DETERMINANTS OF TAX COMPLIANCE AMONG THE RENTAL INCOME OWNERS WITHIN ELDORET TOWN

Abstract

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. Real estate sector is one of the fastest growing sectors of the economy in Kenya yet taxes collected from this sector have continually been on decline for the last five years. The study analyzed the determinants of tax compliance among the rental income owners in Eldoret town. The objectives of the study were to analyze the factors that influence tax compliance among the rental income owners, access the; effect of perceived fairness of tax system on tax compliance, the effect of tax audit on tax compliance, determine the simplicity of the tax system and to establish the effect of level of income on tax compliance. The target population of this study comprised of 1200 individuals owning rental houses. The study adopted an explanatory design and stratified and random sampling technique was used to select a sample size of 300 individuals owning rental houses The study used frequencies and percentage to analyze demographic data, while means and standard deviations were used to give general information on perceived fairness of tax system, tax compliance and level actual income, at 0.05% level of significance. Pearson correlation was used to provide linear relationship for the variables while multiple regression model was used to test the hypothesis. This was done with aid of SPSS version 20. Data was collected through the use of questionnaires. The findings of the study showed that perceived fairness of tax incentives had positive effect on tax compliance (β1=0.317, ρ<0.05). Tax audit, had highest positive effect on tax compliance (β2=0.331, ρ<0.05). The level of income (β3=0.111, ρ<0.05) and structure of the tax system (β4=0.194, ρ<0.05) had positive effect on tax compliance. The study concludes that perceived fairness of the tax system is associated with high levels of tax compliance. Tax audit was important in improving tax compliance while simplicity in the tax system enhances tax compliance. Level of actual income determines tax compliance. It is concluded that the tax system be fair to all individuals at all income levels, tax system should provide a clear and simple guideline on how to fill tax returns so that individuals who are not well educated are able to fill their tax returns. The tax system should target individuals at all levels of income in order to avoid tax evasion and tax audits impacts highly on tax compliance. This study contributes to current global literature in this field of the relative importance of tax knowledge in affecting tax compliance, as well as exploring the factors that make people avoid tax and methods of increasing voluntary compliance.