The Effect of Trust on Value Added Tax Compliance Among Small and Medium Enterprises in Mathare Subcounty, Nairobi, Kenya

Abstract

Value Added Tax is a very important aspect in any country. Revenue collected from taxes enables a country to provide services for its citizens and also to develop its economy. However, Kenya does not collect as much revenue as it should. This study aimed to establish the effect of trust on value-added tax compliance among small and medium enterprises in Mathare Subcounty, Nairobi, Kenya. The theory that guided this study was the Theory of Planned Behavior. The study population was 4024 small and medium enterprises in Mathare Sub-County. The sample size of this study was calculated using the Yamane 1967 formula, which was 363 respondents. After collection and analysis of the responses, 280 respondents correctly filled and submitted their questionnaires, indicating a 77.1% response rate. The non-response rate of 22.9% can be attributed to matters including but not limited to disinterest in the questionnaire topic and lack of ample time to fill their questionnaire. Data was analyzed using descriptive and inferential statistics. The findings were presented in tables. The study revealed that trust has a significant and positive effect on value-added tax compliance (β = 0.468, p = 0.000). The study recommended that KRA should focus on initiatives that enhance taxpayer trust, such as providing clear communication, addressing taxpayer grievances promptly, and ensuring consistent enforcement of tax laws. Future research is the impact of economic conditions, such as inflation or economic instability, on VAT compliance.