Presented by Jane MIGWAMBO

1. INFLUENCE OF TAX PAYERS EDUCATION ON COMPLIANCE OF SMALL AND MICRO ENTERPRISES IN THIKA TOWN: KENYA Presented by Jane MIGWAMBO

2. Background of the study • Tax administration is transforming from using enforcement in collecting taxes to empowering tax payers by revamping taxpayer education and facilitating trust to enhance service delivery.(OECD, 2012) Globally, governments are currently focusing on taxpayer education programmes to improve tax compliance and increase tax morale for taxpayers .(OECD, 2015). • According to Misra (2004), the main objective of tax payer education is in three folds: impart knowledge as regards tax laws and compliance; change taxpayer’s attitude towards taxation and increase tax collection through voluntary compliance.

3. Background of the study cont.’ Taxpayer education is not only a strategy for collecting more revenue, but also an exclusively focus on expounding why taxes should be paid (.OECD, 2015). In Kenya ,SME play a vital role in the economic development of Kenya in a number of ways including; by increasing competition, fostering innovation, generating employment and an important source of goods and services .

4. Background of the study • Tax compliance with the SME a major challenge due to the amount lost in form of taxes. For instance in 2013, the estimated amount of tax loss was Kshs 108 billion which could be directly attributed to the informal sectors and SMEs. ( KRA Report, 2013). The SMEs are continuously expanding and has the potential to increase the revenue flows which have been otherwise left out of the tax bracket. The aim of the study is the investigate the influence of taxpayer education on compliance among the SME’s in Thika

5. Statement of the problem • Kenya Revenue Authority has given special attention on the SMEs by simplification of the tax laws procedures, formation of associations, annuals taxpayers appreciation day (Taxpayers month), and integrity enhancement as among the strategies (Kimingu and Kileva, 2007). Despite its considerable achievements in minimizing customer compliance costs over the time, there is a need for KRA to continue enhancing its service levels

6. Statement of the problem • Over the past years, various surveys and reports have exposed the weaknesses in creating tax awareness. The majority of taxpayers do not have basic tax knowledge and often fall a pray of not paying their tax liability as a result of this(Nganga’, 2018). Low compliance is a major concern for the policy makers and KRA in Kenya. This is because it limits the capacity of governments to raise revenue for developmental and recurrent expenditure purposes (Togler, 2003).

7. Statement of the problem cont.’ • According to KRA (2015) total revenue collected from the TOT system in 2015 was Kshs. 221 million. This was below the target of Kshs. 645 million in 2015. On TOT recruitment of new taxpayers, the performance has been below 50% on average. In year 2008/09, the number of SMEs which were registered with TOT was 10,605 against a target of 18,347. Between July 2009 and March 2015, 2,890 SMEs had registered with the TOT against a target of 6,928. As at mid-2015, only 435 SMEs had adopted the tax system out of a possible 1405 SMEs in Thika town a 21% uptake of TOT (KRA, 2015). This is a problem for the government in its endeavor to ensure that there is sufficient revenue to support its operations

8. Statement of the problem cont. • KRA has been providing relevant information and training to taxpayers through sensitization initiatives and raising public awareness Despite such an investment, it is not yet established whether the level of compliance envisaged is attainable, especially with small and micro enterprises which constitute a higher percentage of the population. (Nganga’, 2018). The study is therefore seeking to find outthe influence of tax payers education on compliance of Small and Micro enterprises in Thika town: Kenya

9. Specific Objectives • 1.3.1 To find out the influence of media awareness about tax matters on compliance of small and micro enterprises in Thika town • 1.3.2. To determine the influence of digital communication on tax compliance in small and micro enterprises in Thika town • 1.3.3. To establish how taxpayer sensitization influence tax compliance in small and micro enterprises In Thika Town

10. Conceptual framework • Tax compliance • Increase in SME registration • Increase in SME Filing • Increase in SME payment

11. Empirical literature • Mokoro (2010) study found out that some of the factors for non-compliance were; the lack of understanding of tax laws, a feeling that they are not paying a fair share of tax positive attitude and rewarding. The test of the hypothesis of the study found that there was a strong relationship between the taxpayers attitude and tax compliance. • Amayi (2013) carried a study on the effect of taxpayer education on voluntary tax compliance, among the SMES in Mwanza city- Tanzania. From the findings as what extent the taxpayers gained knowledge from the taxpayers’ education 85& of the respondent admitted to have gained knowledge from the tax the media • KRA has also embraced the social media platform to educate taxpayers through seminars, media talk shows, website, Facebook page Twitter handle and you tube (Stori Za Ushuru among other in a bid to improve tax compliance (Machogu 2015). The internet live statistic (2018) shows that around 40%of world population has internet today. In Kenya around 89% of people with mobile phone access internet.

12. Empirical literature cont’ • Odongo (2014) found tax compliance levels among the Small and medium enterprise in Uganda to be very low. He pointed out several factors that led to low tax compliance levels in Uganda including poor book keeping, low sales turnovers, and frequent ownership changes of SMEs Other challenges include a large proportion of SMEs who are ignorant of taxation processes and computations, and lack of comprehensive sensitization programs by the Uganda Revenue Authority (URA • Machogu. (2015) also embraced the social media platform to educate taxpayers through seminars, media talk shows, website, Facebook page Twitter handle and you tube (Stori Za Ushuru) among other in a bid to improve tax compliance

13. Empirical literature From the a above literature reviewed . It is clear that there is a significant effect of taxpayer education on tax compliance especially in small and media enterprise . The study therefore is aimed to find out whether the same applies in Thika town

14. Research Design Data Collection Instruments • This study adopted mixed methods research design where data were collected questionnaires and interviews. The researcher used both structured and unstructured questionnaires to collect primary data from the respondents. Stratified Radom sampling was used to constitute the sample population. Stratus were formulated based on the stake holder segmentation

15. Target population Sample size • Target population is the total number of the registered SME’s in Thika which was estimated to be 500. Derived from (economic survey report ,2017) Using fishers model the sample size was reduced to 217. Questionnaire were distributed and the response rate was 71.89% with 165 questionnaire filled and returned. Using SPSS version 24

16. discussion and findings • Using analytical model which is represented by the equation • Y= Bₒ + β1X1 + β2X2 + β3X3+Ɛi The model summary and ANOVA table reveal that the regression model had predictive power on tax compliance (R=.423,) and explained 42.3 of the variability in tax compliance. The coefficients indicate that Taxpayer sensitization had the highest explanatory power on tax compliance (B=.484,, followed by online Digital communication (B=.427, < and lastly Media awareness (R=.300, ). The fitted regression model from the research findings was presented as follows. • Tax Compliance = 4.146 +.300 x media awareness+.427 x digital communication + .484 x Taxpayer sensitization .In this regard the research findings and the regression analysis show a connection between the variable involved in the study. This study has therefore proven that tax education of small and micro enterprises in Thika town has a significant impact on compliance

17. discussion and findings • Tax Compliance = 4.146 +.300 x media awareness+.427 x digital communication + .484 x Taxpayer sensitization .In this regard the research findings and the regression analysis show a connection between the variable involved in the study. This study has therefore proven that tax education of small and micro enterprises in Thika town has a significant impact on compliance

18. Policy recommendation • Media awareness From the findings majority of the respondence suggested an introduction of tax payer education on local TV or radio television on regular basis. This can be incorporated by use of vernacular language to give the taxpayers a better understanding • A few tax officers in Thika in tax awareness at the grass root level . They should be involved in explaining to informal sectors the benefit of paying taxes min any meeting they hold in their Bazaar. • A policy allowing officers to visit tax payers premises rather than calling them to attend seminars as most of them are very busy in their businesses

19. Recommendation cont. • Digital communication From the one interview with the taxpayers they suggestion of using of text messages other than email to tax payers was fronted Using Digital Billboards messages should be incorporated to remind taxpayers od the due dates and any change in the tax law