Taxpayer education and tax compliance: an analysis of paye from the manufacturing sector in Kenya: A case of medium taxpayers office

Abstract

Kenya is ranked among low-income countries or low compliance countries with hard task of ensuring efficient and effective tax administration. KRA performs monthly taxpayer education to all newly registered taxpayers in a bid to improve tax compliance. Whether the increased taxpayer education has led to improved tax compliance has not been captured in any empirical study. This study therefore sought to establish the influence of taxpayer education in Kenya on tax compliance with a specific emphasis on the compliance on Pay-As-You-Earn (PAYE) form of tax. The objectives of this study were to determine whether differences in PAYE filling patterns are related to taxpayer levels of education and to determine whether differences in PAYE remittance patterns are related to taxpayer levels of education. This study used a longitudinal survey design. The population of this study was all the 64 taxpayers in the manufacturing sector under medium taxpayers’ office (MTO). A sample size of 55 firms was selected. Both primary and secondary data were collected. The primary data was used to establish the taxpayers level of education administered using telephone interviews. The secondary data was gathered from the Domestic Taxes Department of KRA in Nairobi. Data was analyzed using descriptive analysis, cross-tabulations, correlation analysis, and regression analysis. The study found no statistically significant differences between educated and non-educated taxpayers in terms of their PAYE remittance and filling patterns. The Levene’s test was insignificant for both the PAYE remittance and filling. The χ2 test for differences between educated and non-educated taxpayers for PAYE remittance was insignificant at 5% level. Further, the χ2 test for differences between educated and non-educated taxpayers for PAYE filling patterns was insignificant at 5% level. The study found that the level of taxpayer training had an insignificant negative relationship with the amount of PAYE tax that was remitted (R=-0.017) as well as with the PAYE pattern of fillings of the companies (R=-0.112) at 5% level. The study concludes that there are no differences between educated and non-educated taxpayers in terms of their PAYE remittance and filling patterns. The study also concludes that taxpayer education does not have a significant influence on the tax compliance behaviour of manufacturing firms in Kenya. The study recommends the need for the Kenya Revenue Authority to channel its focus of taxpayer education to either small businesses or the individual taxpayers since as the results show taxpayer education for medium-sized companies falling within the Medium Taxpayers Office (MTO) does not influence tax compliance.