Impact of Compliance Costs and Tax Education on Tax Compliance among Small and Medium-Sized Enterprises (SMEs) in Kisumu County, Kenya
Main Article Content
Keywords
Small and Medium Enterprises, Kenya Revenue Authority, income tax department, tax & tax compliance, compliance costs
Abstract
Small and Medium-Sized Enterprises (SMEs) are the backbone of Kenya's economy, accounting for a substantial portion of employment opportunities and contributing significantly to the country's GDP. For these enterprises to thrive and contribute to economic growth, they must adhere to tax compliance regulations. Tax compliance not only ensures a steady stream of government revenue but also supports equitable resource allocation and fiscal stability. Kenya, like many developing economies, grapples with the issue of tax compliance among SMEs. Two key factors that influence tax compliance are compliance costs and tax education. Understanding the interplay between these factors and tax compliance levels is critical. It provides valuable insights into the challenges SMEs face in meeting their tax obligations and the potential facilitators that can enhance their compliance rates. Such insights can lead to the formulation of more effective tax policies and strategies that not only encourage SME growth but also ensure sustainable government revenue collection. Therefore, objective of this research was to investigate the impact of compliance costs and tax education on tax compliance among SMEs in Kisumu County, Kenya. The study was guided by Economic and Psycho-Social Behaviour theory and Punishment and Deterrence theory. The study adopted descriptive research design. The target population was 105 SMEs who have been operating for a minimum of six months. The sample size was determined using Yamane's (1967) formula, resulting in a sample size of 84. The primary tool employed for data collection was a structured questionnaire. Means, percentages, and standard deviations were used to analyze the descriptive data, while Pearson's product-moment correlation and regression analysis were used to analyze the inferential data. The findings show that there is a negative significant correlation between compliance cost and tax compliance (r=-0.590, p=< 0.001). This means that as compliance costs increase, tax compliance tends to decrease. The positive significant correlation between tax education and tax compliance (r=-0.756, p=< 0.000) implies that as the level of tax education and awareness increases, tax compliance also increases substantially. The study recommends that Government should consider measures to alleviate the compliance burden on SMEs, especially those with limited financial resources. Also, Government agencies and tax authorities should prioritize and expand tax education and awareness programs tailored to SMEs. Keywords: Small and Medium Enterprises, Kenya Revenue Authority, income tax department, tax & tax compliance, compliance costs.
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Zaccheaus M. Odongo, Department of Accounting and Finance, School of Business and Economics, Mount Kenya University
Department of Accounting and Finance, School of Business and Economics, Mount Kenya University, Kenya
Ruthwinnie Munene, Department of Accounting and Finance, School of Business and Economics, Mount Kenya University
Department of Accounting and Finance, School of Business and Economics, Mount Kenya University, Kenya