Influence of Mode of Tax Payment and Legal Framework on Tax Compliance Level of SMEs in Kisumu County, Kenya

Mitchell Zaccheaus Odongo

doi:10.69897/600rjy54

Original Articles

Vol. 2 No. 3 (2023)

Influence of Mode of Tax Payment and Legal Framework on Tax Compliance Level of SMEs in Kisumu County, Kenya

Mitchell Zaccheaus Odongo ^▸^▾

PDF

Published: 2023-08-27

Abstract

Small and Medium Enterprises (SMEs) play a key role in driving economic growth, job creation and poverty reduction in Kenya. In Kisumu County, SMEs form a significant part of the local business, contributing to employment opportunities and revenue generation. However, the effective taxation of SMEs remains main challenge for local governments, impacting fiscal sustainability and hindering developmental initiatives. Tax compliance among SMEs, particularly in Kisumu County, is influenced by various factors. The choice of tax payment mode, whether through traditional methods like cash or modern alternatives can significantly impact SMEs' compliance behavior.This study evaluated the influence of mode of tax payment on tax compliance among SMEs in Kisumu County, Kenya. The study was guided by the theory of planned behavior. The research employed a descriptive research design to investigate the influence of the mode of tax payment on tax compliance levels among SMEs. The target population consisted of 105 SMEs that had been operational for at least six months. Utilizing Yamane's (1967) formula, a sample size of 84 was determined. Data was primarily collected through a structured questionnaire. Data was analysed using descriptive and inferential statistics. Results indicated a positive but moderate relationship between the legal framework and compliance cost and tax compliance (r=0.367, p=<0.001). This strong positive correlation suggests that a well-structured legal framework significantly enhances tax compliance. Further, the correlation between the mode of tax payment and tax compliance, was statistically significant (r=-697, p=< 0.001). This strong negative correlation suggests that certain modes of tax payment are inversely related to tax compliance. Specifically, it might imply that more complex or less convenient payment modes reduce compliance. The study recommends that there is need for KRA to conduct an extensive review of existing tax laws with the aim of simplifying language and removing ambiguities. This could involve the consolidation of similar regulations and the elimination of redundant or outdated provisions. Also, develop and implement comprehensive training programs for SMEs focused on the use of online tax filing systems as well as provide technical support.

References

Ajzen, I. (1991). The theory of planned behavior. Organizational Behavior and Human Decision Processes, 50(2), 179–211.
Alm, J., Jackson, B. R., & McKee, M. (1992). Institutional Uncertainty and Taxpayer Compliance. The American Economic Review, 82(4), 1018-1026.
Arvin, M. B., Pradhan, R. P., & Nair, M. S. (2021). Are there links between institutional quality, government expenditure, tax revenue and economic growth? Evidence from lowincome and lower middle-income countries. Economic analysis and policy, 70, 468-489.
Bird, R. M. (2015). Improving Tax Administration in Developing Countries. Journal of Tax Administration, 1(1), 23-45.
Devereux, M. P., & Griffith, R. (2003). Evaluating tax policy for location decisions. International Tax and Public Finance, 10(2), 107-126.
Eniola, A. A., & Entebang, H. (2015). SME Firm Performance-Financial Innovation and Challenges. Procedia - Social and Behavioral Sciences, 195, 334-342.
Feld, L. P., & Frey, B. S. (2002). Trust Breeds Trust: How Taxpayers are Treated. Economics of Governance, 3(2), 87-99.
Fjeldstad, O. H., & Moore, M. (2008). Revenue authorities and public authority in sub-Saharan Africa. The Journal of Modern African Studies, 46(4), 551-573.
Garaibeh, H. (2015). Government Income Sources and the Development of the Taxation System—the Case of Jordan, Egypt and Kuwait. In The rentier state (pp. 194-210). Routledge.
Kariuki, J., Ndwiga, J., & Kangogo, D. (2018). Tax Education and Compliance among SMEs in Africa. Journal of Finance and Accounting, 6(5), 158-163.
Kirchler, E., Hoelzl, E., & Wahl, I. (2008). Enforced versus voluntary tax compliance: The “slippery slope” framework. Journal of Economic Psychology, 29(2), 210-225.KRA (2021). Annual Revenue Performance Report. Nairobi: Kenya Revenue Authority.
Loo, E. C., McKerchar, M., & Hansford, A. (2009). Understanding the compliance behavior of Malaysian individual taxpayers using a mixed method approach. Journal of the Australasian Tax Teachers Association, 4(1), 181-202.
Maimbo, S. M., & Saini, S. (2005). Issues in tax administration in developing countries. International Monetary Fund.
Maimbo, S., & Yogo, T. (2008). Tax compliance and evasion in Africa: Are we living in a society of cheats? The World Bank.
Mukabi, J. W. (2014). Factors Influencing Turnover Tax Compliance in the Kenya Revenue Authority Domestic Taxes Department in Nairobi County. Research Journal of Finance and Accounting, 5(12), 123-143.
Ndungu, J. (2019). Adoption of e-filing system and tax compliance among SMEs in Nairobi County. International Journal of Economics, Commerce and Management, 7(3), 324-338.
Ngotho, J. M., & Kerongo, F. (2014). Determinants of Revenue Collection in Developing Countries: Kenya’s Tax Collection Perspective. Journal of Management and Business Administration, 2(1), 1-15.
Njagi, L., & Kibera, F. (2017). Determinants of Tax Compliance among Small and Medium Enterprises in Kenya. International Journal of Academic Research in Business and Social Sciences, 7(10), 700-716.
Ogilo, J., Ouma, S., & Ogari, I. (2019). The Influence of Electronic Tax System on Tax Compliance among SMEs in Kenya: A Case of Kisii County. International Journal of Economics, Commerce and Management, 7(6), 118-133.
Oguttu, A. W., & Mwimali, M. K. (2018). Determinants of Tax Compliance among Small and Medium Enterprises in Kenya. International Journal of Academic Research in Business and Social Sciences, 8(3), 500-518.
Pomeranz, D. (2015). No taxation without information: Deterrence and self-enforcement in the value added tax. The American Economic Review, 105(8), 2539-2569.
Slemrod, J. (2007). Cheating Ourselves: The Economics of Tax Evasion. Journal of Economic Perspectives, 21(1), 25-48.
Torgler, B. (2003). Tax morale, rule-governed behavior and trust. Constitutional Political Economy, 14(2), 119-140.
Torgler, B. (2007). Tax compliance and tax morale: A theoretical and empirical analysis. Edward Elgar Publishing.

Keywords

Legal Framework,
mode of payment,
Tax Compliance,
SMEs

How to Cite

Odongo , M.Z. (tran.) (2023) “Influence of Mode of Tax Payment and Legal Framework on Tax Compliance Level of SMEs in Kisumu County, Kenya”, International Journal of Education, Science and Social Sciences, 2(3), pp. Page 1–11. doi:10.69897/600rjy54.

Similar Articles

Charles Musumba Wakhaya , Donald Gulali , Esau Mengich , The Role of Internal Controls on IFMIS Effectiveness in County Governments in Kenya , International Journal of Education, Science and Social Sciences: Vol. 3 No. 2 (2024)
Tuwei Ednah J., Influence of Digital Skills on Adoption of Digital Learning of English Language During COVID-19 Pandemic in Kapseret Sub-County, Kenya , International Journal of Education, Science and Social Sciences: Vol. 1 No. 1 (2022)
Esther Nansamba , Evolution and Challenges of Hospitality and Tourism Education Policies in Uganda: A Policy Review and Implications , International Journal of Education, Science and Social Sciences: Vol. 4 No. 2 (2025)
Moses Murithi Ndwiga, Khaemba Ongeti , Anne Syomwene, Gap Analysis in Blended Learning Studies. A Literature Review , International Journal of Education, Science and Social Sciences: Vol. 3 No. 2 (2024)
Josphine Abinao Kadenyi , Ruth Iramwenya Andambi, Agnes Oseko , The Effect of Socio-Economic Factors on Student Engagement in Christian Religious Education in Public Secondary Schools in Hamisi Sub County, Vihiga County, Kenya , International Journal of Education, Science and Social Sciences: Vol. 3 No. 2 (2024)
Robert Nangithia , Beatrice Kerei , Joseph Mwai , Perception and Readiness of Undergraduate Education Students for Online Learning During the COVID-19 Pandemic at Umma University, Kenya , International Journal of Education, Science and Social Sciences: Vol. 3 No. 2 (2024)
Joseph Ngobo Ndungu, Charles Kiprono Sang Keter, Determinants of AI models Adoption Among State Corporations in Kenya , International Journal of Education, Science and Social Sciences: Vol. 2 No. 2 (2023)
Patrick Acleus Kafu , Jean – Claude Zigama, Unlocking the Potential of the Competency-Based Education Curriculum for Promoting Sustainable Development in Modern Africa: The Kenyan Experience , International Journal of Education, Science and Social Sciences: Vol. 3 No. 2 (2024)
Felix Kipkemoi Rotich , Benjamin N. Mwasi , Charles Kigen , Pancras Grephas Opata , Modeling Future Scenarios for Moiben River Flow Using SWAT and CA-Markov: Implications for Sustainable Watershed Management , International Journal of Education, Science and Social Sciences: Vol. 4 No. 2 (2025)

You may also start an advanced similarity search for this article.

[1] Ajzen, I. (1991). The theory of planned behavior. Organizational Behavior and Human Decision Processes, 50(2), 179–211.

[2] Alm, J., Jackson, B. R., & McKee, M. (1992). Institutional Uncertainty and Taxpayer Compliance. The American Economic Review, 82(4), 1018-1026.

[3] Arvin, M. B., Pradhan, R. P., & Nair, M. S. (2021). Are there links between institutional quality, government expenditure, tax revenue and economic growth? Evidence from lowincome and lower middle-income countries. Economic analysis and policy, 70, 468-489.

[4] Bird, R. M. (2015). Improving Tax Administration in Developing Countries. Journal of Tax Administration, 1(1), 23-45.

[5] Devereux, M. P., & Griffith, R. (2003). Evaluating tax policy for location decisions. International Tax and Public Finance, 10(2), 107-126.

[6] Eniola, A. A., & Entebang, H. (2015). SME Firm Performance-Financial Innovation and Challenges. Procedia - Social and Behavioral Sciences, 195, 334-342.

[7] Feld, L. P., & Frey, B. S. (2002). Trust Breeds Trust: How Taxpayers are Treated. Economics of Governance, 3(2), 87-99.

[8] Fjeldstad, O. H., & Moore, M. (2008). Revenue authorities and public authority in sub-Saharan Africa. The Journal of Modern African Studies, 46(4), 551-573.

[9] Garaibeh, H. (2015). Government Income Sources and the Development of the Taxation System—the Case of Jordan, Egypt and Kuwait. In The rentier state (pp. 194-210). Routledge.

[10] Kariuki, J., Ndwiga, J., & Kangogo, D. (2018). Tax Education and Compliance among SMEs in Africa. Journal of Finance and Accounting, 6(5), 158-163.

[11] Kirchler, E., Hoelzl, E., & Wahl, I. (2008). Enforced versus voluntary tax compliance: The “slippery slope” framework. Journal of Economic Psychology, 29(2), 210-225.KRA (2021). Annual Revenue Performance Report. Nairobi: Kenya Revenue Authority.

[12] Loo, E. C., McKerchar, M., & Hansford, A. (2009). Understanding the compliance behavior of Malaysian individual taxpayers using a mixed method approach. Journal of the Australasian Tax Teachers Association, 4(1), 181-202.

[13] Maimbo, S. M., & Saini, S. (2005). Issues in tax administration in developing countries. International Monetary Fund.

[14] Maimbo, S., & Yogo, T. (2008). Tax compliance and evasion in Africa: Are we living in a society of cheats? The World Bank.

[15] Mukabi, J. W. (2014). Factors Influencing Turnover Tax Compliance in the Kenya Revenue Authority Domestic Taxes Department in Nairobi County. Research Journal of Finance and Accounting, 5(12), 123-143.

[16] Ndungu, J. (2019). Adoption of e-filing system and tax compliance among SMEs in Nairobi County. International Journal of Economics, Commerce and Management, 7(3), 324-338.

[17] Ngotho, J. M., & Kerongo, F. (2014). Determinants of Revenue Collection in Developing Countries: Kenya’s Tax Collection Perspective. Journal of Management and Business Administration, 2(1), 1-15.

[18] Njagi, L., & Kibera, F. (2017). Determinants of Tax Compliance among Small and Medium Enterprises in Kenya. International Journal of Academic Research in Business and Social Sciences, 7(10), 700-716.

[19] Ogilo, J., Ouma, S., & Ogari, I. (2019). The Influence of Electronic Tax System on Tax Compliance among SMEs in Kenya: A Case of Kisii County. International Journal of Economics, Commerce and Management, 7(6), 118-133.

[20] Oguttu, A. W., & Mwimali, M. K. (2018). Determinants of Tax Compliance among Small and Medium Enterprises in Kenya. International Journal of Academic Research in Business and Social Sciences, 8(3), 500-518.

[21] Pomeranz, D. (2015). No taxation without information: Deterrence and self-enforcement in the value added tax. The American Economic Review, 105(8), 2539-2569.

[22] Slemrod, J. (2007). Cheating Ourselves: The Economics of Tax Evasion. Journal of Economic Perspectives, 21(1), 25-48.

[23] Torgler, B. (2003). Tax morale, rule-governed behavior and trust. Constitutional Political Economy, 14(2), 119-140.

[24] Torgler, B. (2007). Tax compliance and tax morale: A theoretical and empirical analysis. Edward Elgar Publishing.