FACTORS AFFECTING TAX COMPLIANCE AMONG SMALL AND MEDIUM ENTERPRISES (SMES) IN NAKURU COUNTY IN KENYA: A SURVEY OF SMES IN NAIVASHA SUB COUNTY

The study purpose was to establish factors affecting tax compliance among SMEs in Naivasha Sub-County, case study of Naivasha town Central Business District (CBD). The study specific objectives were: To determine the effect of tax knowledge on tax compliance amongst SMEs in Naivasha Sub-County; to establish the effect of tax rates on tax compliance among the SMEs in Naivasha Sub-County; to determine the effect of filing procedures on tax compliance amongst SMEs in Naivasha Sub-County and to establish the effect of tax accountability on tax compliance among the SMEs in Naivasha Sub-County. Research study adopted descriptive research design. Data collection was done using questionnaires that were pilot tested first before administration and the analysis was carried out with the aid of SPSS and descriptive statistics and results are presented in table and figures. The study found out that taxpayer’s knowledge, tax rate, filling procedures and accountability are among the factors that affects tax compliance among SMEs. The study established that Tax data, tax learning tends to advance tax compliance than tax organization and thus informing taxpayers on taxation laws and controls by coordinate free symposia and courses. The study also established that Tax rates are too high, fines and penalties charged for late fillings are stiff, the cost required for filling the tax returns is high, hiring a profession to do the fillings as expensive and that the number of government bodies involved in tax collection are many and this has led to poor tax compliance. The study also established that concluded that procedures for tax filing are too complicated, the tax complexity of laws contribute to wrong tax returns, forms taxpayer has to present and combining filings number per year are numerous, there are delays in electronic filing and payment systems. Research study concluded that low level of accountability and transparency in the use of public resources creates distrust of the tax system, misuse of tax revenue by officials entrusted with its management affects tax morale thus leading to evasion, inadequate laws reduces the accountability in public institutions that affects the level of compliance among the taxpayers if the government uses the tax it collects for development and provision of quality services and Tax payers are apprehensive of the need for paying taxes when governments are not accountable hence the low level of tax compliance. The study concluded that tax rates, PAYE, tax penalties and fines contribute greatly to tax compliance and finally tax compliance cost have the most significant influence on tax compliance. Tax threshold for SMEs should be reduced to a maximum of four tax returns per year and should have a possibility of moving it towards annual or after every six months and KRA should consider simplifying returns by regularly reviewing tax laws. The study also concludes that tax compliance can be influenced by provision of tax payer education on the social responsibility for paying taxes and taxpayer’s intention would be to comply. There are more gains in assisting compliant taxpayers in meeting their fiscal obligation instead of spending more resources on a few non compliers. SMEs are able to understand tax obligation where there is tax benefits and tax benefits that are received in real time. The study recommended that tax payers learning ought to be emphasized since tax data, tax learning tends to advance tax compliance than tax organization. The study recommend that tax rates should be reduced since expansion in tax rates prompts higher development, appropriation and offering costs which prompt higher costs and accordingly customers change their purchasing conduct, tax laws should not be complex so as to not contribute to wrong tax returns and that recommended there should be Tax accountability and transparency with greater emphasis on the various kinds of taxes such as firm’s income tax, individual income tax, value added tax, petroleum profit tax and stamp duties since they are perceived to have a direct correlation with the Gross Domestic Product (GDP)