The Relationship Between Tax Incentives and Tax Compliance Among Horticultural Exporters in Kenya

Abstract

In a country with limited income like Kenya, the horticultural sector plays a critical role in advancing the nation's socio-economic development goals. Horticultural exporters are widely seen as playing a key role in driving economic growth and innovation. Nevertheless, these enterprises encounter difficulties in terms of tax burdens and stringent tax compliance regulations. Therefore, it is essential to have an appealing business environment in order to reduce the effects of these challenges and create equal opportunities for businesses of various sizes. Decreasing taxes for horticultural exporters by providing rewards will release funds for innovation and expansion into international markets, leading to business growth. The aim of the research was to assess how tax incentives impact tax compliance among horticultural exporters in Kenya. This research was directed by the Optimal Tax Theory, Agency Theory of Tax Incentives, and Normative Theory. The study utilized a descriptive survey design. All 658 horticultural exporters in Kenya made up the population. 248 horticultural exporters were selected as the sample using random sampling. Primary data was gathered directly from participants using structured questionnaires with closed ended questions that they filled out themselves. The surveys were distributed via the drop-off and pick-up technique. 186 out of 248 questionnaires were completed and returned, resulting in a 75% response rate. The gathered information was revised and organized, then inputted into the SPSS software for the production of inferential and descriptive statistical analyses. Multiple regressions were conducted for each independent variable against tax compliance in order to perform inferential statistics. The research discovered p values of 0.002 with a 95% confidence level regarding the relationship between icentives of farmwork deductions, wear and tear allowances, Value-Added Tax, and the tax compliance among horticultural exorters in Kenya. This demonstrates the importance of the model used for this research and the impact of tax incentives on the tax compliance. Analysis of the data suggests that there are multiple tax incentives designed to boost horticultural exporters’ tax compliance, but their actual implementation has not been fully achieved yet. The research suggests that tax authorities should encourage the use of VAT incentives for comprehensive record-keeping. Offering additional benefits, such as faster VAT refunds or reduced audit risks, to exporters who maintain proper documentation could foster better compliance. Moreover, providing training on best practices for record-keeping and explaining the benefits of doing so could further enhance transparency. The Kenyan government should also reduce compliance costs, as financial burdens were identified as a primary barrier to adherence. The government could consider reducing compliance-related costs for horticultural exporters, especially small and medium-sized enterprises. Simplifying tax forms, offering reduced filing fees, or subsidizing tax management software would likely encourage more exporters to fully comply with tax regulations