Effects of Tax Reforms on Compliance of Small and Medium Enterprises in Kenya: Case of Kisumu Town

Onyancha, M. Ondimu (2015) Effects of Tax Reforms on Compliance of Small and Medium Enterprises in Kenya: Case of Kisumu Town. PhD thesis, Kenyatta University.

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Abstract

With increased expenditure there is demand for more tax revenue calling for revenue enhancement measures.. In Kenya the SMEs are non-compliant despite having huge tax revenue potentials. From mid 1980s the government initiated tax reforms to enhance compliance by widening tax bases and improve tax administration. Consequently government reorganized KRA, changed personal relief (by 10%),, granted amnesty on non-compliant taxpayers with arrears (up to 11 June 2004) and turnover tax at 3% (from January 2008).. However,, SMEs sector are characterized with low compliance levels. It was important establishment effects of tax reforms on tax compliance of SMEs in Kenya with use of Kisumu Town.. Specifically the study sought to determine effects of turnover tax on compliance of SMEs determine effects the KRA tax administration reforms on SMEs compliance and establishment behaviors of SMEs in Kisumu Town which affect tax compliance. The study adopted description-exploratory research design with each Kisumu KRA officer and business constituted one sample unit and respondent's. Samples of 275 (involving 219 SMEs and 56 KRA officers) were selected from target populations of 505 SMEs and 56 Kisumu KRA officers using stratified simple random sampling approach and census for KRA offiicers.. The study used both primary (from questionnaires) and secondary data. These instruments were administered by the researcher with help of research assistants.. Data collectedly were analyzed using both descriptive statistics (frequencies,, percentages and means) and inferential statistics (Pearson’s Moment of correlation,, regression); using SPSS.. The findings revealed that turnover tax system affectts and accountts for 28..8% [r (214) =..439,, p<0..01] SMEs’ ttax..KRA admiiniisttrattiive reforms affectts and accountts 36..8% SMEs ttax complliiance [r (214) = ..617,, p<0..01].. KRA was effecttiive (mean rattiing of 3..869) butt iineffecttiive iin faciilliittattiing SMEs tto vollunttariilly complly.. KRA was effecttiive iin proviidiing ttaxpayers iinformattiion and guiidance.. KRA was effecttiive iin use ttechnollogy and iin datta warehousiing.. There iis a faiir rattiing of reduciing compliance burden of the SMEs (mean responses being 3..562).. SMEs tax behaviours negattiivelly affectts ttax complliiance [r (214) =-..542,, p<0].. There was negattiive iinflluence from the referent groups and SMEs (68%;; 146) do nott use ttax agentts.. The tturnover productivity for tthe last six year has been increasing from the ttiime of start of tax reforms targeting SMEs in Kenya.. This is based on tthe efficiency ratio of 0..35 percent in the year 2008 which has increased to the current 0..4.. From the findings,, the study concludes that the tax reforms and tax behaviors significantly affect tax compliance of the SMEs in Kisumu Town.. The study recommends that continuous emphasis on Creation of awareness and monitoring of the compliance of the SMEs.. Review the tax laws and more enforcement of the SMEs tax laws. KRA should carry out more profiling of the SMEs and research more on the SMEs to understand the SMEs. Publicize prosecution non-compliance; provide incentives for compliance and opportunity to voluntarily disclose before the application of penalties.. There is need for the government to enhance SMEs’ trust with the tax reforms for voluntary compliance.

Item Type:	Thesis (PhD)
Subjects:	H Social Sciences > HF Commerce
Divisions:	Africana
Depositing User:	Geoffrey Obatsa
Date Deposited:	18 Oct 2017 13:06
Last Modified:	18 Oct 2017 13:06
URI:	http://thesisbank.jhia.ac.ke/id/eprint/2572

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