Determinants of Voluntary Rental Income Tax Compliance by Landlords in Kiambu Town, Kiambu County, Kenya

Abstract

Tax non-compliance stands a bigger problem and is prevalent in many economic sectors including housing and property developers. Despite the tremendous growth from real estate sector in Kenya from the past few years, the corresponding tax collection from the sector has remained very low. In 2017 rental income tax compliance rate was low at 40% in Kiambu Town. Kiambu Town lost an approximated Kshs.19 million in 2017 from non-compliant property owners and property developers. Rental income tax remittance by property owners has been largely low in spite all the energies employed to enforce rental income tax policies. The purpose of this study was to establish the determinants of voluntary rental income tax compliance by landlords in Kiambu County, Kenya; case of Kiambu Town. The study employed descriptive survey design. The target population was 789 rental property owners in Kiambu Town. However, a sample size of 265 rental property owners chosen using Yamane formula participated in the study. A structured questionnaire employed to collect primary data. The primary data collected using questionnaire was entered in an excel sheet and exported to SPS version 25.0 for analysis. Data analysis involved entailed the descriptive and inferential statistics. The descriptive included the mean scores, standard deviation and frequencies while inferential results entail multiple linear regression model. The study revealed that tax knowledge, attitude and perception, cost of compliance and tax rate levied on rental property explained 70.1% of the voluntary rental income tax compliance by landlords in Kiambu town. Regression of coefficients indicated that tax knowledge has a positive and significant effect on voluntary rental income tax compliance (β=.205, p=0.004<0.05), attitude and perception has a positive and significant effect on voluntary rental income tax compliance (β=.307, p=0.000<0.05), cost of compliance has a negative and significant effect on voluntary rental income tax compliance (β=-.210, p=0.001<0.05) while tax rate levied on rental property has a negative and significant effect on voluntary rental income tax compliance (β=-.166, p=0.007<0.05). The study thus concludes that tax knowledge is important in enhancing rental tax compliance. A conclusion is thus made that the nature of attitude and perception about tax by landlords may influence their level of rental income tax compliance. The study further concludes that costs of compliance significant affect voluntary rental income tax compliance and that tax rate levied on rental property influences the voluntary rental income tax compliance. The study recommends for the need for periodic workshop training, tax educational programmes organized by the Kiambu county governments and Kenya Revenue Authority to sensitize and about the importance of taxa compliance. Attitude and perception of the taxpayer influences voluntary rental income tax compliance. There is need to properly channel and utilize the income taxes collected to the benefits of those paying taxes. The costs of compliance significant affect voluntary rental income tax compliance. There is need for Kiambu county government and KRA to review the costs incurred by tax papers during their attempt to comply with taxation requirements. The process need to be simple requiring minimal expenditures and time to comply with taxation requirements. There is need for tax authorities to review the tax rates levied on rental property to ensure that the rates are favourable and do not burden the property owners. The tax rates need to align with the amount of rental income collected at particular period and as per the occupancy capacity of the rental property.