EFFECT OF ITAX SYSTEM ON VALUE ADDED TAX COMPLIANCE OF SMALL AND MEDIUM ENTERPRISES IN ELDORET TOWN, KENYA

Abstract

Tax authorities are turning to e-government led solutions like integrated tax administration systems to interact with taxpaying public in tax collection, administration and compliance settings. It is on the basis of this purview that this research was born. Its main objective was to determine the effect of iTAX system on value added tax compliance of small and medium enterprises in Eldoret town. The specific objectives were, to establish the effect of online tax filling on value added tax compliance of small and medium enterprises in Eldoret town and to determine the effect of tax remittance on value added tax compliance of small and medium enterprises in Eldoret town, to find out the effect of compliance cost on value added tax compliance of small and medium enterprises in Eldoret town, to determine the effect of online tax registration on value added tax compliance of small and medium enterprises in Eldoret town. The development of literature was guided by the Ability to Pay Theory and technology acceptance model (TAM) theory. An explanatory research design was adopted and the target population was 2670 Small and Medium Enterprise taxpayers in Eldoret Town, North Rift Region. The sample size was 347 Small and Medium Enterprise tax payers. Stratified and simple random sampling technique was used to identify the respondents. Construct validity was tested using factor analysis and reliability using cronbachs’ alpha technique. The data was analyzed using SPSS version 20 software using descriptive statistics and inferential statistics. The study will be of great benefit to Kenya revenue authority in policy formulation on how to custom design the iTAX system for ease of use and also to theorical development and literature review on iTAX system and value added tax compliance. The results were, online tax filing had (β =. 165, p = .000, < .05), tax remittance had (β =. 189, p = .000, < .05), compliance costs had (β = .055, p = .033, < .05), online tax registration (β = .333, p = .041, < .05). The study concluded that online tax filing, tax remittance, compliance costs and online tax registration have a significant effect on tax compliance. The study recommends that small and medium enterprises should keep detailed records of all input tax and output tax to facilitate the completion of VAT returns.