The Effect of Integrated Tax Management System on Tax Compliance by Small and Medium Enterprises in the Central Business District, Nairobi County

Abstract

Tax compliance has been an issue of concern, mostly in developing countries as governments are seeking ways to improve efficiency in tax revenue collection to finance their budgets. Small businesses are viewed as more likely to evade taxes since the owner, and beneficiary of tax evasion, is more likely to also be responsible for keeping the books and filing the tax returns. Despite the introduction of online tax systems which simplify tax compliance small businesses form the core group of hard-to-tax taxpayers. The objective of this study was to examine the effect of integrated tax management system on tax compliance by small and medium enterprises in the Central Business District, Nairobi County. To achieve the research objectives a descriptive research design was adopted and the population of interest comprised of the 1737 SMEs in the Nairobi’s Central Business District. A sample of 173 SMEs which was selected through simple random stratified sampling methods was used for the study using the population classification provided in the Nairobi City County website. Multiple linear regressions was used to establish the relationship between fines and penalties and tax compliance costs and tax compliance. The study established that the amount of fines and penalties paid and tax consulting/filling expense have a positive and significant relationship with tax compliance. The study concluded that that the integrated tax management system influences tax compliance by small and medium enterprises in the Central Business District, Nairobi County. The studies recommend that KRA should increase the fines and introduce stringent penalties for non-compliance since this would encourage small and medium enterprise owners to comply with taxes.