(1), 326–358.
Banerjee, R., Boly, A., & Gillanders, R. (2022). Anti-tax evasion, anti-corruption and public good provision: An experimental analysis of policy spillovers. Journal of Economic Behavior and Organization, 197, 179–194.
Cucciniello, M., Lapsley, I., & Nasi, G. (2016). Managing health care in the digital world: A comparative analysis. Health Services Management Research, 29(4), 132–142.
DeBacker, J., Heim, B. T., & Tran, A. (2015). Importing corruption culture from overseas: Evidence from corporate tax evasion in the United States. Journal of Financial Economics, 117(1), 122–138.
Hallsworth, M., List, J. A., Metcalfe, R. D., & Vlaev, I. (2017). The behavioralist as tax collector: Using natural field experiments to enhance tax compliance. Journal of Public Economics, 148, 14–31.
Hofmann, E., Voracek, M., Bock, C., & Kirchler, E. (2017). Tax compliance across sociodemographic categories: Meta-analyses of survey studies in 111 countries. Journal of Economic Psychology, 62, 63–71.
Kenya Revenue Authrority. (2020). Turnover Tax designed to make small businesses more compliant - KRA. Nairobi, Kenya. Retrieved from https://www.kra.go.ke/media-center/blog/1511-turnover-tax-designed-to-make-small-business-more-compliant
Kivuva, M. (2020). Kenya’s burden – the effects of digital taxes on SMEs. Nairobi, Kenya. Retrieved from https://www.kictanet.or.ke/kenyas-burden-the-effects-of-digital-taxes-on-smes/
KNBS. (2019). Micro, small & medium establishments. Nairobi, Kenya: KNBS.
Kurniawan, D. (2020). The influence of tax education in higher education on tax knowledge and its effect on personal tax compliance. Journal of Indonesian Economy and Business, 35(1), 57–72.
Le, H. T. H., Tuyet, V. T. B., Hanh, C. T. B., & Do, Q. H. (2020). Factors affecting tax compliance among small- and medium-sized enterprises: evidence from Vietnam. The Journal of Asian Finance, Economics and Business, 7(7), 209–217.
Lederman, L. (2018). Does enforcement reduce voluntary tax compliance. BYU Law Review, 2018(3), 623.
Matarirano, O., Chiloane-Tsoka, G. E., & Makina, D. (2019). Factors driving tax compliance costs of small businesses in the South African construction industry. Acta Commercii, 19(1). https://doi.org/10.4102/AC.V19I1.687
McKee, M., Siladke, C. A., & Vossler, C. A. (2018). Behavioral dynamics of tax compliance when taxpayer assistance services are available. International Tax and Public Finance, 25(3), 722–756.
Nguyen, H. T. (2022). Factors affecting tax compliance of small and medium enterprises in Hung Yen province, Vietnam. Accounting, 8(2), 111–122.
Olaoye, C. O., Ekundayo, A. T., Olaoye, C. O., & Ekundayo, A. T. (2019). Effects of tax audit on tax compliance and remittance of tax revenue in Ekiti State. Open Journal of Accounting, 8(1), 1–17.
Organisation for Economic Co-operation and Development. (2017). Enhancing the contributions of SMEs in a global and digitalised economy. Paris: OECD.
Oyedokun, G. E. (2015). Forensic investigation and forensic audit methodology in a computerized work environment. SSRN Electronic Journal, (January). https://doi.org/10.2139/ssrn.2593263
Rahmayanti, N. P., Sutrisno T., S., & Prihatiningtias, Y. W. (2020). Effect of tax penalties, tax audit, and taxpayers awareness on corporate taxpayers’ compliance moderated by compliance intentions. International Journal of Research in Business and Social Science (2147- 4478), 9(2), 118–124. https://doi.org/10.20525/IJRBS.V9I2.633
Slemrod, J. (2019). Tax compliance and enforcement. Journal of Economic Literature, 57(4), 904–954. https://doi.org/10.1257/jel.20181437
Wanjagi, J., & Ondabu, I. (2018). The role of taxation in achieving income and wealth equality in Kenya. American Journal of Economics and Sociology, 8(5), 213–220.
Werekoh, E. A. (2022). The Effects of Taxation on Economic Development : the Moderating Role of Tax Compliance Among SMEs. 1–22.
World Bank. (2020). Small and Medium Enterprises (SMEs) Finance. Washington, DC: World Bank Group.
Yamane, T. (1967). Statistics, an introductory analysis (2nd ed.). Harper and Row.
Published
How to Cite
Issue
Section
Copyright (c) 2023 Gideon Muhwa, George O. Achoki
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
