Determinants of Tax Compliance among Export Processing Zones Investors in Kenya

Abstract

Tax is an important stream of revenue for any government’s development projects in both developed and developing economies. Tax compliance in most of these economies is varied. Over the years, the Kenyan Government has undertaken various revenue administration reforms aimed at enhancing revenue collection. The general objective of this study was to examine the determinants of tax compliance among the Export Processing Zones investors in Kenya. Further, the study specifically addressed; how tax knowledge and awareness, tax system attitude, tax compliance cost, relative tax rate and tax enforcement efforts determine the tax compliance of investors in the Export Processing Zones in Kenya. In addition, it assessed the moderating effect of turnover level on the tax compliance of the EPZ investors in Kenya. The study was anchored on the Tax Morale Theory, Economic Theory of Compliance, Fiscal Exchange Theory, Social-Psychology Models and the Prospect Theory. The philosophical foundation of the study was positivism. This study used a cross sectional survey research design since it provides an accurate means of assessing information that captures respondents’ similarities and differences. The target population for the study was the licensed investors in the Export Processing Zones in Kenya. The sample used for this study was 152 duly registered and licensed operators in the Export Processing Zones Authority located in the three Kenyan cities; Nairobi, Mombasa and Kisumu. Since very few investors are located in other towns, they were piloted for this study. The piloted firms were however not considered for the final study. The study was conducted in the year 2016 through to 2018.Primary data was gathered using structured questionnaires and captured through a 5-point type Likert Scale questionnaire. To determine variable internal consistencies, reliability and validity tests were done. Hypothesis testing was conducted by use of Analysis of Variance (ANOVA), multiple regression and correlation analysis. Further data analysis was done using descriptive and inferential statistics. The study found out that the level of tax compliance among the Export Processing Zones investors in Kenya was still low. The study revealed that the respondents comply with tax payments due to fear of detection and punishment. Audit and penalties are some of the measures employed by revenue authorities to ensure voluntary compliance. The levels of tax compliance is also influenced by social and personal factors. The study concluded that tax compliance is influenced by different factors such as tax knowledge and awareness, tax attitude towards the tax system, tax compliance costs, relative tax rates and non-compliance enforcement efforts. The low level of tax compliance is attributed to poor tax attitude from the respondents, high tax compliance costs, unfavorable relative tax rates and weak enforcement efforts. Since tax knowledge and awareness was found to have a positive influence on tax compliance, the study recommends that Revenue Authorities should embark on public awareness campaigns to educate the public on their role and responsibilities in taxation rather than approaching the matter from a legal obligation perspective. This will help create a sense of responsibility in compliance rather than fear for non-compliance. Putting in place active customer oriented information desks is also a necessary initiative that will promote tax compliance. Further Revenue Authorities should put in more robust measures to educate the public and the investors in particular on tax issues and policies through regular training programmes, workshops and seminars.