Determinants of Tax Compliance Behaviour in Kenya

Abstract

A major issue that any tax agency has to grapple with is the taxpayers’ non-compliance with tax laws as this has immense effect on revenue performance. In its 6th corporate plan period (2016 to 2018), Kenya Revenue Authority fell short of its revenue target by Kshs.0.185 trillion after collecting a cumulative Kshs. 4 trillion against a revenue target of 4.186 trillion which represents a performance rate of 95.6%. Though this performance is attributed to among other factors failure by taxpayers to meet their tax obligations, not much is known regarding the attitude of taxpayers towards taxation in Kenya. Further, one of KRA’s focus is to improve collection of tax revenue through improved compliance with the aim of attaining revenue independence. The aim of this research was to establish factors affecting compliance behaviour of taxpayers by categorizing the different factors and understanding how they affect revenue performance in Kenya. To assess how each of the factors influence the taxpayer’s attitude, the study run a binary probit model using data from round six of Afrobarometer survey. Results indicate that having trust in KRA raises the likelihood of reporting tax compliant attitude by 16.1 percent, being proud to be a Kenyan increases the chances of reporting a compliant attitude by 16.1 percent, satisfaction with how democracy works in Kenya raises the chances of an individual depicting tax compliance attitude by 8.9 percent. Similarly, being old raises the likelihood of being tax compliant by 0.4 percent and having a post-secondary education increases the chances of an individual reporting tax compliant attitude by 9.1 percent as opposed to having no formal education, primary education or secondary education. In addition, perceived corruption in KRA reduces the chances of an individual reporting a tax compliant attitude. From the findings, a set of recommendations to improve tax compliance attitude have been proposed. These include: Continued taxpayer education by KRA, strengthening tax transparency and improved service delivery through enhanced transparency and accountability as this will enhance the levels of trust placed in them. In addition, expanding the democratic space to give taxpayers an opportunity to express their opinion regarding the policies that they would like the government to implement is likely to improve their attitude towards taxation.