Effect of Taxpayer Awareness and Compliance Costs on Tax Compliance among Small Scale Traders in Nakuru Town, Kenya

Abstract

Small scale traders are fast growing sectors of the economy due to their simple nature of operations. The growth of this sector of the economy is due to the increase in unemployment rate as a result of increase in population. It is therefore important for the government to tap the revenue from this sector to contribute to the overall revenue of the country. Tax is a vital source of revenue for the government yet it has never been easy for the tax authorities to ensure that most taxpayers are complying with the set laws and regulations of taxation. The level of tax compliance has been a major issue of concern to every government and more so to tax authorities around the world due to the increase in the budgetary requirement of the country. The study was specifically done to investigate the effect of tax awareness and cost of compliance on tax compliance in the small scale traders within Nakuru town. The study was guided by the economic deterrent and psychological theories of tax compliance. The study used descriptive research design. A sample size of 302 was drawn from the target population of 1416 licensed small scale traders by the County government of Nakuru. Data was collected using structured questionnaire. The data was also coded, analysis was done quantitatively using both inferential and descriptive statistics. The data was then summarized in form of tables and charts. The findings revealed that tax awareness and education has a positive and significant effect on the tax compliance (β2 = 0.315), and the cost of compliance has a significant effect on the level of tax compliance (β1 = 0.416). The findings of this study will help in policy formulation and the Kenya Revenue Authority to come up with policy to foster compliance among the small traders and thereby translating to improved revenue collection. The study recommends enhanced training and sensitization to create awareness and reduce compliance cost and simplify online technology for the overall positive impact on compliance among the SMEs.