Technological Tax Reforms and Tax Compliance Among Small and Medium Enterprises in Nyeri

Abstract

Kenya has had to contend with a consistent imbalance between government revenue and expenditure resulting in large and chronic fiscal deficits. High level of noncompliance by SMEs has continued to deprive the economy the much needed revenue to fill the persistent tax gap. Through a wide range of reforms, the government of Kenya has tried to include SMEs into the tax net. However, compliance among SMEs still remains low. This study sought after determining the effect of technological tax reforms on compliance among SMEs in Nyeri County, Kenya. The study was premised on the Fiscal Exchange Theory, the Economic Deterrence Theory and the Optimal Theory of Taxation. A descriptive survey research design was adopted. The study considered a ten year period from 2009/2010 to 2018/2019 when a wide range of tax reforms had been instituted by the revenue authority with a view to address numerous compliance shortcomings. The target population was made up of 891 SMEs registered and licensed by the County Government of Nyeri. Proportionate stratified random sampling technique was applied to select a sample of 95 respondents who comprised of SME owners. The study used primary and secondary data. A semi structured questionnaire was used to collect primary data while secondary data was gathered from the SMEs books of accounts and records as well as data from Kenya Revenue Authority. Validity of the instrument was tested through expert opinion and pretesting. Reliability was tested using Cronbach Alpha Reliability analysis. Data was analysed using descriptive and inferential statistics. The multiple regression analysis results provided evidence that technological tax reforms (β=0.890, p=0.001) has a positive and statistically significant effect on tax compliance. The results of Pearson correlation analysis indicated that technological tax reforms (r=0.704, p=0.011) has a strong positive and statistically significant relationship with tax compliance. The study recommends enhanced adoption and implementation of tax reforms, and particularly the technological tax reforms as the reforms were effective in improving tax compliance levels. The study recommends enhanced taxpayer education on matters related to I tax. The study further recommends adoption of simpler payment options such as Mpesa, Airtel Money and other mobile banking innovations.