The Moderating Effect of Regional Economic Policies on The Relationship Between Tax Compliance and Financial Sustainability of SMES in Trans Nzoia County
Main Article Content
Keywords
SMEs, regional economic policies, tax compliance, financial sustainability
Abstract
Vision 2030 is Kenya's national long-term growth plan that identifies SMEs as key drivers of economic development. Financial sustainability indicates entrepreneurial activities that are healthy in the economy; it is an indicator of success of SMEs and prosperity of the society. However, the growth and sustainability of these SMEs have been poor leading to shut down within few years of operation as well as not achieving their goals; with statistics showing less than 50% of SMEs survive the 3-year mark. SMEs in different regions face varying challenges due to diverse regional contexts hampering their operations and expansion. The study evaluates the effect of tax compliance on financial sustainability and also examine the moderating effect of regional economic policies on the relationship between tax compliance and financial sustainability of SMES in Trans Nzoia County. The study was informed by dynamic capacity theory of economic growth. Anchoring on an explanatory research design, the study target population was 2246 registered SMEs in Trans Nzoia County, Kenya. The study sample size was 294 SMEs, computed using the Yamane formula. The SMEs were selected using stratified and simple random sampling techniques. Data was collected using structured questioners and items anchored on a five-point Likert scale. The study hypotheses were tested using a multiple regression model and Hayes process macro for moderation analysis. The results showed that tax compliance (β = .398, p = 0.000 < 0.05) had a significant effect on financial sustainability. In addition, regional economic policies moderated the relationship between tax compliance (β = -.139, p < 0.05) and financial sustainability. The study concluded that tax compliance is key in enhancing financial sustainability. The study is beneficial to the government and policymakers since it may uncover some specific challenges or barriers faced by SMEs especially when meeting tax obligation, or financial sustainability.
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Purity Cheptoo Bett, Department of Business, Economics and Management Science, School of Business and Economics, University of Eldoret, P.O. Box 1125-30100, Eldoret, Kenya
Department of Business, Economics and Management Science, School of Business and Economics, University of Eldoret, Kenya
John K. Tarus , 1Department of Accounting and Finance, School of Business & Economics, Moi University, P.O. Box 3900-30100, Kesses, Eldoret, Kenya
Department of Accounting and Finance, School of Business and Economics, Moi University, Kenya
Arnold Wanjala , Department of Business, Economics and Management Science, School of Business and Economics, University of Eldoret, P.O. Box 1125-30100, Eldoret, Kenya
Department of Business, Economics and Management Science, School of Business and Economics, University of Eldoret, Kenya