INFLUENCE OF TAX COMPLIANCE COST ON HOSTEL OWNERS’ COMPLIANCE TO RENTAL INCOME TAX IN LAIKIPIA WEST SUB COUNTY, KENYA

Abstract

The Government of Kenya through the Finance Act 2015 introduced a simplified rental income tax. This is a monthly tax payable by a resident person for rental income earned from use or occupation of residential property. Upon the gazettement of the Income Tax (Residential Rental Income Tax) Regulations, 2016, the Kenya Revenue Authority embarked on an aggressive campaign to enlist landlords into the Monthly Rental Income Tax regime. However, the Economic Survey 2021 showed that the country’s revenue collecting agency KRA was not able to meet revenue targets as set by the National Treasury. Comparison of National Government Budget Estimates with Actual Out – turns for the fiscal years 2017/2018 and 2018/2019 showed that KRA missed the Budgeted Ordinary Revenue targets by Kshs.128.7 Billion and Kshs.90.1 Billion respectively. Property taxes including rental income tax are part of the ordinary revenue collected by the tax authority. The objective of the study was to investigate the influence of tax compliance cost on hostel owners’ compliance to the monthly rental income tax in Laikipia West Sub County. Quantitative data was collected using questionnaires. A census of the entire population of hostels was used to collect the required data. The collected data was analysed using the Statistical Package for Social Sciences (SPSS). The study established that an increase in tax compliance cost discourages compliance behavior since taxpayers tend to evade the costs either by under-declaring their monthly rental incomes or not declaring any income at all. The study recommends that KRA should scale up the tax payer education and awareness programs to ensure that more landlords are trained on how to file their own returns without having to use tax agents who make the process costly leading to non-compliance.JEL: H25, H26  Article visualizations: