Deterrent measures, digitalization, taxpayer morale, taxpayer awareness and value added tax compliance amongst medium taxpayers in north of Nairobi tax district, Kenya

Abstract

Tax compliance is important as it has a direct impact on revenue for most governments around the world. Despite the reforms that the Kenya Revenue Authority has been undertaking so as to increase revenue collection, it has of late failed to meet its revenue targets particularly VAT targets. There has also been existence of fluctuations in VAT collection over the past couple of financial years. The purpose of this study was to establish the moderating role of deterrent measures on selected determinants and value added tax compliance amongst medium taxpayers in north of Nairobi tax district, Kenya. The specific objectives were to determine the effect of digitalization, tax morale, tax awareness and the moderating role of deterrent measures on the relationship of these selected determinants on Value Added Tax compliance among medium taxpayers in north of Nairobi tax district, Kenya. The study was guided by the main theory which is Theory of Planned Behavior and other theories; the innovation diffusion theory, Ability to pay theory and Economic Deterrence Theory. The total target population were 2,376 VAT registered medium taxpayers in north of Nairobi tax district, Kenya and the sample size was 342 respondents. Out of the 342 respondents targeted, 274 questionnaires were correctly filled and returned, indicating 80% response rate. The study adopted the explanatory research design and primary data was collected using structured questionnaires with closed-ended questions. The data was analyzed using descriptive, inferential statistics, and multiple linear regression analysis. The study found that digitalization had a positive and significant effect on Value Added Tax compliance β=0.402 p-value =0.001. The study also found that tax morale had a positive and significant effect on Value Added Tax compliance β=0.295 p-value =0. 016. The study also found that tax awareness had a positive and significant effect on Value Added Tax compliance β=0.124 p-value =0.041. The study further found that deterrent measures moderate the relationships between digitalization, tax morale, tax awareness and VAT compliance, at β=0.526 p-value =0.000, β=0.248 p-value =0.000., β=0.674 p-value =0.000. respectively. It is recommended that the Kenyan government prioritize policies that expand and support digital tax infrastructure. Tax authorities, like the Kenya Revenue Authority (KRA), should consider implementing additional funding and resources for digital tax filing systems, ensuring they are user-friendly, reliable, and accessible. Policies could mandate training programs on e-filing for taxpayers, which would address gaps in user skills and technical knowledge. From a practical perspective, KRA and tax management bodies should focus on integrating digital solutions into daily tax administration processes to support VAT compliance. KRA can work closely with business associations to conduct regular workshops and provide guidance on using digital tax systems. Future research could explore whether the impact of digitalization, tax morale, and awareness on VAT compliance differs by business size to offer more tailored recommendations for different taxpayer categories.