Taxpayers Knowledge and Value Added Tax Compliance Among Micro and Small Enterprises in Embu County, Kenya

Abstract

Despite efforts of the government to maximize on revenue collection through value added taxes, it is indicated in literature that little has been achieved due to non-compliance to value added tax regulation. Inability of tax institutions to meet revenue targets annually is attributed and non-committal of micro and small scale traders to comply to value added tax regulations are issue of concern. This study aimed at establishing the influence of taxpayers΄ knowledge and value added tax compliance among Micro and Small Enterprises in Embu county, Kenya. The specific objectives of the study were to establish the effect of taxpayers’ education, taxpayers’ awareness, tax system structure and taxpayers’ regulations on value added tax compliance among micro and small enterprise in Embu County, Kenya. Theories adopted to inform this study included theory of planned action, economic deterrent theory and rational choice theory. The study adopted crosssectional research design since it facilitates discovery of new knowledge thus prediction and control of the problem. The target population of the study was 557 micro and small enterprises as per the records of Ministry of Trade in Embu County. Stratified sampling technique was used to select the sample size of the population. To arrive at the ideal sample size of 233, Israel scientific formula was adopted. Unit of analysis was registered micro and small enterprises while unit of observation was owners of registered micro and small enterprises in Embu County. The primary data was collected using a structured questionnaire consisting of close and open-ended questions. In addition, secondary data was collected using content analysis method where key themes of the published content were reviewed to make deductive arguments on the findings of the study. The analysis of data was done using Statistical Packages for Social Sciences (SPSS Version 24). Descriptive statistics such as mean scores, standard deviation, frequency table and percentages were used to analyze data. Further, inferential statistics such as coefficient of determination (r2) was used to analyze data at 95% confidence level and 5% significance level. The analyzed data was presented in tables and figures. The findings revealed that there exists a positive significant relationship between taxpayers’ education (r = .616, p < 0.023), taxpayers’ awareness (r = .642, p < 0.011), tax system structure (r = .581, p < 0.020) and taxpayers’ regulations (r = .481, p < 0.000) on VAT compliance among micro and small enterprises in Embu County, Kenya. The study concludes that despite that fact that there exists a positive relationship between taxpayers’ knowledge and value added tax compliance, numerous challenges were experienced such as lack of awareness, complexity of technology and lack of willingness from taxpayers to submit value added tax on time. This study recommends that Kenya Revenue Authority should partner with other agencies like information and communication technology firms, County Governments and law reinforcement agencies to promote the spirit of value added tax compliance among small scale traders in Kenya, thus sustainable social economic developments.