effect of tax compliance on performance of small medium entreprises in nakuru town

Abstract

ABSTRACT This study seeks to establish the effect of tax compliance on performance of Small and Micro-Enterpri se (SMEs) in Nakuru Town. Specifically, the study established how the level of taxpayer education in tax compliance affects performance of SMEs in Nakuru town; assessed how the attitude of taxpayer toward tax compliance affects performance of SMEs in Nakuru town and established whether the problem solving ability of the taxpayer affect performance of SMEs in Nakuru town. Finally it examined the tax compliance determinant that affect SMEs taxpayer ' business performance. The Study adopted descriptive survey design as a strategy of carrying out the study where both primary and secondary data was collected using a questionnaire. The population was made of l, 7 50 SMEs in Nakuru town. The reason for selecting the Nakuru Town i its proximity to the researcher. The study used stratified sampling technique where firms were sampled in groups of five in every key sector. Every fifth firm in every cluster was elected and information gathered on the same firms. Of the 80 SMEs sampled only 60 properly filled the questionnaire. This represented response rate of 75% which was adequate representation of the sample population to make conclusions. Methods of data collection involved both primary and secondary data. Primary data was derived from questionnaires that were distributed to the sample population of the study. The data collected was then analyzed using descriptive statistics with aid of Statistical Packages for Social Scientist (SPSS) to generate frequency distributions and percentages to assist the researcher in answering the research questions. The output was then presented in form of tables. The results revealed that the effects of tax compliance on the performance of the SMEs is quite significance. The study further revealed that taxes mainly affect the performance of SMEs through lost sales during closure of the business premises by KRA, the loss of machinery and equipment due to delay in remitting the tax and the loss of capital due to the fines imposed by KRA. The findings of the study also showed that tax knowledge is essential in promoting tax compliance. Hence this study concluded that it is necessary for the taxpayer to acquire the tax knowledge to enable them to make right compliance decisions. The researcher recommends that SMEs in Nakuru Town should find a way of assesing the tax and pay it early in the financial year in order to give enough time to the businesses to pay their dues rather than make an assessment and demand for payment spontaneously. SMEs in Nakuru Town should also introduce a scheme that allows tax payers to pay the tax obligation in the installments over a given period of time as opposed to lump sum at once. The KRA should reach out and educate the business community about its different tax rates and mode of payment.