Moderating Role of Social Value Orientation on the Relationship between Tax Service Quality and Tax Compliance among Small and Medium Enterprises (SMEs) in the North Rift Economic Bloc, Kenya

Abstract

Tax revenues are crucial for government operations, providing essential economic, social, and political benefits. However, tax noncompliance by individuals and businesses can undermine these benefits by reducing government revenue and compromising the tax system’s fairness and effectiveness. As such, improving taxpayer compliance is a key government priority. This study examines the conditional effect of social value orientation on the relationship between tax service quality and tax compliance among small and medium enterprises (SMEs) in Kenya. Guided by a positivist philosophy and explanatory design, the study sampled 393 SMEs owners/managers from a population of 21,232 through stratified sampling. The data were collected using self-administered questionnaires, with reliability and validity confirmed using Cronbach’s alpha and factor analysis. The analysis employed descriptive and inferential statistics and multiple regression analyses using the Andrew Hayes Process macro. Findings indicated that both tax service quality (β =.541, p<0.01) and social value orientation (β = 0.333, p < 0.01) significantly and positively affect tax compliance. Additionally, social value orientation significantly moderates the relationship between tax service quality and tax compliance (β = 0.5059, p < 0.01, R2 = 0.0774). The study concludes that high-quality tax service and consideration for social values of the taxpayer are crucial for improving the compliance level of SMEs. Governments encourage greater compliance by providing efficient, user-friendly, and transparent services, as well as through the inclusion of social values in policy and program design. Future research should explore other factors influencing compliance through a mixed-method approach.