Determinants of Tax Efficiency Perceptions by Domestic Taxpayers in Kenya: The Case of Nairobi

Abstract

The study sought to investigate the determinants of tax efficiency perceptions by domestic taxpayers in Kenya with emphasis on Nairobi. To increase the amount of revenue, the government has in the recent past introduced excise duty on mobile money transfer, seen VAT bill passed and operationalized with campaigns to encourage Kenyans to pay taxes. The big issue in the study was that Kenya’s tax system was characterized by low efficiency, high collection charges, waste of time for taxpayers and the staff, low amounts of taxes raised and deviation of optimum allocation of resources. The specific objectives for the study were to determine the effect of given factors on tax efficiency such as the digitization of tax records to ensure transparency and credibility of records; implementing integrated tax collection system to credibly consolidate revenues by various Kenya Revenue Authority agencies to ensure proper accounting for taxes raised by the agencies; organizational restructuring by increasing the number of offices and agents of tax collection to make it easy to collect taxes and embracing electronic payment methods to make it easy for taxpayers to make payments. To meet the research objectives, a descriptive research design was used to gather information on the understanding of tax, challenges encountered in paying and collecting taxes and ways of enhancing efficiency. A linear regression model was used together with SPSS software for data analysis giving t-statistic values of 4.527, 3.346, 8.159 and 8.086 for digitization, organization restructuring, electronic methods and integrated system respectively all of which were greater than two meaning that the variables were statistically significant in explaining tax efficiency. The coefficients for digitization, organization restructuring, electronic methods and integrated system were 0.297, 0.204, 0.348 and 0.302 respectively. All of them being positive meant that there was positive relationship between each independent variable and the dependent variable, tax efficiency. The study recommended that Kenya Revenue Authority should educate taxpayers on matters to do with Kenyan tax system; seek to raise more revenue from the informal sector; increase the number of tax collecting offices and agents in some specific areas that have income generating activities; simplify the electronic payment methods and implement an integrated tax system.