Determinants of Residential Rental Income Tax Compliance Behavior Among Landlords in Kisumu City, Kenya

Abstract

Government stresses a great challenge in the provision of services to its citizens. Reliance on revenue collected from taxes aggravates the problem because of low tax compliance. Rental property owners are needed to submit taxes and file their tax returns on an annual basis. Through the Finance Act 2015, the government differentiated premises and structured and initiated a streamlined tax regime for residential premises known as the Monthly Rental Income (MRI) tax, which went into effect on January 1, 2016. The introduction of this tax regime was intended to address the issue of low compliance among Kenyan residential rental taxpayers and increase revenue generated from the sector. The goal of this study was to look into the factors that influence landlords' compliance with residential rental income taxes in Kisumu, Kenya. The study was guided by economic theory which states that taxpayers are compliant with taxes only if noncompliance decreases their rental income or expands its riskiness and behavioral theory which emphasizes shifting people’s perception towards the taxation system as a remedy to compliance. It was conducted through descriptive research, the factors considered were economic, psychological, social, institutional, and personal factors and the action was tax compliance. and a questionnaire was used to collect data A total of 186 people were chosen from a population of 2039. Purposive non-probability sampling was used in the study. The data was coded and compiled into a computerized system to allow descriptive statistical analysis of the data to be performed using SPSS. Spearman's rho correlation and a multinomial logit regression analysis were used to determine the extent to which various determinants affect landlord tax compliance in Kisumu City. The study also sought to determine whether there is a significant relationship between compliance level and the independent factors mentioned above. The findings of the study showed the undecidedness of the respondents regards to residential rental income tax compliance clearly showing that most of the landlords in Kisumu City are not fully compliant. The results of the study indicated that economic factors, institutional factors, and individual factors affected residential rental income tax compliance. This was demonstrated by positive correlation values between the various determinants of residential income tax compliance and the tax compliance level. The researcher recommends that KRA needs to employ a robust all-inclusive information system that will be able to assess and monitor remittances and taxpayers ‘compliance enabling them to predict rental revenue trends and make follow-ups on defaulters. Regular and impromptu audits should also be conducted. It also needs to adopt proper management and enforcement strategies. Furthermore, collaboration between the tax authority and other public sectors is required in terms of landlord registration in order to not only broaden but also formalize the residential rental income tax.