Issuance of Agency Notices and Tax Compliance of Small and Medium Enterprises in Nairobi County, Kenya

Abstract

This study's purpose was to investigate the influence of the issuance of agency notices on tax compliance of small and medium-sized enterprises (SMEs) in Nairobi County, Kenya. SMEs in Nairobi County made up the research's study population, which was based on the fiscal psychology theory. The study used a targeted sample of 399 managers and owners of SMEs in Nairobi County using a descriptive cross-sectional design in accordance with the positivist research philosophy. The data from the respondents was gathered using a standardized questionnaire with closed-ended questions. Using Statistical Package for Social Sciences (SPSS), descriptive and regression analysis were performed on the collected data. The study findings determined that issuance of agency notices had a positive and significant effect on tax compliance of SMEs in Nairobi County, Kenya (β= 0.543, t = 13.344, p < 0.05). This study concluded that issuance of agency notices was vital in enhancing tax compliance of SMEs. The study recommends to tax authorities in Kenya to take the option of collecting unpaid taxes directly from the SME’s bank when SMEs fail to comply within the negotiated period. Moreover, tax authorities should increase their tax debt recovery by increasing the usage and issuance of agency notices as soft enforcement measures, while enabling facilitation for enhanced tax compliance. This can be done by revamping the debt management organization (segmentation, centralization, digitalization, public sector partnership, and cooperation) and using call centres with functional customer relationship management (CRM). When equipped with a database with sufficient details about the debtors such as the telephone, mail, and physical addresses, CRM can fast-track the collection of the tax debt outstanding, especially from unreachable taxpayers.