Moderating role of digital systems on the selected behavioral attributes on tax compliance among micro, small and medium enterprises In Embakasi Subcounty Nairobi Kenya.

Abstract

The attitude towards tax compliance is shaped by various factors, including demographic, individual, social, institutional, and economic influences. The objective of this study is to assess how behavioral traits influence tax compliance among MSMEs in the Embakasi sub-county of Nairobi, Kenya. Consequently, a gap exists between the findings from developed and developing countries. However, due to the intricate nature of this topic, achieving a complete understanding remains challenging. The existing empirical reviews that aim to elucidate tax compliance behavior are marked by a lack of coherence and clarity, which served as the impetus for this study. The general objective was to investigate the moderating role of digital tax administration systems on the relationship between selected taxpayers’ behavior attributes and tax compliance. The specific objectives of the study were to determine the effect of sociological attributes, psychological attributes, and perceived risk on tax compliance among MSMEs in the Embakasi sub-county in Nairobi County, Kenya. The study will be anchored on the Deterrence Economic theory, Psychological theory of attribution, Comparative Treatment Theory, and Social Exchange Theory. Primary data was collected through structured questionnaires. This study used a quantitative approach with primary data from distributing questionnaires. The samples collected were 1,843 MSMEs and a sample size of 329 Embakasi sub-county in Nairobi County in Kenya. The data of the study was analysed by use of correlation and multiple regression analysis to provide an understanding of the relationship between the variables in the study. The study findings revealed that there was negative and significant effect of sociological attributes on tax compliance (β = -.480, p = <0.05). That there was a positive and significant effect of psychological attributes on tax compliance (β = .570, p = <0.05). Further, there was a positive and significant effect of perceived risk on tax compliance (β = 1.032, p = <0.05). Results indicate that the interaction effect of digitalization of tax administration systems on the relationship between sociological attributes and tax compliance was positive and significant (β = .895, p = <0.05), between psychological attributes and tax compliance was negative and significant (β = -.693, p = <0.05) and that the interaction effect of digitalization of tax administration systems on the relationship between perceived risk and tax compliance was negative and significant (β = -1.437, p = <0.05). The research outcomes would improve future research and help MSMEs taxpayers determine the effectiveness of tax compliance. The research results would also be beneficial to both academicians and MSMEs taxpayers and policy makers trying to achieve positive tax compliance. Based on the findings, the study has several recommendations: KRA needs to increase awareness of the consequences of tax evasion, and KRA needs to implement a simplified tax procedure system. Further research extending to other regions and countries would provide a more comprehensive understanding of tax compliance across different contexts. Also, further research could explore additional factors influencing compliance such as economic conditions, levels of trust in government, or the impact of economic incentives that could implement the findings of this study.