The determinants of tax compliance among small and medium enterprises in Uasin-Gishu County

Abstract

This research investigated the determinants of tax compliance in small and medium enterprises (SMEs), focusing on how tax knowledge and compliance costs affected tax compliance behaviour of SMEs in Uasin Gishu County. The main objectives of the study were to investigate how the unique business conditions of SMEs, the perceptions of SME operators towards taxation, levels of tax knowledge and compliance costs affect tax compliance of SME taxpayers. To achieve these objectives, research propositions were stated which mainly stipulated that the current tax system in Kenya does not cater for the special business needs of SMEs and that strong correlations do exist among tax knowledge, compliance costs and tax compliance. The study adopted a chiefly qualitative research design. Methodological triangulation was employed, utilizing the interview method and a questionnaire survey to collect primary data from SMEs in Uasin Gishu County. Interview responses were analyzed through summative content analysis and questionnaire responses were analyzed using SPSS software. The results indicated that SMEs face different business conditions from large companies which cause them to bear high tax compliance burdens. The results also indicated that the perceptions of SME operators about tax fairness, tax service quality and government spending priorities greatly affect their tax compliance decisions. Tax knowledge was discovered to have no correlation with tax registration compliance but weak negative correlations with filing compliance. Compliance costs were discovered to have negative correlations with tax compliance. The study then recommended that the current tax law should be amended to incorporate provisions that grant special tax incentives to SMEs in order to improve voluntary tax compliance by SME taxpayers. The study also recommended that the KRA should disseminate information on tax updates more frequently in order to improve the levels of tax knowledge for voluntary tax compliance