Digitization Of Tax Administration, Technology And Tax Compliance By Small And Medium Sized Enterprises In Nairobi Central Business District

Abstract

The main objective of the study was to explore the impact of digitization on tax administration, technology and tax compliance by SMEs in Nairobi CBD. Most SMEs fail to register their businesses for tax reasons and mostly operate without licenses from both national and county governments. Therefore, tax compliance is a matter of great concern for all SMEs. Furthermore, lots of money is generated from SMEs operations on daily basis although majority are considered as hard tax payers. A key tool that could be used to curb and increase tax compliance by SMEs is digitization of the tax administration system. This would increase the efficiency and effectiveness in tax collection. The purpose of this study was to determine the effect of digitization in tax administration, technology and tax compliance by SMEs in Nairobi CBD. The specific objectives of the research were; to establish the effect of digitization of tax administration on compliance by small and medium sized enterprises in Nairobi Central Business District, to assess the influence of technology on the association between digitization of tax administration on compliance by SMEs in Nairobi CBD and to determine the impact of digitization in tax administration on tax compliance by small and medium sized enterprises. This research was informed by the innovation diffusion theory, the psychology theory, technology acceptance theory, and fischer tax compliance model. The study used the descriptive research design. The target population was all the 1539 SMEs operating in Nairobi CBD. Stratifies random sampling was used to derive 155 respondents which was used as the sample. Out of the 155 questionnaires issued, 133 were successfully filled and returned translating to a response rate of 85.8 %. The inferential statistics was undertaken by performing on digitization in tax administration against tax compliance. The study found p values of 0.000 at 95% level of confidence on the association between digitization and tax compliance by SMEs. This shows that the model adopted for this study was significant and that digitizing tax administration significantly improves tax compliance. Technology was also found to play a vital role in mediating the relationship between digitization and tax compliance since it was a crucial component of digitization. It can be concluded that an increase in the utilization of the resources in the digitized KRA tax administration tax system such as real time and data analytics enables SMEs to promptly make remittances thus protecting them from potential consequences associated with noncompliance. The study recommends that KRA should develop training programs for SMEs to equip them with additional knowledge on the digitized tax administration system. SMEs should be educated on how to use the KRA portal and sensitized on the different resources available in the platform for full and effective utilization