African Tax and Customs Review

Effect of Digitalization Effectiveness on Turnover Tax Compliance among Textile Small and Medium Size Enterprises in Eastleigh, Nairobi County

Ahmed Mohamed Abdi — 2024-11-29

Tax is an important stream of revenue for any government’s development projects in both developed and developing economies. The main purpose of this study was to determine the effect of digitalization effectiveness on turnover tax compliance among small and medium size enterprises in Eastleigh, Nairobi County. The specific objectives that guided the research were: to study the relationship between technological ease of use and turnover tax compliance; to establish the relationship between technology usefulness and turnover tax compliance and to examine the relationship between system security mechanism and turnover tax compliance among small and medium size textile enterprises. This study was grounded on Technology Acceptance Model and Unified theory of Acceptance and use of Technology. Descriptive research design was applied in this study. The target population was textile enterprises operating in Eastleigh Avenue. Stratified sampling technique was utilized since the population itself was stratified in nature. Yamane's formula was used to determine the sample size of 243 textile SMEs. Data was collected using questionnaires and analyzed descriptively. To establish the relationship between study variables correlations and regression analyses were carried out. The study findings revealed that regression coefficient for technological ease of use, technology usefulness and system security mechanisms had (β = .098,.311 and .129) had positive and significant relationship with turnover tax compliance. The study concludes that technology facilitates compliance by reducing user effort and increasing openness to new technologies. It recommends that the Kenya Revenue Authority (KRA) ensure their digital systems are user-friendly, reliable, and effective. Enhancing the online system's ease of use, reliability, and functionality could improve the efficiency and convenience of tax filing, fostering a positive user experience and greater compliance.

The Effect of Service Quality on the adoption of KRA TIMS/eTIMS among Medium-Sized Enterprises Within Nairobi County

Irene Irungu — 2024-11-29

The Kenyan government, through the Kenya Revenue Authority (KRA), has introduced the Tax Invoice Management System (TIMS) and its electronic counterpart (eTIMS) as part of its strategy to modernize tax collection and reduce instances of tax evasion. While the systems have been hailed as essential for enhancing tax compliance, the rate of adoption among medium-sized enterprises (SMEs) within Nairobi County remains inconsistent. The purpose of the study was to determine the effect of Service Quality on the Adoption of KRA TIMS/eTIMS Among Medium-Sized Enterprises within Nairobi County. This study employed a descriptive survey research design to gather quantitative data, ensuring a comprehensive understanding of the research problem. The target population consisted of 468 VAT-registered, medium-sized enterprises in Nairobi’s wholesale and retail sector, selected for their significant compliance gaps in VAT reporting. From this population, a sample size of 150 enterprises was determined using Yamane’s formula and adjusted for time and cost constraints. Purposive sampling method was used to select participants, ensuring representative and reliable data. Data collection utilized questionnaires. For data analysis, descriptive statistics (mean and standard deviation) and inferential statistics were employed. A multiple regression model was used to explore the relationship between variables. Results were presented through tables highlight key findings and trends. The study found a significant effect of service quality on KRA TIMS/eTIMS adoption, with an R-value of 0.848 and R² of 0.719. The regression coefficient was 0.551, with a t-value of 1.898 and p-value of 0.000, confirming statistical significance. The study concluded that factors such as the helpfulness and knowledge of KRA employees, along with the convenience of KRA's operating hours, significantly influence businesses’ decisions to embrace the system. The study recommended that KRA should continue improving its service quality to enhance the adoption of the TIMS/eTIMS system among medium-sized businesses. Furthermore, the study suggested that KRA should enhance the visual appeal of its offices and ensure it delivers on promises, as these factors contribute to a positive service experience.

Determinants of Gender Wage Gap

Ronald Ondigi Machogu — 2024-11-29

Differences in wages based on gender remain a topical policy area in many countries. Since attaining political independence in 1963, Kenya has taken legislative, administrative, programmatic and policy measures to promote gender equality. Among the major efforts are enactment of the Employment Act 2007, which provide for equal pay for work of equal value performed by men and women, and non-discrimination on account of gender in all aspects of remuneration and employment. The Constitution of Kenya (2010) also guarantees equality of opportunity and elimination of discrimination such as gender-based bias in employment and remuneration. In an effort to advance gender equality, the government also formulated the National Policy on Gender and Development in 2000, and a revised National Gender and Development Policy in 2019 to provide policy and institutional framework for promoting gender equality in the country. Despite the policy, legal, regulatory and institutional interventions, gender-based bias in employment and remuneration persist. Kenya’s gender wage gap was 68 percent in 2020, implying that women earned KSh. 68 for every KSh. 100 earned by men for doing similar work. In 2014, women earned 64.7 per cent of men’s earnings, on average. This study sought to establish the determinants of gender wage gap in Kenya with a focus on Bungoma County. A cross-sectional research design was used, and data collected from 410 employees sampled from Bungoma County. The research employed multiple regression method in data analysis. The results reveal that, holding other variables constant, a male worker in Bungoma County earned KSh. 8,231.65 more than a female worker. The study also established that gender, education, age, marital status, work experience, religion and employer are important determinants of gender wage gap in Bungoma County. Given that the existing policy framework at national and county levels covers gender-based discrimination, increasing compliance with the policies would be necessary to bridge the wage gap. Additionally, short-term measures such as investing and promoting female education would contribute to reducing the wage gap

Recurrent Government Expenditure and its effect on Public investment in Kenya

Jane Mutheu Nzuma — 2024-11-29

This study analyzed how various components of recurrent public spending influence public investment in Kenya. Specifically, it measured the effects on public investment. Despite significant efforts to reduce recurrent expenditure, Kenya's public spending remains heavily dominated by operational costs, hindering its ability to achieve targeted investment levels. In the 2020/21 fiscal year, recurrent expenditure accounted for 81% of the total budget, while debt servicing and compensation of employees took up 14% and 18% respectively. This allocation of resources has limited the government's capacity to invest in critical areas for economic growth, as evidenced by the shortfall in investment compared to the Vision 2030 goals. The study relied on time series data extracted from the Economic Surveys, Kenya National Bureau of Statistics' various Statistical Abstracts, and the World Bank database covering the period from 1970 to 2022. Subsequently, a Bound test identified a long-run equilibrium relationships among the variables. Finally, an autoregressive-distributed lag (ARDL) model was utilized to analyze the causal relationships between recurrent public spending components and public investments. The results showed that the recurrent expenditure component on general public administration had significant negative effect on public investment in the short run but its first lag crowds in public investment in the long run. Recurrent expenditure on operation and maintenance costs was found to have positive effect on public investment both in short run and in long run. Lastly, the recurrent expenditure component on debt Servicing Charges was found to crowd in public investment.

Do regional economic disparities promote regional value chains?

Erastus Chokera Kainga — 2024-11-29

Regional economic disparities in developing countries impact growth of regional value chains to compete in the global markets. Regional economic disparities are the difference in economic capabilities between states in a region. The objective of this paper is to explore the impact of regional economic disparities (RED) on growth of food and beverage regional value chains (RVCs) in the East Africa Community (EAC) manufacturing sector. The paper employs the New Economic Geography (NEG) model in investigating the dynamics of promotion of regional value chains in EAC’s manufacturing sector. By making use of secondary data from five member states, the author surveys labour in the manufacturing sector, total income of labourers and executives, taxes, intra-regional and extra-regional trade in foods and beverages, and gross value added as the regional value chain determinant. To answer the research questions, regression analysis was used to shed light on (i) the effect of regional economic disparities on promotion of regional value chains in EAC and (ii) the effect of prices on regional value chains. The findings show disparities having a positive and significant effect on promotion of RVCs; price, intra and extra-regional trade, and executive salaries while labourers’ salaries and taxation have a negative and significant effect on the promotion of RVCs. Whenever EAC states imported from one another, it was noted that the GVA changed positively, similarly when trading with nations outside EAC. When employees in executive positions were well appreciated there was a positive effect on the GVA and a negative effect was observed whenever casual employees were paid more than average in their states as well as when taxes were increased. Future research work may look into Climate Changes, Export Controls and Politics as promoters of regional value chains as well as infrastructure, and technology. The results show need for labourers to acquire more skills necessary to remain relevant in the transforming manufacturing sector. Further, that technology absorption is crucial among producers and regional tax agreements are necessary in industry location decisions. Finally, wages were noted to determine production as the nations paying their workers more seemed to trade regionally more. The author therefore concludes that EAC member states need to increase intra-regional trade, apply some protectionist policies as well encourage increased budgets for education and building of institutions while also attracting foreign direct investments with tax reliefs.

Accessibility of Credit and Performance of Micro, Small and Medium Enterprises in Nandi County, Kenya

Delphine Jemutai Lagat — 2024-12-13

Micro, Small, and Medium Enterprises (MSMEs) are pivotal drivers of Kenya's macroeconomic objectives, playing a critical role in accelerating economic growth, generating substantial employment opportunities, and sustaining livelihoods across the nation. In response, the government has continually implemented robust policy interventions designed to create an enabling environment where MSMEs can thrive and contribute even more effectively to Kenya’s socio-economic development. Despite the numerous intervention initiatives, the performance of the MSME sector has been steadily declining. The persistent lack of operating funds remains a major obstacle, stifling business growth, innovation, and long-term sustainability. This study’s objective is to find out the determinants of accessing credit and its effects on the performance of MSMEs in Nandi County. The study uses primary data collected by interviewing 370 individuals who own MSMEs. The MSME owners were selected through a stratified sampling technique according to their type and a structured questionnaire administered. Descriptive statistics and probit regression model were used to investigate various determinants of accessing credit and to investigate the effects of credit accessibility on performance of MSMEs.The study found that gender, tertiary education, perception to credit and registration of business are significant determinants of credit access among MSMEs. Further findings indicate that gender, tertiary education, perception to credit, transport cost, size of the business and distance from the business premise significantly affects the performance of MSMEs.The study concludes that strengthening education and promoting gender equity are crucial to improving credit access for MSMEs, which in turn will significantly boost their performance and long-term success.