Tax Knowledge and Excise Duty Compliance Nexus; Does Perceived Tax Fairness Play a Moderating Role? Evidence From Manufacturing Firms in Kenya
Main Article Content
Keywords
Tax Knowledge, Excise Duty Compliance, perceived tax fairness, manufacturing firms
Abstract
Challenges arise from non-compliance and low excise duty adherence among local manufacturing industries, impeding the generation of sufficient revenues for the government. This phenomenon is consistently present, yet it receives less attention than direct taxes, such as income and corporate taxes. This study aimed to examine the moderating effect of perceived tax fairness on tax knowledge and excise duty compliance among manufacturers in Thika Town, Kiambu County, Kenya. The study was based on economic deterrence theory and social exchange theory. An explanatory research design was employed in the study. The study targeted a population of 124 manufacturing companies, with the head of finance, finance manager and accountant from each company, resulting in a total of 372 respondents. Primary data was collected through structured questionnaires. The study employed correlation and hierarchical multiple regression analysis to elucidate the relationships among the variables examined. The findings indicate that tax knowledge (β = -0.067, p < 0.05, had exerted a negative and significant effect on excise duty compliance. The study found that perceived tax fairness moderates the relationship between tax knowledge and excise duty compliance (β = 0.017, p < 0.05). The study concluded that increased tax knowledge does not necessarily result in enhanced excise duty compliance, indicating a potential disillusionment with the tax system or its inherent complexity. This study suggests that manufacturing firms develop targeted tax education interventions that inform and promote an understanding of the benefits of compliance and the collective advantages derived from tax contributions.
References
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Gangl, K., & Torgler, B. (2020). How to achieve tax compliance by the wealthy: A review of the literature and agenda for policy. Social Issues and Policy Review, 14(1), 108-151. https://doi.org/10.1111/sipr.12065
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Mat, J. Y. H., Mansor, F. A., Abd Razak, S. N. A., & Wan Mohamad Noor, W. N. B. (2021). The effects of tax knowledge, tax complexity and tax morale towards tax compliance behavior among salaried group in Malaysia. Advances in Business Research International Journal (ABRIJ), 7(2), 250-266. https://ir.uitm.edu.my/id/eprint/56427/
Molm, L. D. (2015). Homans's vision of social exchange. In George C. Homans (pp. 135-156): Routledge. https://www.taylorfrancis.com/chapters/edit/10.4324/9781315634524-6/homans-vision-social-exchange-linda-molm
Mukhlis, I., Utomo, S. H., & Soesetio, Y. (2015). The role of taxation education on taxation knowledge and its effect on tax fairness as well as tax compliance on handicraft SMEs sectors in Indonesia. international Journal of financial research, 6(4), 161-169. http://dx.doi.org/10.5430/ijfr.v6n4p161
Nagin, D. S. (2013). Deterrence in the twenty-first century. Crime and justice, 42(1), 199-263.
Ndirangu, A. W. (2022). Taxation Policy Implementation Costs, Macroeconomic Factors and Revenue Collection in
Kenya. JKUAT-COHRED, http://ir.jkuat.ac.ke/bitstream/handle/123456789/5905/NDIRANGU%2CAW-PHD%20BA-2022.pdf?sequence=1&isAllowed=y
Nunnally, J. (1994). Psychometric theory. (No Title).
Oats, L., & Tuck, P. (2019). Corporate tax avoidance: is tax transparency the solution? Accounting and Business Research, 49(5), 565-583. doi:https://doi.org/10.1080/00014788.2019.1611726
Oyede, L. O. (2024). Government Revenue from Vehicle-related Taxes: Driving Economic Growth and Infrastructure Development. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4755654
Perveen, N., & Ahmad, A. (2022). Tax Technology, Fairness Perception and Tax Compliance among Individual Taxpayers. Audit and Accounting Review, 2(2), 99-120. doi:https://doi.org/10.32350/aar.22.05
Raskolnikov, A. (2020). Criminal deterrence: a review of the missing literature. Supreme Court Economic Review, 28(1), 1-59.
Sarel, R. (2022). Crime and punishment in times of pandemics. European Journal of law and Economics, 54(2), 155-186. https://link.springer.com/article/10.1007/s10657-021-09720-7
Sasere, D. O. (2016). A qualitative Delphi study of domestic terrorism in Nigeria and perceptions of subject matter experts. Northcentral University. https://www.proquest.com/openview/00f5549ee8d61ca92b986684d2c0f6bb/1?pq-origsite=gscholar&cbl=18750
Sithebe, N. P. (2022). The relationship between tax knowledge and tax compliance: a survey of small and medium-sized enterprises in Durban. (Doctoral dissertation). https://openscholar.dut.ac.za/jspui/bitstream/10321/4073/3/Sithebe_NP_2022_Redacted.pdf
Stantcheva, S. (2021). Understanding tax policy: How do people reason? The Quarterly Journal of Economics, 136(4), 2309-2369. doi:https://doi.org/10.1093/qje/qjab033
Stewart, M. (2022). Tax and Government in the 21st Century: Cambridge University Press. https://books.google.co.ke/books?hl=en&lr=&id=7keEEAAAQBAJ&oi=fnd&pg=PR18&dq=Stewart,+M.+(2022).+Tax+and+Government+in+the+21st+Century:
+Cambridge+University+Press.&ots=ooUAMpQ_ih&sig=AQ89o_1UAvd_VrFxPaDYnY8kVqo&redir_esc=y
Susilawati, N., & Rahayu, N. (2021). A Systematic Literature Review for Distinguishing Tax Terms: Equality, Equity, Justice, and Fairness. Journal of Economics and Behavioral Studies, 13(6 (J)), 19-39. https://ojs.amhinternational.com/index.php/jebs/article/view/3254
Twum, K. K., Amaniampong, M. K., Assabil, E. N., Adombire, M. A., Edisi, D., & Akuetteh, C. (2020). Tax knowledge and tax compliance of small and medium enterprises in Ghana. South East Asia Journal of Contemporary Business, Economics and Law, 21(5), 222-231.
Ubali, C., Okezie, S. O., Alpheaus, O. E., & Ihendinihu, J. U. (2024). Contributions of Tax Revenue and Government Expenditure to Sustainable Development Goals in Nigeria. FUDMA Journal of Accounting and Finance Research [FUJAFR], 2(3), 138-152. doi:https://doi.org/10.33003/fujafr-2024.v2i3.116.138-152
Umar, M. A., Derashid, C., & Ibrahim, I. (2017). What is wrong with the fiscal social contract of taxation in developing countries? A dialogue with self-employed business owners in Nigeria. Sage Open, 7(4), 2158244017745114. doi:https://doi.org/10.1177/2158244017745114
Wassermann, M., & Bornman, M. (2020). Tax knowledge for the digital economy. Journal of Economic and Financial Sciences, 13(1), 1-11. Retrieved from https://hdl.handle.net/10520/EJC-1d2b7ff72f
Wrede, M. (2014). Fair inheritance taxation in the presence of tax planning. Journal of Behavioral and Experimental Economics, 51, 12-18. doi:https://doi.org/10.1016/j.
Al-Ttaffi, L. H. A., Bin-Nashwan, S. A., & Amrah, M. R. (2020). The influence of tax knowledge on tax compliance behaviour: A case of Yemeni individual taxpayers. Journal of Business Management and Accounting, 10(2), 15-30. https://e-journal.uum.edu.my/index.php/jbma/article/view/12086
Baron, R. M., & Kenny, D. A. (1986). The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of personality and social psychology, 51(6), 1173. https://doi.org/10.1037/0022-3514.51.6.1173
Bekar, C. (2022). A Dynamic Theory of Deterrence and Compliance. Available at SSRN 4085667. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4085667
Bin-Nashwan, S. A., Al-Hamedi, A. M., Marimuthu, M., & Al-Harethi, A. (2020). Study on system fairness dimensions and tax compliance in the Middle East context. Problems and Perspectives in Management, 18(1), 181. doi:http://dx.doi.org/10.21511/ppm.18(1).2020.16
Bornman, M., & Ramutumbu, P. (2019). A conceptual framework of tax knowledge. Meditari Accountancy Research, 27(6), 823-839. doi:https://doi.org/10.1108/MEDAR-09-2018-0379
Bowman, J. H. (2019). Excise Taxation. In Handbook on Taxation (pp. 677-702): Routledge.
Chacha, M. S. (2023). The influence of tax investigations on excise duty revenue performance among corporate large taxpayers in Nairobi, Kenya. (Master of Business Administration). Moi University,
Chekole Tekle, K., Abera Lemma, A., & Amassgaha, G. G. (2024). Determinants of Tax Audit Effectiveness: The Case of Addis Ababa City Administration Number One Medium Tax Payer Branch Office. Alemayehu and Amassgaha, Getachew Gobena, Determinants of Tax Audit Effectiveness: The Case of Addis Ababa City Administration Number One Medium Tax Payer Branch Office (June 29, 2024). doi:http://dx.doi.org/10.2139/ssrn.4939587
Csontos, L., Kornai, J., & Tóth, I. G. (1998). Tax awareness and reform of the welfare state: Hungarian survey results. Economics of Transition, 6(2), 287-312. doi:https://doi.org/10.1111/j.1468-0351.1998.tb00050.x
Emmanuel, O. G., Olubose, O. V., & Kabiru, A. A. (2023). Tax Knowledge, Compliance Cost and among Small Scale Enterprises in Ibarapa East Local Government Council of Oyo State, Nigeria. MJSS, 3(1). https://ideas.repec.org/a/ris/amjoss/0003.html
Farrar, J., Massey, D. W., Osecki, E., & Thorne, L. (2020). Tax fairness: Conceptual foundations and empirical measurement. Journal of business ethics, 162, 487-503. https://doi.org/10.1007/s10551-018-4001-4
Fattah, E. A. (1983). A critique of deterrence research with particular reference to the economic approach. Canadian Journal of Criminology, 25(1), 79-90.
Gangl, K., & Torgler, B. (2020). How to achieve tax compliance by the wealthy: A review of the literature and agenda for policy. Social Issues and Policy Review, 14(1), 108-151. https://doi.org/10.1111/sipr.12065
Ghani, H. H. A., Abd Hamid, N., Sanusi, S., & Shamsuddin, R. (2020). The effect of tax knowledge, compliance costs, complexity and morale towards tax compliance among self-employed in Malaysia. Global Business and Management
Research, 12(1), 18-32. http://www.gbmrjournal.com/pdf/v12n1/V12N1-3.pdf
Hasseldine, J., Holland, K., & van der Rijt, P. (2011). The market for corporate tax knowledge. Critical Perspectives on Accounting, 22(1), 39-52. doi:https://doi.org/10.1016/j.cpa.2010.06.019
Hylton, K. N. (1998). Punitive damages and the economic theory of penalties. Geo. LJ, 87, 421.
Igartua, J.-J., & Hayes, A. F. (2021). Mediation, moderation, and conditional process analysis: Concepts, computations, and some common confusions. The Spanish journal of psychology, 24, e49. doi:https://doi.org/10.1017/SJP.2021.46
Jansen, M., & Hlongwane, P. (2019). Employee performance reward and recognition inequity in the Western Cape provincial department of transport and public works.
Kakui, S. M. (2023). Operational and deterrence determinants of excise duty compliance in Kenya: a case of bottled mineral water producers in Nairobi county, Kenya. Doctoral dissertation, Moi University,
Kenya National Bureau of Statistics. (2022). 2022 Economic Survey. Nairobi: Government Printer
Khozen, I., & Setyowati, M. S. (2023). Managing taxpayer compliance: Reflections on the drivers of willingness to pay taxes in times of crisis. Cogent Business & Management, 10(2), 2218176. https://doi.org/10.1080/23311975.2023.2218176
Kiogora, V. (2022). The Effect of Taxpayer Knowledge of Excise Tax Laws On Tax Compliance. KESRA/JKUAT-Unpublished research project,
Kustiawan, M., Prawira, I. F. A., Zulhaim, H., & Solikin, I. (2019). Tax knowledge, Tax Morale, and Tax Compliance: Taxpayers' View. The International Journal of Business Management and Technology, 3(1), 10-15. https://www.theijbmt.com/archive/0925/555441386.pdf
Li, J., Wang, X., & Wu, Y. (2020). Can government improve tax compliance by adopting advanced information technology? Evidence from the Golden Tax Project III in China. Economic Modelling, 93, 384-397. doi:https://doi.org/10.1016/j.econmod.2020.08.009
Mat, J. Y. H., Mansor, F. A., Abd Razak, S. N. A., & Wan Mohamad Noor, W. N. B. (2021). The effects of tax knowledge, tax complexity and tax morale towards tax compliance behavior among salaried group in Malaysia. Advances in Business Research International Journal (ABRIJ), 7(2), 250-266. https://ir.uitm.edu.my/id/eprint/56427/
Molm, L. D. (2015). Homans's vision of social exchange. In George C. Homans (pp. 135-156): Routledge. https://www.taylorfrancis.com/chapters/edit/10.4324/9781315634524-6/homans-vision-social-exchange-linda-molm
Mukhlis, I., Utomo, S. H., & Soesetio, Y. (2015). The role of taxation education on taxation knowledge and its effect on tax fairness as well as tax compliance on handicraft SMEs sectors in Indonesia. international Journal of financial research, 6(4), 161-169. http://dx.doi.org/10.5430/ijfr.v6n4p161
Nagin, D. S. (2013). Deterrence in the twenty-first century. Crime and justice, 42(1), 199-263.
Ndirangu, A. W. (2022). Taxation Policy Implementation Costs, Macroeconomic Factors and Revenue Collection in
Kenya. JKUAT-COHRED, http://ir.jkuat.ac.ke/bitstream/handle/123456789/5905/NDIRANGU%2CAW-PHD%20BA-2022.pdf?sequence=1&isAllowed=y
Nunnally, J. (1994). Psychometric theory. (No Title).
Oats, L., & Tuck, P. (2019). Corporate tax avoidance: is tax transparency the solution? Accounting and Business Research, 49(5), 565-583. doi:https://doi.org/10.1080/00014788.2019.1611726
Oyede, L. O. (2024). Government Revenue from Vehicle-related Taxes: Driving Economic Growth and Infrastructure Development. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4755654
Perveen, N., & Ahmad, A. (2022). Tax Technology, Fairness Perception and Tax Compliance among Individual Taxpayers. Audit and Accounting Review, 2(2), 99-120. doi:https://doi.org/10.32350/aar.22.05
Raskolnikov, A. (2020). Criminal deterrence: a review of the missing literature. Supreme Court Economic Review, 28(1), 1-59.
Sarel, R. (2022). Crime and punishment in times of pandemics. European Journal of law and Economics, 54(2), 155-186. https://link.springer.com/article/10.1007/s10657-021-09720-7
Sasere, D. O. (2016). A qualitative Delphi study of domestic terrorism in Nigeria and perceptions of subject matter experts. Northcentral University. https://www.proquest.com/openview/00f5549ee8d61ca92b986684d2c0f6bb/1?pq-origsite=gscholar&cbl=18750
Sithebe, N. P. (2022). The relationship between tax knowledge and tax compliance: a survey of small and medium-sized enterprises in Durban. (Doctoral dissertation). https://openscholar.dut.ac.za/jspui/bitstream/10321/4073/3/Sithebe_NP_2022_Redacted.pdf
Stantcheva, S. (2021). Understanding tax policy: How do people reason? The Quarterly Journal of Economics, 136(4), 2309-2369. doi:https://doi.org/10.1093/qje/qjab033
Stewart, M. (2022). Tax and Government in the 21st Century: Cambridge University Press. https://books.google.co.ke/books?hl=en&lr=&id=7keEEAAAQBAJ&oi=fnd&pg=PR18&dq=Stewart,+M.+(2022).+Tax+and+Government+in+the+21st+Century:
+Cambridge+University+Press.&ots=ooUAMpQ_ih&sig=AQ89o_1UAvd_VrFxPaDYnY8kVqo&redir_esc=y
Susilawati, N., & Rahayu, N. (2021). A Systematic Literature Review for Distinguishing Tax Terms: Equality, Equity, Justice, and Fairness. Journal of Economics and Behavioral Studies, 13(6 (J)), 19-39. https://ojs.amhinternational.com/index.php/jebs/article/view/3254
Twum, K. K., Amaniampong, M. K., Assabil, E. N., Adombire, M. A., Edisi, D., & Akuetteh, C. (2020). Tax knowledge and tax compliance of small and medium enterprises in Ghana. South East Asia Journal of Contemporary Business, Economics and Law, 21(5), 222-231.
Ubali, C., Okezie, S. O., Alpheaus, O. E., & Ihendinihu, J. U. (2024). Contributions of Tax Revenue and Government Expenditure to Sustainable Development Goals in Nigeria. FUDMA Journal of Accounting and Finance Research [FUJAFR], 2(3), 138-152. doi:https://doi.org/10.33003/fujafr-2024.v2i3.116.138-152
Umar, M. A., Derashid, C., & Ibrahim, I. (2017). What is wrong with the fiscal social contract of taxation in developing countries? A dialogue with self-employed business owners in Nigeria. Sage Open, 7(4), 2158244017745114. doi:https://doi.org/10.1177/2158244017745114
Wassermann, M., & Bornman, M. (2020). Tax knowledge for the digital economy. Journal of Economic and Financial Sciences, 13(1), 1-11. Retrieved from https://hdl.handle.net/10520/EJC-1d2b7ff72f
Wrede, M. (2014). Fair inheritance taxation in the presence of tax planning. Journal of Behavioral and Experimental Economics, 51, 12-18. doi:https://doi.org/10.1016/j.
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Feb 18, 2025
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Wachira , S. M., Chelogoi , S. K., & Baimwera , B. (2025). Tax Knowledge and Excise Duty Compliance Nexus; Does Perceived Tax Fairness Play a Moderating Role? Evidence From Manufacturing Firms in Kenya. Journal of Business, Economics and Management Research Studies, 3(1), 33–49. https://doi.org/10.69897/jobemrs.v3i1.182
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Author Biographies
Stephen Migwi Wachira , Department of Accounting and Finance, School of Business and Economics, Moi University, P. O. Box 3900-30100, Eldoret, Kenya
Department of Accounting and Finance, School of Business and Economics, Moi University, P. O. Box 3900-30100, Eldoret, Kenya
Stephen Kimutai Chelogoi , Department of Accounting and Finance, Kenya School of Revenue Administration, P.O. BOX 48240 – 00100, GPO Nairobi, Kenya
Department of Accounting and Finance, Kenya School of Revenue Administration, P.O. BOX 48240 – 00100, GPO Nairobi, Kenya
Bernand Baimwera , Department of Accounting and Finance, Kenya School of Revenue Administration, P.O. BOX 48240 – 00100, GPO Nairobi, Kenya
Department of Accounting and Finance, Kenya School of Revenue Administration, P.O. BOX 48240 – 00100, GPO Nairobi, Kenya