Moderating role of perceived tax fairness on the selected Determinants of excise duty compliance among manufacturing Firms in Thika town Kenya

Abstract

Adhering to excise duty is crucial for promoting social and economic progress, as it aids in reducing government fiscal deficits and debt while providing funding for infrastructure initiatives. The challenges faced by local manufacturing industries in adhering to regulations and fulfilling excise duty obligations pose significant obstacles for the government in securing adequate revenue. This phenomenon is consistently observable, yet it frequently garners less attention compared to direct taxes like income and corporate taxes. This investigation sought to explore the moderating influence of perceived tax fairness on the elements affecting excise duty compliance among manufacturers in Thika Town, Kiambu County, Kenya.The objective of the study was to evaluate how tax knowledge, peer influence, penalty rate, and probability of detection affect excise duty compliance among beverage manufacturers in Thika Town, Kiambu County, Kenya. The objective of the study was to investigate how perceived tax fairness moderates the factors that affect excise duty compliance among manufacturers located in Thika town, Kiambu County, Kenya. The study was grounded in economic deterrence theory, social exchange theory, and comparative treatment theory. The study utilized an explanatory research design. The unit of analysis was the individual employees in the manufacturing firms while the unit of observation are the registered manufacturing firms. The investigation focused on a sample of 124 manufacturing firms, engaging the head of finance, finance manager, and accountant from each organization, culminating in a total of 372 participants. Data was gathered using structured questionnaires. The investigation utilized correlation and hierarchical multiple regression analysis to clarify the relationships among the variables studied. The results demonstrate that tax knowledge (β = -0.067, p < 0.05), peer influence (β = -0.056, p < 0.05), penalty (β = -0.068, p < 0.05), and probability of detection (β = -0.007, p < 0.05) all have a negative and statistically significant effect on compliance with excise duty. The findings on moderation indicate that perceived tax fairness moderates the relationship between tax knowledge and excise duty compliance (β = 0.017, p < 0.05). Additionally, perceived tax fairness also moderates the relationship between peer influence and excise duty compliance (β = 0.014, p < 0.05) within manufacturing firms in Thika town, Kenya. Furthermore, the perception of tax fairness moderates the relationship between penalty rate and excise duty compliance (β = 0.016, p < 0.05), moreover, perceived tax fairness moderates the link between the probability of detection and excise duty compliance (β = 0.002, p < 0.05). The findings suggest that tax knowledge does not automatically lead to better compliance, pointing to a possible disenchantment with the tax system or its fundamental intricacies. This study finds that peer influence exerts a considerable negative impact, indicating that social dynamics can hinder compliance, causing firms to mirror the non-compliant behaviors of their counterparts. The findings recommends that firms can enhance compliance through structured training programs that emphasize lawful practices and the benefits of compliance. It is essential to establish programs that encourage compliance among firms by utilizing positive peer influence through the dissemination of success stories and shared experiences from compliant organizations. The study also recommends that policymakers should ensure that tax regulations are perceived as fair and just, potentially leading to improved compliance levels. This suggests that views on fairness may affect responses to tax policies and pressures. This study recommends that manufacturing firms develop targeted tax education interventions that inform and foster an understanding of the benefits of compliance and the collective advantages derived from tax contributions. The study recommends that tax authorities review and potentially adjust penalty rates to ensure fairness and proportionality, which may enhance perceived tax fairness and compliance.