Journal of Accounting and Taxation
Subscribe to JAT
Full Name*
Email Address*

Article Number - 7D3A7B555792


Vol.10(1), pp. 1-18 , January 2018
https://doi.org/10.5897/JAT2017.0283
ISSN: 2141-6664


 Total Views: 0
 Downloaded: 0

Full Length Research Paper

Tax costs and tax compliance behaviour in Kenya



Farida Abdul
  • Farida Abdul
  • Strathmore School of Management and Commerce, Kenya.
  • Google Scholar
David Wang’ombe*
  • David Wang’ombe*
  • Strathmore School of Management and Commerce, Kenya.
  • Google Scholar







 Received: 03 October 2017  Accepted: 18 December 2017  Published: 31 January 2018

Copyright © 2018 Author(s) retain the copyright of this article.
This article is published under the terms of the Creative Commons Attribution License 4.0


This study examines the influence of measures of tax compliance costs on tax compliance behaviour among medium and large corporate taxpayers in Kenya. It uses a Structural Equation Modelling (SEM) technique to establish the key cost drivers built using survey data, while controlling for key attributes of the tax system as well as firm characteristics. The results indicate that tax compliance in Kenya significantly declines with increase in tax compliance costs, particularly those related to understanding of the existing complex tax laws, changes in tax rules as well as general costs of meeting the compliance and regulatory requirements. The model constructs account for about 40% of variations in tax compliance behaviour in Kenya, which is above the empirically accepted minimum for exploratory studies. From the results, the study recommends a focus by tax authority and policymakers on measures to reduce these identified tax compliance costs. In addition, greater emphasis should be put on investing in opportunities that reduce financial pressure on firms thus encouraging tax compliance.

Key words: Tax costs, tax compliance behaviour, income tax, corporate taxpayers, Kenya.

Abdul-Jabbar H (2009). Income tax non-compliance of small and medium enterprises in Malaysia:

 

Barclay D, Higgins C, Thompson R (1995). The Partial Least Squares (PLS) Approach to Casual Modeling: Personal Computer Adoption and use as an Illustration.

 

Barroso C, Carrion GC, Roldan JL (2010). Applying maximum likelihood and PLS on different sample sizes: studies on Servqual model and employee behaviour model. In V. Esposito Vinzi, W. W. Chin. J. Henseler & H. Wang (Eds.), Handbook of partial least squares: Concepts, methods and applications . Heidelberg: Springer. pp. 427-447
Crossref

 

Bentler PM, Raykov T (2000). On measures of explained variance in nonrecursive structural equation models. J. Appl. Psychol. 85(1):125.
Crossref

 

Blumenthal M, Slemrod J (1992). The Compliance Cost of the U.S. Individual Income Tax System: A Second Look After Tax Reform. National Tax J. 45(2):185-202.

 

Bobek DD, Hatfield RC (2003). An investigation of the theory of planned behaviour and the role of moral obligation in tax compliance. Behav. Res. Account. 15:13-38
Crossref

 

Chan K, Mo P (2000). Tax Holidays and Tax Noncompliance: An Empirical Study of Corporate Tax Audits in China's Developing Economy. Acc. Rev. pp. 469-484.
Crossref

 

Chin WW (1998a). Issues and Opinion on Structural Equation Modelling. Manage. Info. Syst. Quarter. 22(1):7-15.

 

Chin WW (1998b). The Partial Least Squares Approach of Structural Equation Modeling. In G. A. Marcoulides (Ed.), Modern Methods for Business Research (pp. 295-336). Mahwah, NJ: Lawrence Erlbaum.

 

Chin WW (2009). PLS-Path Modelling. 

 

Chin WW (2010). How to Write Up and Report PLS Analysis. In V. Esposito Vinzi, W. W. Chin, J. Henseler & H. Wang (Eds.), Handbook of Partial Least Squares: Concepts, Methods and Applications (pp. 655-690). Heidelberg: Springer.
Crossref

 

Chin WW, Dibbern J (2010). An Introduction to a Permutation Based Procedure for Multi-Group PLS Analysis: Results of Tests of Differences on Simulated Data and a Cross Cultural Analysis of the Sourcing of Information System Services Between Germany and the USA. In V. Esposito Vinzi, W. W. Chin, J. Henseler & H. Wang (Eds.), Handbook of Partial Least Squares: Concepts, Methods and Applications. Heidelberg: Springer. pp. 171-193.
Crossref

 

Crivelli E, Gupta S (2014). Resource Blessing, Revenue Curse? Domestic Revenue Effort in Resource-Rich Countries, European Journal of Political Economy.
Crossref

 

Devos K (2014). 'Tax Compliance Theory and the Literature', 'Tax Compliance Theory and the Literature', Factors Influencing Individual Taxpayer Compliance Behaviour, Springer. pp. 3-65.

 

Duarte P, Raposo M (2010). A PLS model to study brand preference: An application to the mobile phone market. In V. E. Vinzi, W. W. Chin, J. Henseler, & H. Wang (Eds.), Handbook of Partial Least Squares. Springer Berlin Heidelberg. pp. 449-485
Crossref

 

Erich K, Niemirowski A, Wearing A (2006). Shared subjective views, intent to cooperate and tax compliance: Similarities between Australian taxpayers and tax officers. J. Econ. Psychol. 27(4):502-517.
Crossref

 

Evans C, Tran-Nam B (2010). Managing tax system complexity: Building bridges through pre-filled tax returns. Aust. Tax Forum 25(2):245-274.

 

Evans C, Lignier P, Tran-Nam B (2014). The tax compliance costs of large corporation: Recent empirical evidence", 11th International Tax Administration Conference, Atax, Sydney.

 

Evans C, Ritchie K, Tan-Nam B, Walpole M (1997). Taxation compliance costs: some recent empirical work and international comparisons. Austl. Tax F, P 93.

 

Fornell C, Larcker DF (1981). Evaluating structural equation models with unobservable variables and measurement error. J. Market. Res. 18(1):39-50.
Crossref

 

Gefen D, Straub DW (2005). A practical guide to factorial validity using PLS-graph: tutorial and annotated example. Commun. Assoc. Inform. Syst. 16(2):91-109.

 

Gefen D, Straub DW, Boudreau MC (2000). Structural equation modelling and regression: Guidelines for research practice. Commun. Assoc. Inform. Syst. 4(7):1-77.

 

Gotz O, Liehr-Gobbers K, Krafft M (2010). Evaluation of structural equation models using the partial least squares (PLS) approach. In V. Esposito Vinzi, W. W. Chin, J. Henseler & H. Wang (Eds.), Handbook of partial least squares: Concepts, methods and applications (pp. 691-711). Heidelberg: Springer.
Crossref

 

Haenlein M, Kaplan AM (2004). A beginner's guide to partial least squares analysis. Understanding Stat. 3(4):283-297.
Crossref

 

Hair F, Hult T, Ringle C, Sarstedt M, Thiele KO (2017). Mirror, mirror on the wall: A comparative evaluation of composite-based structural equation modeling methods. J. Acad. Market. Sci.pp. 1-17.
Crossref

 

Hair JF (2011). Essentials of Business Research Methods. Armonk, New York: M.E. Sharpe.

 

Hair JF, Black WC, Babin BJ, Anderson RE, Tatham RL (2006). Multivariate data analysis (6th ed.). New Jersey: Pearson Prentice Hall.

 

Hair JF, Ringle CM, Sarstedt M (2011). PLS-SEM: Indeed a silver bullet. J. Market. Theory Pract. 19(2):139-151.
Crossref

 

Hair JF, Hult GTM, Ringle CM, Sarstedt M (2014). A Primer on Partial Least Squares Structural Equation Modeling (PLS-SEM). Los Angeles: SAGE Publications.

 

Hanlon M, Mills L, Slemrod J (2007). An empirical examination of corporate tax noncompliance. In: Auerbach, A., Hines, J., Slemrod, J., (Eds.) Taxing Corporate Income in the 21st Century. Cambridge University Press, New York.
Crossref

 

Hulland J (1999). Use of Partial Least Squares (PLS) in strategic management research: A review of four recent studies. Strat. Manage. J. 20(2):195-204.
Crossref

 

International Monetary Fund (2014). Policy Paper on Macroeconomic Developments in Low Income developing Countries. (Washington)

 

James S, Alley C (2000). Tax Compliance, Self-Assessment and Tax Administration. J. Financ. Manage. Public. Serv. 2(2):27-42.

 

Joreskog KG (1973). A General Method for Estimating a Linear Structural Equation System. In A. S. Goldberger & O. D. Duncan (Eds.), Structural Equation Models in the Social Sciences (pp. 85-122). New York: Academic Press.

 

Kaplan S, Newberry K, Reckers P (1997). The Effect of Moral Reasoning and Educational Communications on Tax Evasion Intentions. J. Am. Tax. Assoc. 19(2):38-54.

 

Kerlinger FN, Lee HB (2000). Foundations of Behavioral Research, 4th edn, Harcourt College Publishers, Orlando: FL.

 

Kirchler E (2007). The Economic Psychology of Tax Behaviour. Cambridge, UK: Cambridge University Press.
Crossref

 

Lignier P, Evans C, Tran-Nam B (2014). Tangled up in tape: The continuing tax compliance plight of the small and medium enterprise business sector', Australian Tax Forum, 29:217-247.

 

Mascagni G, Moore M, McCluskey R (2014). Tax Revenue Mobilization in Developing Countries: Issues and Challenges. Brussels: European Union, Directorate-General for External Policies of the Union, Directorate B, Policy Department.

 

McKerchar M (2010). Design and conduct of research in tax, law and accounting. Sydney: Thomson Reuters/Lawbook Co

 

McKerchar M (2003a). The impact of complexity upon tax compliance: A study of Australian personal taxpayers. Research Study No. 39. Sydney: Australian Tax Research Foundation.

 

Mohammed MB (2016). Import tax compliance: a study of customs agents in Malaysia utilising the theory of planned behaviour (Doctoral dissertation, University of Nottingham).

 

Organization for Economic Cooperation and Development (OECD) (2004). Compliance Risk Management: Managing and Improving Tax Compliance, Centre for Tax Policy and Administration.

 

Pallant J (2011). SPSS Survival Manual: A Step by Step Guide to Data Analysis Using SPSS Program. Crows Nest, NSW: Allen & Unwin.

 

Pope J (1993). The Compliance Costs of Taxation in Australia and Tax Simplification: The Issues Australian J. Manage. 18(1):69-90.
Crossref

 

Urbach N, Ahlemann F (2010). Structural equation modeling in information systems research using partial least squares. JITTA: J. Info. Technol. Theory Applic. 11(2):5.

 

Richardson MA, Sawyer A (2001). A Taxonomy of the Tax Compliance Literature: Further Findings, Problems and Prospects. Australian Tax Forum, 16(2):137-320.

 

Ringle CM, Sarstedt M, Straub DW (2012). Editor's comments: A critical look at the use of PLS-SEM in MIS Quarterly. MIS Quarterly, 36(1):3-14.

 

Sapiei NS, Kasipillai J, Eze UC (2014). Determinants of Tax Compliance Behaviour of Corporate Taxpayers in Malaysia', J. Tax Res. 12(2):383-409.

 

Schneider F (2011). Handbook on the Shadow Economy. Cheltenham, UK: Edward Elgar Publishing Limited.
Crossref

 

Schoonjans B, Van Cauwenberge P, Reekmans C, Simoens G (2011). A Survey of Tax Compliance Costs of Flemish SMEs: Magnitude and Determinants. Environ. Plan. C: Politics Space 29(4):605-621.
Crossref

 

Schwarz A, Schwarz C (2007). The Role of Latent Beliefs and Group Cohesion in Predicting Group Decision Support System Success. Small Group Res. 38(1):195-228.
Crossref

 

Slemrod J (2007). Cheating ourselves: The economics of tax evasion. The J. Econ. Perspect. 21(1):25.
Crossref

 

Slemrod J (2015). Tax Compliance and Enforcement: New Research and its Policy Implications. Working Draft. 

View

 

Smart M (2012). The Application of the Theory of Planned Behaviour and Structural Equation Modelling in tax compliance behaviour: A New Zealand Study. Doctor of Philosophy, University of Canterbury, Christchurch.

 

Straub D, Boudreau MC, Gefen D (2004). Validation Guidelines for IS Positivist Research. Communications of the Associations for Information Systems, 13(24):380-427.

 

Tan LM, Sawyer A (2003). A synopsis of taxpayer compliance studies- Overview visa-vis New Zealand. New Zealand Journal of Taxation Law and Policy 9(4):431-454.

 

Tenenhaus M, Esposito VV, Chatelin YM, Lauro C (2005). PLS path modeling, Computational Statistics and Data Analysis, 48:159-205.
Crossref

 

Tenenhaus M, Amato S, Esposito VV (2004). A global goodness-of-fit index for PLS structural equation modelling. In Proceedings of the XLII SIS Scientific Meeting, Vol. contributed Papers. Padova: CLEUP. pp. 739-742.

 

Trivedi VU, Shehata M, Mestelman S (2005). Attitudes, incentives and tax compliance. Can. Tax J. 52(1):29-61.

 

Yusof NAM, Ling LM, Wah YB (2014). Tax Non-Compliance Among SMCs in Malaysia: Tax Audit Evidence. Eur. J. Market. 15(2):215-234.

 


APA Abdul, F., & Wang’ombe, D. (2018). Tax costs and tax compliance behaviour in Kenya. Journal of Accounting and Taxation, 10(1), 1-18.
Chicago Farida Abdul and David Wang’ombe. "Tax costs and tax compliance behaviour in Kenya." Journal of Accounting and Taxation 10, no. 1 (2018): 1-18.
MLA Farida Abdul and David Wang’ombe. "Tax costs and tax compliance behaviour in Kenya." Journal of Accounting and Taxation 10.1 (2018): 1-18.
   
DOI https://doi.org/10.5897/JAT2017.0283
URL http://www.academicjournals.org/journal/JAT/article-abstract/7D3A7B555792

Subscription Form