Social Economic Attributes and Tax Compliance by Individual Taxpayers in Kenya

Abstract

Tax revenues are crucial financial resources for any economy and plays a key role in economic development. In Kenya tax revenues are the major source of government budgetary resources besides other sources such as grants and loans. The average GDP growth rate in Kenya from FY 2006/17 to FY 2016/17 has been 5.6 percent which is higher than the global GDP growth rate of 2.3 percent. Conversely, Kenya’s tax revenue has not grown at the same pace as the economic growth. Weaknesses in revenue performance have triggered fiscal pressures. Budget deficits have fueled external borrowing amid efforts for the country to capitalize on domestic resource mobilization. Social economic attributes are crucial with regards to tax compliance by individual taxpayers since individual taxpayers have to be aware as well as being sensitive to tax legislation for them to be tax compliant.  This study was set out to ascertain effects of taxpayer knowledge, tax complexity and individual taxpayer`s characteristics on tax compliance by individual taxpayers in Kenya. The study further sought to ascertain the moderating effect of tax penalties on relationship between social economic attributes and tax compliance by individual taxpayers in Kenya. The study was anchored on Social Learning Theory, Economic Deterrence Theory and Theory of planned behavior. Cross sectional descriptive research design was adopted in this study. This study targeted the individual taxpayers who were registered with KRA. The study targeted on 4806 staff from five Public Universities in Nairobi City County. Researcher used primary data which was gathered through administering questionnaires to respondents. Data collected was analysed using descriptive statistics and multiple regression. The results postulated that tax knowledge had a significant effect on tax compliance by individual taxpayers in Kenya. The study also found that tax complexity had a significant effect on tax compliance by individual taxpayers in Kenya. In addition, individual taxpayer’s characteristics had a significant effect on tax compliance by individual taxpayers in Kenya. Further, the study found tax penalties had a significant moderating effect on the relationship between social economic attributes and tax compliance by individual taxpayers in Kenya. The study found that the taxpayers sought tax consultants to file their returns. The study moreover found that the taxpayers did not seek updates regarding changes in tax law and regulations and were not conversant with Income Tax Act CAP 470. The study therefore recommends that KRA should educate the public regarding to any changes in tax laws and also ameliorate the readability of the tax laws hence reduce the complexity of the tax law. For KRA to achieve their target compliance level, there is need to have taxpayers understand the reasons why need to pay tax on time. KRA should sensitize the taxpayers on the importance of paying tax via civic education.