Factors Influencing Value Added Tax Compliance Among the Construction Firms in Kisumu County, Kenya

Abstract

Tax is an important stream of revenue for the government’s development projects and therefore all efforts must be made by governments to ensure that it is accurately and efficiently collected. The main issue faced by all tax authorities is that it has never been easy to persuade all taxpayers to comply with the regulations of a tax system. Tax compliance is the degree to which the taxpaying community meets the tax obligations set out in the appropriate legal and regulatory provisions, (Maxwell, 2003). The construction industry contributes approximately 4.2% to the Gross Domestic Product. The main objective of the study is to establish factors influencing Value Added Tax compliance among the construction firms in Kisumu County. The researcher employed a descriptive design to collect a large quantity of information about the population being studied. Descriptive approach was integrated with survey design in collecting comprehensive qualitative and quantitative data that enriched the outcome of the study. The study targeted all registered construction firms within Kisumu County. The researcher collected primary data from the sampled construction firms using self administered questionnaires. Data collected was analyzed using Statistical Package for Social Sciences and the study findings presented in the form of tables. All the established factors have a significant influence on the Value Added Tax compliance among the construction firms. The findings revealed that tax understanding and knowledge has a significant effect on tax compliance. Better understanding of VAT laws encourages voluntary compliance. Reduced tax compliance cost is associated with high levels of tax compliance. The study findings reveal that effective imposition of fines and penalties play a vital role in improving tax compliance. The findings of the study show that taxpayer perception and attitudes has a significant effect on tax compliance. It is therefore prudent for KRA to enhance their taxpayer education activities to enable businesses have better understanding of various factors affecting tax compliance. These study findings will help KRA and the government develop interventions that will encourage voluntary tax compliance that will lead to increased revenue collection to enable the government provide goods and services to its citizens.