The Effect of Enforcement Measures on Value Added Tax Revenue for Firms in the Large Corporate Taxpayer Category in Kenya

Abstract

A stable Revenue collection helps promote and strengthen a country’s revenue collection targets. This helps countries meet their expenditure within a certain financial period. The Kenya Revenue Authority is tasked with this very important duty. Considering its basic function which is to collect and administer tax system in the country, it has to ensure that it has put in place the right measures to attain this goal .The purpose of this study was to establish the effect of enforcement measures on Value Added Tax revenue for firms in the large corporate taxpayer category in Kenya. The total population consisted of all 1052 large firms operating in Kenya as categorized by KRA. Since the population of the study was large, sampling was necessary .The sample size consisted of 106 firms in the Large Taxpayers’ Office. The study used secondary data which was readily available from the Kenya Revenue Authority and the Kenya National Bureau of Statistics. The study adopted a descriptive survey of the firms in the large taxpayer category. It has been thought strong tax enforcement measures on the VAT revenue for firms can contribute significantly to the attainment of the goal of revenue collection Secondary data was collected from KRA annual reports on VAT revenue from 2008 to 2014. Regression analysis was conducted in order to establish the effect of enforcement measures on Value Added Tax revenue for firms in the large corporate taxpayer category in Kenya The dependent variable of the study was the VAT revenue. It is a proportion of the contribution of VAT revenue to the GDP. The enforcement measures; audit rate, penalties and criminal sanctions were the independent variables of the study. The findings from the study showed that enforcement measures such as audit rate, imposition of penalties, criminal sanctions and another determinant of VAT revenue; the contribution of imports to VAT revenue, had varying degrees of relationship to the Value Added Tax revenue for firms in the large corporate taxpayer category. The study revealed that audit rate, penalties and contribution of imports to VAT revenue positively influenced Value Added Tax revenue for firms in the large corporate taxpayer category, whereas criminal sanctions negatively affected Value Added Tax revenue for these firms. The study recommends that more emphasis should be on conducting VAT audits by the tax agency and also impose penalties on non-compliant taxpayers as this will yield to more VAT revenue.