EFFECT OF ITAX PLATFORM ON KENYA REVENUE AUTHORITY’S ...
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EFFECT OF ITAX PLATFORM ON KENYA REVENUE AUTHORITY’S REVENUE COLLECTION TARGET AMONG LARGE TAXPAYERS BY ANNRITA WANJIRU NJENGA UNITED STATES INTERNATIONAL UNIVERSITY - AFRICA SPRING 2019
Transcript of EFFECT OF ITAX PLATFORM ON KENYA REVENUE AUTHORITY’S ...
EFFECT OF ITAX PLATFORM ON KENYA REVENUE
AUTHORITY’S REVENUE COLLECTION TARGET
AMONG LARGE TAXPAYERS
BY
ANNRITA WANJIRU NJENGA
UNITED STATES INTERNATIONAL UNIVERSITY -
AFRICA
SPRING 2019
EFFECT OF ITAX PLATFORM ON KENYA REVENUE
AUTHORITY’S REVENUE COLLECTION TARGET
AMONG LARGE TAXPAYERS
BY
ANNRITA WANJIRU NJENGA
A Research Project Report Submitted to the Chandaria School of
Business in Partial Fulfillment of the Requirements for the Degree of
Master in Business Administration (MBA)
UNITED STATES INTERNATIONAL UNIVERSITY -
AFRICA
SPRING 2019
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STUDENT’S DECLARATION
I, the undersigned, declare that this is my original work and has not been submitted to any
other college, institution or university other than the United States International University
in Nairobi for academic credit.
Signed: ________________________ Date: _____________________
Annrita Wanjiru Njenga (ID NO:630840)
This project has been presented for examination with my approval as the appointed
supervisor.
Signed: ________________________ Date: _____________________
Dr. Elizabeth Kalunda
Signed: _______________________ Date: ____________________
Dean, Chandaria School of Business
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COPYRIGHT
All rights reserved. No part of this report may be reproduced, stored in a retrieval system,
or transmitted in any form or by any means, electronic, mechanical, photocopying,
scanning, or otherwise, except as permitted by the author. Copyright © Annrita Wanjiru
Njenga 2019.
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ABSTRACT
The general objective of the study was to establish the effect of iTax plaform on revenue
collection among large taxpayers by Kenya Revenue Authority. The study was guided by
the following specific objectives; To establish the effect of certainty of iTax on revenue
collection, to assess the effect of convenience of iTax on revenue collection, and to
determine the effect of simplicity of iTax adoption on revenue collection by Kenya
Revenue Authority on Large Tax Payers.
The study adopted the use of descriptive research using a sampling approach. The total
target population was 94 employees working in the large taxpayers. The study used census
sampling technique to encompass all the 94 employees at KRA. The sample size for the
study comprised all the employees of Kenya Revenue Authority large taxpayer’s
department who are 94 employees. The study relied on primary data and collected via the
use of the questionnaires. The descriptive statistics was analyzed in form of the frequency,
percentages, mean, and standard deviation. The analysis of inferential statistics was based
on the coefficient of correlation, coefficient of determination for model of fitness, analysis
of variance (ANOVA) for model significance. The findings were presented in pie charts,
bar graphs, and frequency tables.
The results of the study on the manner of payment has a significant contribution to the
revenue collection and the authority specifies the quantity to be paid by firms for tax
collection. There exists a statistically significant positive relationship between certainty
and revenue collection. Secondly, the results of the study indicated that convenience of
iTax is achieved by taxing at source for payments made on time. There was a statistically
significant positive relationship between convenience and revenue collection. Thirdly, the
findings showed that KRA has support services where taxpayers have their tax issues
solved in a simplified manner. There was a significant positive relationship between
simplicity and revenue collection. The study revealed that a discovery of 80.7% of the
deviations of revenue collection is caused by certainty, convenience, and simplicity by
Kenya Revenue Authority.
The study concludes that that time of payment had an effect towards revenue collection.
There are clear time policies on the payment procedures in the iTax platform specified by
the authority. Secondly, the revenue authority has developed infrastructure that has made
the iTax platform very convenient during time of payment and that the use of iTax has
increased income received by KRA. Thirdly, the revenue authority has automated its
platform that is simple and has central point of management by KRA.
The study recommends that iTax systems should be upgraded so that to allow taxpayers
access services online more effectively and efficiently. Secondly, the iTax system should
be automated to be simple to use by the taxpayers for the revenue authority to collects more
income and they should have spread of payment in installments at different times within
the financial year. Thirdly, KRA should have a simplified iTax that is simple to both small
and large firms to allow them to have an ease in submitting and filing of tax returns. The
study recommends on further studies that the study should determine the effect of iTax
plaform on revenue collection on both small and large taxpayers by Kenya Revenue
Authority and the focus should be to the users of the iTax system.
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TABLE OF CONTENTS
STUDENT’S DECLARATION ....................................................................................... ii
COPYRIGHT ................................................................................................................... iii
ABSTRACT ....................................................................................................................... v
ACKNOWLEDGEMENT ................................................................................................ x
DEDICATION .................................................................................................................. xi
LIST OF TABLES ........................................................................................................... xii
LIST OF FIGURES ....................................................................................................... xiii
LIST OF ABRREVIATIONS AND ACROYNMS ...................................................... xiv
CHAPTER ONE ............................................................................................................... 1
1.0 INTRODUCTION....................................................................................................... 1
1.1 Background to the Study ............................................................................................... 1
1.2 Statement of the Problem .............................................................................................. 4
1.3 General Objective ......................................................................................................... 6
1.4 Specific Objectives ....................................................................................................... 7
1.5 Significance of the Study .............................................................................................. 7
1.6 Scope of the Study ........................................................................................................ 8
1.7 Definition of Terms ....................................................................................................... 8
1.8 Chapter Summary ......................................................................................................... 9
CHAPTER TWO ............................................................................................................. 11
2.0 LITERATURE REVIEW .......................................................................................... 11
2.1 Introduction ..................................................................................................................11
2.2 Effects of Certainty on Revenue Collection ................................................................11
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2.3 Effects of Convenience on Revenue Collection ......................................................... 16
2.4 Effects of Simplicity on Revenue Collection .............................................................. 20
2.5 Chapter Summary ....................................................................................................... 24
CHAPTER THREE ........................................................................................................ 26
3.0 RESEARCH METHODOLOGY ............................................................................ 26
3.1 Introduction ................................................................................................................. 26
3.2 Research Design.......................................................................................................... 26
3.3 Population and Sampling Design ................................................................................ 26
3.4 Data Collection Methods ............................................................................................ 28
3.5 Research Procedures ................................................................................................... 29
3.6 Data Analysis Methods ............................................................................................... 30
3.7 Chapter Summary ....................................................................................................... 31
CHAPTER FOUR ........................................................................................................... 32
4.0 RESULTS AND FINDINGS ..................................................................................... 32
4.1 Introduction ................................................................................................................. 32
4.2 General Information .................................................................................................... 32
4.3 Effects of Certainty on Revenue Collection ............................................................... 36
4.4 Effects of Convenience on Revenue Collection ......................................................... 39
4.5 Effects of Simplicity on Revenue Collection .............................................................. 41
4.6 Inferential Statistics .................................................................................................... 43
4.7 Chapter Summary ....................................................................................................... 46
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CHAPTER FIVE ............................................................................................................ 47
5.0 DISCUSSION, CONCUSIONS, AND RECOMMENDATIONS ......................... 47
5.1 Introduction ................................................................................................................. 47
5.2 Summary ..................................................................................................................... 47
5.3 Discussion ................................................................................................................... 49
5.4 Conclusions ................................................................................................................. 53
5.5 Recommendations ....................................................................................................... 54
REFERENCES ................................................................................................................ 56
APPENDICES ................................................................................................................. 63
APPENDIX I: INTRODUCTORY LETTER ............................................................... 63
APPENDIX II: QUESTIONNAIRE ............................................................................. 64
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ACKNOWLEDGEMENT
First and foremost, I thank the Almighty God for the gift of life, good health, wisdom,
knowledge and for enabling me reach this far. I thank my supervisor Dr. Elizabeth Kalunda
for her relentless guidance and supervision in the entire project. Special gratitude goes to
my dear mum Eunice W. Njenga for her moral support, and to my brother Dennis K Njenga
for the encouragement. I also thank my colleagues and friends from Kenya Revenue
Authority for taking time and filling the questionnaires.
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DEDICATION
This project is dedicated to my family for their moral support throughout my academic
journey. Their encouraging and inspiring words are such a fountain in my life.
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LIST OF TABLES
Table 3.1: Population Distributions .................................................................................. 27
Table 3.2: Sample Size Distribution ................................................................................. 28
Table 4.1: Time of Payment on Revenue Collection ........................................................ 37
Table 4.2: Effects of Manner of Payment on Revenue Collection .................................... 38
Table 4.3: Effects of Quantity to be Paid on Revenue Collection .................................... 39
Table 4.4: Effects of Convenient Time of Payment on Revenue Collection .................... 40
Table 4.5: Effects of Tax on income Received on Revenue Collection ............................ 41
Table 4.6: Effects of Non-Technicality of the System on Revenue Collection ................ 42
Table 4.7: Effects of Straight forwardness of Tax System on Revenue Collection .......... 43
Table 4.8: Multiple Correlation Analysis .......................................................................... 44
Table 4.9: Model Summary ............................................................................................... 44
Table 4.10: Analysis of Variance (ANOVA) ..................................................................... 45
Table 4.11: Regression Coefficients ................................................................................. 45
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LIST OF FIGURES
Figure 4.1: Response Rate ................................................................................................ 32
Figure 4.2: Gender of Employees ..................................................................................... 33
Figure 4.3: Age of Respondents ........................................................................................ 34
Figure 4.4: Position in the Organization ........................................................................... 34
Figure 4.5: Highest Education Attained ............................................................................ 35
Figure 4.6: Number of the years working in the Organization ......................................... 36
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LIST OF ABRREVIATIONS AND ACROYNMS
ANOVA Analysis of Variance
ETR Electronic Tax Register
GDP Gross Domestic Product
ICT Information and Communications Technology
ITMS Integrated Tax Management System
KRA Kenya Revenue Authority
PIN Personal Identification Number
SPSS Statistical Package for the Social Sciences
SEM Structural Equation Modelling
VAT Value Added Tax
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CHAPTER ONE
1.0 INTRODUCTION
1.1 Background to the Study
Technological advancement in system of revenue collection and administration continues
to rapidly transform on the association involved between the tax authorities and taxpayers
around the globe (Ernest & Young, 2016). Modern system of tax administration
incorporates an improved tax management, efficient and effective tax collection and an
accountable model that retrieve tax information of the users through the archival
technology. Sophisticated technology with electronic based archives isn’t only proving to
be useful and practical when it comes to revenue collection but also helping taxpayers to
fulfil their tax obligation in correct counts, timely filing and payment (Hardika, Sukayasa
& Yintayani, 2018). Evidently, Mwambia (2015) argues that innovation in revenue body is
a mandatory ingredient for a sustained success and growth making it an important factor
in the process of revenue collection. The Malaysian jurisdiction adopted electronic tax
system with the objective of cut time and cost involved by taxpayers when meeting their
tax obligations. The model faced lots of challenges and resistance from the users based on
the security and information confidentiality of the taxpayers. This was in tally with a report
by Awasthi and Engelschalk (2012) in analysis of taxation, business formalization and
revenue collection in Nigeria.
The prominence of electronic tax administration in Kenya and the rest of the world is being
driven by the adoption of information technology in all sectors of the economic
development and more so spearheaded by the youthful generation who are technology
savvy. The government of Kenya has widely encouraged her citizens to utilize electronic
participation components that heavily relies on information communication technology in
accessing public information and services (Owigar & Omwenga, 2016). The spiral effect
is evidenced in the tax authorities that are increasingly relying on the digital data from
taxpayers that is selectively collected, analyzed and assessed about the taxpayer’s bio data.
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Throughout its operation, Kenya Revenue Authority (KRA) has had a lot of transformation
in the revenue collection and administration reforms from the Electronic Tax Register
(ETR) in 2005, Integrated Tax Management System (ITMS) in 2007 and presently the iTax
system that was introduced in October 2011and is web based automated system for tax
administration (Kenya Revenue Authority, 2012). The adoption of the iTax system by the
KRA replaced manual filing of tax returns and since then the revenue collection has been
increasing over the last five years (Kipkemoi, 2015).
The e-filing system commonly termed as iTax stores all relevant debit and credit data of
individual accounts for accounting of tax revenues. Users have to register for personal
identification number (PIN) and obtain PIN certificate online so as to be able to apply for
compliance, file returns, adjust personal detail, apply for assessment, register for electronic
receipts and make payment online or via bank. The platform has entirely changed on the
way revenue is being administered and enabled revenue body to reach out in masses on tax
registration, assessment, collection, accounting, auditing, tax monitoring and reporting
(Nyaega, 2018). The platform has seen Kenya Revenue record unprecedented level of tax
collection over the last three years, the recorded revenue collected in the 2017/2018
financial year was Sh. 1.48 trillion. 2016/2017 KRA collected Sh 1.365 trillion compared
to Sh 1.210 trillion collected in 2015/2016 as reported by (Gatheru & Gitonga, 2018).
iTax is a web based and automated application that integrates KRA’s domestic tax
administration processes to offer secure electronic taxpayer registration, electronic filing,
electronic payment and back office functionalities to the revenue body (KRA, 2016). The
platform was launched in 2011 to replace an Integrated Tax Management System and
implemented by an Indian based firm Tata. The web-based platform seeks to enhance
revenue collection easier and very secure to all users. The integration of the system has
reduced staff and taxpayer interaction, reduced bribery claims and enhanced accountability.
Revenue collection is the backbone of any nation’s socio economic and political
development in that the taxes collected are used by the government to meet short term and
long-term development agenda. Initially, the Integrated Tax Management System that was
incepted in 2007 and was web based posted mixed reactions on ease of use, taxpayer’s
dissatisfaction as well as failed to automate taxation.
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The iTax system has various components centered around the identity of the taxpayers who
have a computer generated and very unique personal identification number (PIN). Every
taxpayer be it individual or an organization has to use the PIN when it comes to registration
of other tax obligations, assessment processing, account management, payment processing
among others. The main objective for the KRA enforcing on the use of iTax is on enhancing
service delivery in the process of revenue collection and administration, adhere to
accountability and integrity by eliminating unnecessary contact between the taxpayer and
the revenue authority personnel, minimize instances of tax avoidance and evasion by
leveraging on the electronic data of the taxpayer and matching on the transactions for third
party information. Previously presented by World Bank (2017) annual tax report
acknowledged KRA being able to extract quality and quantity organization information via
the use of integrated tax system. Phillip and Poirier (2011) supported the concept electronic
tax administration and emphasized that the use of iTax that is web based and online filing
of returns has been simplified hence miniature errors are noted as opposed to the manual
system.
Industry stakeholders and legislators are challenging the tax authorities to heavily invest
and embrace a modernized tax administration that is technology based, this shouldn’t be
seen as a threat to job loss but as a platform to have an efficient and effective revenue
collection model. The tax agencies should leverage on the electronic tax filing system to
achieve a greater tax administrative and compliance efficiency. KRA (2016) defined
revenue collection as the mandatory tax collections that are imposed on the citizenry. In
addition, Gwaro, Maina and Kwasira (2016) stated that revenue collection involves funds
received by any organization and attached to certain purposes. Revenue collection from the
citizens, non-citizens, profit oriented organizations and nonprofit may involve different
institutions and adopt electronic or manual based mechanisms. The categorical source of
revenue collection for KRA involves income tax, Value Added Tax (VAT) and customs.
Individuals and institutions that fail to comply in submitting their tax dues are subjected to
pay fines, penalties and interest. Taxation accounts to more than 95% source of revenue
collection for the Kenyan government used in the budget planning.
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Revenue collection is a relevant factor in fiscal policy and forms the largest share of
government expenditure in Kenya. The government of Kenya gave the Kenya Revenue
Authority the sole mandate to collect revenue on their behalf and thus over time it has
brought about changes in the mode of tax collection and administration. Through the
adoption of iTax system, revenue collection has been on the rise.
Gatheru and Gitonga (2018) studied the effect of strategic management practices and
revenue collection and noted that the adoption of web based online transaction platforms
has seen the Kenya Revenue Authority register an imminent growth in the level of revenue
collection. The study further presented the amount of the revenue recorded in the last three
financial years consecutively. KRA collected Ksh. 1.210 trillion in the 2015/2016 financial
year, Ksh. 1.365 trillion was collected in the 2016/2017 financial year and Ksh. 1.48 trillion
in the 2017/2018 financial year.
1.2 Statement of the Problem
Automation of revenue collection is one of the main strategic pillars of achieving economic
development by meeting budgeted expenditure and matching the expectations of the
taxpayers. The iTax system was introduced in Kenya with the aim of bringing efficiency,
increasing tax revenue collection and eliminating direct contact between taxpayers and
revenue authority staffs hence reducing corruption loopholes. The web enable system if
implemented very well is deemed to adequately benefit taxpayers and increase revenue
collection by reducing on the filing workload and operational costs. The taxpayers are able
to utilize the services of filing in a convenient way and register tax payments at the comfort
of their homes and offices (KRA, 2016). The impact of iTax in Kenya isn’t well known
hence bringing out its relevance in today’s business environment.
Several studies on iTax and revenue collection have been presented in the global context,
regionally and locally. Fan, Qian and Wen (2017) studied the short and medium run effects
of computerized VAT invoices on tax revenues in China, the study result indicated an
increase in tax revenues to the government as a result of VAT invoices computerization and
recommended electronic systematization of business transactions. Lee (2016) researched
on electronic tax invoicing and compliance of Republic of Korea’s. this was as a result of
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mandatory electronic tax invoicing by the government to curb tax evasion and bring
transparency. The study findings indicated that 72.9% agreed that electronic invoicing has
improved taxpayer service by providing convenience of tax filing and automation of
issuance invoices. The study recommended that automation of business transactions
materially facilitates tax compliance, increases revenue collection and brings positive
perception on tax administration. Expounding on the concept of enabling environment for
a more transparent and better resources local government in Philippines E-taxation system
noted by (Canares, 2016). The study assessed 15 municipalities using e-taxation, the study
analysis showed that use of ICT can make possible more transparent and accountable
revenue generation systems that benefit government and taxpayers. The study
recommended that ICT can be adopted, scaled and used by sub-national government to
attain better governance on certainty, convenience and simplicity.
A study by Noronaa (2016) on automation of tax collection by Ghana Revenue Authority
involving 20 officials. The study findings indicated on interview of staff of GRA‟s
experiences with automation, indicated an efficient and effective means of tax
administration. The evidence suggests a positive effect of automation system usage and the
cost of tax administration, and effective means of revenue collection. Additionally,
automation was significantly related with tax clearance time. The research makes
significant empirical contribution to analyzing tax automation and administration cost,
time efficiency and effectiveness of revenue collection. The research recommended on a
strong emphasis to have automation in revenue administration. Olaoye and Kehinde (2017)
analyzed the impact of Information Communication Technology on tax administration in
South West Nigeria. The study result indicated that online tax filing, online tax registration
and online tax remittance had a positive correlation to tax productivity. The study
concluded that information technology enhances the level of tax productivity and
administration. It is therefore recommended that the respective agencies (federal, state and
local government) responsible for tax collection should carry out one on one awareness in
the form of seminars and sensitization of the process and suitability of information
technology on tax administration. The study recommended that respective tax agencies
should promote awareness and sensitize citizens on suitability of information technology
on tax.
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In Kenya, a study conducted by Nyaegah (2018) on influence of itax project on tax return
compliance by taxpayers in Nakuru Central Business District. The study sampled 50
individual taxpayers and the results indicated that 76% attributed use of itax as being
convenient and easy to file their returns and recommended on the use of itax as a model of
meeting tax obligation on time. Gitaru (2017) assessed the impact of system automation on
revenue collection in Kenya Revenue Authority with a case study of Simba system. The
study used KRA customs data for a period of ten years after integrating Simba system and
showed a tremendous increase in the number of transactions and revenue collection after
automation, they recommended that ICT department must ensure effective project
coordination and change management for successful implementation of automated system.
Muchiri (2015) evaluated information technology risk management as a strategic enabler
in tax revenue administration. The study sampled 44 KRA management officials. The study
findings showed that most of the respondents identified IT risk and acknowledged on
improved performance through robust corporate planning, quality service delivery to
taxpayers and consumers and achieving organization goals through automation. The study
recommended for additional tailored system for harmonization, identification and
classification of risk documentation in the due course of their work. However, the above
presented studies have concentrated on different aspects of tax automation hence their
findings cannot be generalized.
Moreover, little has been done on establishing the effect of iTax on revenue collection
among large taxpayers by Kenya Revenue Authority. Thus, this research intends to fill the
gap by assessing the effect of certainty under iTax on revenue collection by Kenya Revenue
Authority on Large Tax Payers, assessing the effect of convenience under iTax on revenue
collection by Kenya Revenue Authority on Large Tax Payers and determining the effect of
simplicity under iTax adoption on revenue collection by Kenya Revenue Authority on
Large Tax Payers.
1.3 General Objective
The general objective of the study was to establish the effect of iTax plaform on revenue
collection target among large taxpayers by Kenya Revenue Authority.
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1.4 Specific Objectives
The specific objectives were as follows;
1.4.1 To establish the effect of certainty of iTax on revenue collection by Kenya Revenue
Authority on large taxpayers.
1.4.2 To assess the effect of convenience of iTax on revenue collection by Kenya
Revenue Authority on large taxpayers.
1.4.3 To determine the effect of simplicity of iTax adoption on revenue collection by
Kenya Revenue Authority on large taxpayers.
1.5 Significance of the Study
1.5.1 Government
The study findings and recommendations are of value to the Kenyan government on
explaining the effect of iTax on revenue collection among large taxpayers by Kenya
Revenue Authority. Hence, the government will use the study result in policy formulation
and implementation. The study will also pinpoint on the strengths and weaknesses related
to iTax system and possible solutions to the challenges for efficient and effective tax
administration to all parties.
1.5.2 Researchers and Scholars
The study is of value to the students, scholars and researchers interested in adding value to
the existing body of knowledge on technology and revenue collection. The study analysis
on the aspects of iTax and revenue collection may be further exemplified in a thematic
concept by inferring to the past studies.
1.5.3 Large Taxpayers
The cause and effect of iTax and revenue collection among large taxpayers by Kenya
Revenue Authority will provide a detailed summary of the empirical analysis on the study
variables and present innovative ideas that can be adopted to streamline revenue
administration and collection in an effective manner.
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1.6 Scope of the Study
The study aimed at analyzing the effect of iTax on revenue collection target among large
taxpayers by Kenya Revenue Authority. The study target population consisted of the 94
employees at Kenya Revenue Authority large taxpayer’s department who were given the
questionnaires and provided feedback. The study was conducted at KRA Thika branch. The
study targeted 94 both senior and junior officers of KRA. The study relied on data
collection using questionnaires that were distributed to the employees. The study was
conducted for from February to April 2019. The limitation of the study was getting
employees who had busy schedules who did not give information and hard to reach. This
was mitigated where they were given enough time to fill in the questionnaire.
1.7 Definition of Terms
1.7.1 iTax
This is an integrated wed based and automated application that integrates KRA’s domestic
tax administration processes to offer secure electronic taxpayer registration, electronic
filing, electronic payment and back office functionalities to the revenue body (KRA, 2016).
1.7.2 Information Communication Technology
These involves integration of computing platform that allows for the communication of
information among the devices, people and institutions (Albino & Berardi, 2015).
1.7.3 Tax compliance
This is the degree to which the taxpayer complies or fails to comply with the tax rules of
her country, it may broadly involve declaring income, filing return and paying tax due in a
specified time (Mandola, 2017).
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1.7.4 Evasion
Illegal arrangements where the liability of tax due is ignored or hidden, the taxpayers may
pay les tax than legally obliged to pay or falsify income information to tax authorities
(Kiow, 2017).
1.7.5 Financial performance
This represents the overall wellness of a firm to use its assets and generate revenue over a
specified time (Saeidi & Sofian, 2015).
1.7.6 Certainty
This represents clear specifications on the tax time of payment, manner of payment and
amount to be clear to every taxpayer and not arbitrary (Hedau, 2018).
1.7.7 Convenience
This means that taxes should be imposed in a manner and time which is most convenient
for the taxpayer (Hedau, 2018).
1.7.8 Simplicity
Tax should not be complicated, it should be simple to every taxpayer to understand without
the help of any expert so as to safeguard the taxpayer against exploitation from tax
authorities and experts (Nasser, Selman & Nagesh, 2014).
1.7.9 Revenue
Collection funds received by any organization and attached to certain purposes (Gwaro,
Maina & Kwasira, 2016).
1.8 Chapter Summary
The first chapter of the research proposal expounds on the introduction and background
information to the study at hand by providing a general overview of the effect of iTax on
revenue collection among large taxpayers by Kenya Revenue Authority. Research problem
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is to link the study with the previous researchers and establish its unique research gap for
the current study. Specific objectives are introduced to stamp on the general objective of
the study and illustrate its association to the dependent variable and the significance of the
study. Chapter two presented on the literature review that was; empirical review of the
reflective objectives and chapter summary. Chapter three captured on the methodology,
chapter four revolved around data analysis and presentation while chapter five presented
on the study summary, conclusions and recommendations.
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CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 Introduction
The chapter begins with an introduction to the study relevant literature reviews on the
general and specific research objectives. The chapter will expound on the study variables
by an in-depth analysis on certainty, convenience and simplicity as a factor that influences
on the revenue collection by Kenya Revenue Authority on Large Taxpayers.
2.2 Effects of Certainty on Revenue Collection
2.2.1 Time of Payment
Tax authorities highlights policies regarding the type of tax and recommended time of
payment to bring in efficiency in tax commitment by taxpayers. It is expected that all
taxpayers must be aware of when to pay tax, where to pay and how much to be paid so as
to establish a clear information on the certainty of tax liability beforehand. This is relevant
in the understanding of any amount that is due at specific time and can be well established
and be of help to the taxpayers and tax administrators by establishing any trouble that
would arise in case of uncertainty in revenue collection (Ordonez, 2014).
Farrell (2016) conducted a study to examine the concept of certainty of tax based on the
time perspective of the tax administrators in Australia by inferring from past mistakes as a
lesson for future actions on time of payment. The study findings indicated how late filling
and payment of tax brought challenging issues to the parties involved in revenue collection
by demonstrating a robust stewardship of tax certainty and account for tax collection that
commensurate with the ongoing economic activity. The study further recommended that
there is need to have clear policy on tax payment time to captures on the season that should
not be taken away by any activities such as political conundrum that becomes an excuse in
revenue collection and goes against the canon of certainty. Clear understanding of timeline
activities will be relevant not only in driving better tax reporting period and consistency
but also as a factor that shapes on the strategy implementation for future tax system to be
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in place. In addition, Farrell (2016) insisted on making clear time policies through the
reference of other administrations and forecasting on tax laws to deal with tax risks within
a certain period of time.
A study conducted by Maiga (2015) examined the relationship between the collection of
taxes and revenue targets generated by each of the Financial Services at the Directorate
General Taxes of the Republic of Mali. Revenues generated by the Directorate General of
Taxes contributed a big chunk of funds to the Malian Treasury, about 40%, with our focus
being on the year 2012. After economic modeling and estimation, there was a positive
correlation between the collection of taxes and revenues generated by financial services of
the Directorate General of Taxes of Mali. The estimate of revenue growth model of
Directorate General of Taxes shows that it is influenced by changes in the collection of
taxes. There was a positive correlation between tax collection changes and the revenues
generated. The estimates of the revenue growth model of Directorate General of Taxes in
Mali show that it’s influenced by changes in the collections of taxes. The recommendations
showed that directorate can pursue the quest for efficiency through local communication
and explain and educate our economic and administrative partners about the real issues of
the taxes. This would help to offer the best quality of service to users, assess the potential
of different localities and give effective support to the Ministry of Economy and Finance
and financial and educational support of partners.
Nyaga, Omwenga, Murugi and Wairimu (2015) conducted a study on the factors
influencing tax revenue at Kenya Revenue Authority Meru branch. The study analyzed
factors that influence Tax Revenue growth. The scope of the study was Kenya Revenue
Authority Meru Station where total of 32 employees were interviewed in the office. Data
was collected using Questionnaires which were both closed ended and open ended, where
descriptive statistics were utilized to organize and describe the data while excel computer
package was used to present the analysis in tables, pie charts and bar graphs. The findings
showed that introduction of Integrated Tax Management Systems (ITMS) has been able to
give a single view of a taxpayer for all the tax obligations as well as registration process.
The study recommended that government should employ more staff as a way of improving
service delivery system. Promotion of the existing staff should also be done on merit
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through performance contracts and staff appraisals. Secondly, ICT Networks should be
improved to allow Taxpayers access services online more effectively and efficiently. ITMS
on the other hand should be upgraded to improve both Taxpayers’ registration as well as
tax filing process.
Vochozka, Rowland and Vrbka (2016) conducted a study on the financial analysis of an
average transport entity in Czech Republic and realized revenue. The study used database
of transport companies’ financial statements from the year 2010 to 2014. The assessment
of the liquidity ratios indicated that the system was very effective, certain and the revenue
body had little followed up on revenue collection from the sector. The study concluded that
the government must have all round supportive mechanism to the challenges facing the
transport sector to help capitalize on revenue collection given that the sector was financially
healthy and promising.
Luttmer and Singhal (2014) examined tax morale and its spill effect on tax administration
and tax compliance over a period of time in India. The assessment varied from recession,
boom and stagnation. The study findings concluded that tax morale does indeed appear to
be an important component of revenue collection and the tax administrators must design a
support system to enhance more tax payment during boom spread as opposed to recession.
In addition, the study noted that the best time to enhance revenue collection and
administration is within boom seasons.
Ngotho and Kerongo, (2014) conducted a study on the determinants of revenue collection
in Kenya. The study employed a case study research design since only one institution was
involved in the study. Data analysis was carried out using descriptive statistics. The
findings showed that compliance levels and tax rates were factors that mainly affected
revenue collection from an administrative perspective. Inflation and foreign direct
investment influenced revenue collection though to some extent were beyond
administrative control due to varying market forces. The study recommended that the
government should initiate tax compliance campaigns to sensitize citizens on the
importance of tax to the life and self-sustenance of a nation.
14
2.2.2 Manner of Payment
Khan, Khwaja and Olken (2015) conducted a study on the tax farming redux and its effect
on performance pay for tax collectors in Pakistan established that the performance pay for
tax administrators has a greater potential in revenue generation although it comes with its
fair share. The practice in Pakistan involved 482 property tax units that were allocated into
a three performance pay schemes. Two years down the line it was evidenced that the
incentivized scheme had a higher revenue collection than the other non-incentivized. The
study concluded that setting performance payment in a well-defined approach will have a
positive correlation to tax collection. The findings also indicated that some specific manner
of payment affects collection of revenue and that KRA secure payment of any tax due
require a firm to furnish a security in such manner that the authority prescribes. Thus, the
government and revenue body should come up a simple platform to enable taxpayers to
make payment on tax liability due in a very effective and at the comfort of their time. Given
that the growth and development of an economy is attached to many internal and external
factors, key among them is the capacity for the taxpayers to adhere to tax policies and
comply when it comes to payment.
Kanu (2016), conducted a study on the impact of treasury single account on the liquidity
as an example of streamlining manner of payment to the involved parties in Nigeria. The
study was applied to public institution including the revenue body and the desired impact
on the liquidity base and firm performance. The study employed the use of Chi-square as
a statistical tool for analysis of the data. The results obtained confirmed that the
implementation of Treasury Single Account in the public accounting system impacted
negatively on the liquidity base and the performance of banking sector in Nigeria. The
study recommends that government should come up with an arrangement to address the
issue of TSA considering the impact of the activities as the important factor for efficient
management, control of government's cash resources as well as sustainability of banks.
According to Afuberoh and Emmanuel (2014), examined the impact of taxation on revenue
generation in Nigeria, with reference to FCT and some selected states in the country. The
study adopted the use of primary sources of data to present and analyze the information for
the study. The testing of the hypotheses of the study was done using regression analysis
15
computed with the aid of SPSS version 17.0. The research discovered among others that,
taxation has a significant contribution to revenue generation and taxation has a significant
contribution on Gross Domestic Product (GDP). The firms are required to submit a tax
return in the approved form in the manner prescribed by the authority. The research
recommended that well-equipped data base on all tax payers should be established by the
federal, state and local governments with the aim of identifying all possible sources of
income of tax payers for tax purpose, should urgently fully modernize and automate all its
tax system, improve tax payers’ convenience in the assessment and payment process whilst
at the same time entrenching effective and modern human resources management practice
in the tax authorities.
2.2.3 Quantity to be Paid
Quantity to be paid involves determining the right amount of tax due that relates to specific
identifiable taxable income (Marjit, Seidel & Thum, 2017). According to Marjit el al.,
(2017), observed that there exist tax loopholes, tax evasion and corruption that negatively
impacts on the revenue collection to most countries especially in German. Individual and
firms more so those associate with the ruling class are defying tax policies and procedures
including basic violation of the exact quantity of tax to be paid. This happens through the
coordination with tax administrative personnel, deliberate underestimation or
overestimation of certain transactions and presenting compromised information in the
system. This makes firms to exploit on borderline cases and mechanisms to assist
government and revenue body to have independent body of inquiry to help seal tax codes
relating to illegal tax evasion and tax avoidance.
Feldman and Ruffle (2015) conducted a study on the impact of including, summing and
subtracting a tax on demand. This was determined through a series of tests on the
equivalence of tax inclusion, tax rebate and tax exclusion as being a key subject of the tax.
Individuals and businesses budgets on the series of transactions by determining on quantity
to keep and how much to spend on various products. The result findings indicated that the
subjects spend a significantly more amount in a tax exclusive prices contrary, there is a
decline on amount spend under tax inclusive and rebate prices. Thus, the asymmetrical
response to the tax liabilities involving giving a correct quantity to pay is significantly
16
influenced and the tax administrators and taxpayers can have a genuine report that captures
on the product, amount and tax incurred descriptions through the itax system.
2.3 Effects of Convenience on Revenue Collection
2.3.1 Convenient Time of Payment
Taxes imposed by the government through the revenue body are aimed on addressing to all
taxpayers being levied in a way that accords maximum ambience of ease or convenience
(McCluskey & Franzsen, 2017). Tax convenience can be appropriately established by
taxing at source. Employment income tax that is Pay as You Earn (PAYE) is always
deducted upon compensation and the taxpayers earn net salary that is less of the tax charged
on the specified income and this ensures convenience of time.
McCluskey and Franzsen, (2017) conducted a study on reviewing land value taxation in
Italy. They presented a broad spectrum on the relevance of taxes in achieving socio-
economic leverage and non-fiscal goals. The study extended on better care being provided
in time of payment to make it well administrable as a principle of good tax. The study
indicated that land is a key component that constitutes a factor of production with no cost
of production and is fixed in supply. The research findings showed that the demand and
supply of land varies based on the locations and activities that heavily dictates its value.
Land as a fixed asset keeps on appreciating in value, it attracts rent which constitutes a
transfer or opportunity cost and the amount attributable to scarcity of supply in use in a
particular location. The landowners must pay the accrued rates to the revenue body as a
recognition of income earned at the time of gaining rent. The study indicated that income
earned is established and accounted for by the taxpayers through the computation of which
the share of the tax at the hand must be submitted to the revenue body without delay or the
money gets into other alternative uses. The same concept of enhancing tax collection
through the consideration of convenience is exemplified under withholding income that
attracts a rate of five percent on professional, management or training services that is
deducted when earned by the taxpayers. Taxpayers indicated that they prefer having their
tax due imposed immediately to enables the revenue collection body to have a smooth
operation and minimizes on the chances of nonpayment. Convenience timing is very
17
significant and makes the taxpayer to also account on their tax liability when accrued and
settling without delay.
Yesegat, Coolidge and Corthay (2017) conducted a study on tax compliance cost in
developing nations with evidence from Ethiopia. The article expounded on the estimates
in meeting tax compliance by sampling 1,003 businesses operating in Ethiopia. The study
findings indicated that the total tax compliance for the financial year of 2012 to 2013 were
estimated to be about 4.5% of revenue collection. The study further indicated that tax
compliance costs were evidenced to be regressive posing a higher burden to small and
medium businesses than those in Kenya. The key constituents of taxes including value
added tax (VAT), corporate tax and turnover tax formed the largest proportion of tax
compliance costs. The study recommended of having a tax automation system to make
Ethiopian income tax convenient to the taxpayers through the spread of payment in
installments as an advance of payment at different time duration within the financial year.
Bangladesh is making progressive strides towards tax automation and use of modern
technologies in the measurement and recognition of income tax. This is closely related to
the itax management system in facilitation of revenue collection through the support of tax
professionals at different period (Chowdhury 2015). Chowdhury (2015) analyzed tax
paying behavior of Bangladeshis in convergence with the principles of taxation. The study
evaluated 18 diverse professional groups with 600 participants who are civilized in the
society and expected to make a fair share of tax imposed to them. They presented on the
concept of tax convenience by emphasizing the comfort to be accorded towards tax paying
time. The study findings indicated that tax fairness and tax convenience were
simultaneously attached as the main discourse to the learned in the society from an early
on period. Professionals prefer to pay tax by themselves and will opt for supportive system
that facilitates the process with little interventions. Chowdhury (2015) posts that the most
indicator to Bangladeshi knowledge society is on how to pay income tax, having a
simplified tax paying process and supportive taxation officials who are highly skilled,
proficient and practical in relation to making it convenience at a time of paying taxes.
18
According to Iwin and Garzynska (2014), noted that taxes should be collected in a period
whereby the taxpayer is able to pay it without creation of a distortion in one’s marginal
propensity to spend. They conducted a study titled on common consolidated corporate tax
base versus canons of taxation exemplifies on the accomplishes of the European Union law
to scrap barriers to the proper functioning of domestic market and improve business
competitiveness in a convenience business environment. This came in place after a long
period of assessment on the scope and applicability of tax base by removing key obstacles
to the operational of internal market and call for tax harmonization. The priority was given
to the European Union member states who have a common trading currency with special
conditionality’s on tariffs charged to each member states through the formulation of fiscal
law provisions to merit on convenience taxation canon.
Coetzee and Meiring (2016) conducted a study on value added tax of imported electronic
services via a critical evaluation of the newly enacted South African legislation on VAT.
The law requires that all vendors of digital and mobile accessories from foreign and
domestic market are required to be registered and their details captured in an integrated tax
management system. The approach was meant to shift value added tax liability from the
importer to the foreign suppliers. The move was lauded by the local vendors given that
there was sole excise of tax convenience from all involved parties in the same line of
business and the tax. In addition, it created taxpayers’ interpretation of being satisfactory
with the services while filling tax returns.
2.3.2 Tax on Income Received
Yesegat and Joseph (2017) conducted a stud on the implications of VAT withholding on
revenue collection and refunds in Kenya. The study commenced by presenting challenges
on the limited fiscal capacity that acts as a key barrier to economic growth and development
of less developed countries. Kenya Revenue Authority has implemented value added tax
(VAT) withholding system with key designated parties including big retail outlets on
payments for suppliers. The move was aimed at mitigating the impact of tax evasion, taxing
on income received at the source and increasing revenue collection and refunds. The study
also expounded on VAT withholding system being used by the KRA and the implications
for revenue generation to meet its obliged role. Data was collected from an interview
19
conducted to over 500 large, medium and small businesses. Entities registered for
withholding tax were also included in the analysis. The data from the interview were
supplemented by secondary data and documentations obtained from government agencies.
The findings indicated that in the overall, there was an increase in the amount of revenue
collection. Contrary, the study findings indicated that VAT withholding system related to
refund requests are increasing and imposing a great fiscal burden on the tax administration
and business cash flows. The study recommends that the revenue body must ensure there
is a thorough scrutiny on the operations of the tax withholding schemes with key measures
of increasing the threshold of registration. Information exchange among the involved
parties was also lauded as key measures of enhancing revenue collection from list of
suppliers.
Moor and Prichard (2017) conducted a study to establish how low-income countries in
Africa collect more tax revenue. The study highlighted key mechanisms to support on the
increase in revenue collection in Kenya and the rest of developing nation that is a puzzle
full of formulation and little success on implementation. The study findings noted that lack
of basic support to small businesses, unregulated credit market, poor infrastructure
development and revenue administration extension services to the rural communities is
inexistence. The response showed that the government of the day still has a long way to go
in aiming to increase the proportion of Gross Domestic Product to raise tax revenue. This
is related to the risks when emphasizing on the anticipated increase in revenue collection
at the expense of ordinary tax payers. This raised the concerns of the stakeholders on
taxation policy that goes against the canon of convenience and the income received that
isn’t adequate to sustains business operations. The big question arises when the government
fails to develop infrastructure, becomes reluctant to fight corruption and minimal
intervention in skill and knowledge transfer were biggest cons in the study findings.
According to Maina (2017), conducted a study on the effect of consumption taxes, poverty
and income inequality in Kenya. The study indicated that consumption tax contributes
significantly to the revenue collection with 39% of total tax revenues realized in 2015.
Throughout, there has been progressive reforms in the administration of consumption
taxes. This has been coupled with global agenda of giving top priority to poverty
20
eradication and promoting convenience on the amount of tax paid among tax brackets.
Consumption tax was found to influence income distribution making it viable agent in
poverty reduction and equitable income distribution (Tanui, 2016). Thus, consumption
taxes are regressive and positively related to Gross Domestic Product per capita. The study
recommendations were based on adopting a convenience model of tax with differentiated
rates targeting all social cadres in the society, lowering rates of basic commodities that the
less privileged in the society spend lots of their income compared to the rich and proper
accountability to the revenue collected by the government institutions and revenue body to
ensure there is efficiency in service provisions and redistribution of wealth.
2.4 Effects of Simplicity on Revenue Collection
2.4.1 Non-Technicality of the System
A tax system should be simple in nature and process such a taxpayer may not need a
technical expert to interpret it for them. The canon of simplicity is thus intended to protect
taxpayers from undue exploitation by the tax authority, tax accountants, tax lawyers and
tax consultants or other peoples who deal with tax issues given the prior knowledge and
information they may possess on matters to do with taxation (Manaye & Alemu, 2018).
Having a simplified process of making returns whereby the taxpayers from diverse cultural
background with different level of educational experience are not sidelined in the process
of revenue collection. Matters to do with the tax system and the simplicity has been a
nightmare to many taxpayers in the process of compiling and filling for their tax obligation.
Thus, the guide on the way of how to initiate, make, recognize, report and file returns must
be very simplified to allow taxpayer to have an ease in submitting of their taxes.
International Monetary Fund (2013) outlined complete automation of revenue collection
platform that is simple and the one with the central point of management as a strategy of
revenue collection. This helps to bring majority of the income earners who are
commercially engaged in economic activity that is income generating to have a simplified
avenue through the use of an online tax filling platform that is flexible and user friendly.
21
Onyegbule and Indies (2016) pointed out that lack of information and public awareness on
the available support services that are free, and the taxpayers can make use of such avenues
and have their tax issue solved in a simplified manner. It proves to be costly for those who
have trying to use the itax system in vain and have to rely on the support from third parties
for the assistance, such challenges make those who are economically involved in factors of
production to have negative perception on the tax system. The influence of working or
trying to use the tax system that is to technical poses a threat to the revenue collection body
in meeting their revenue collection goals (Onyegbule & Indies, 2016).
Information of the taxpayer on what they are supposed to have in the self-assessment tax
system is very relevant (Jalan & Vaidyanathan, 2017). The system has to capture on the
basic information that directly reflects on the activities of the taxpayers in a language they
best understand. The tax authority has the obligation to make simple and clearly elaborated
system with adequate information published on it. This will help in addressing some of the
challenges experienced by taxpayers when they attempt to make file of their returns in an
efficient manner (Jalan & Vaidyanathan, 2017). Even though Kenya has made steps in
having itax system, still more needs to be done in educating taxpayers on its use and
simplifying registration to payment process to the users. The platform needs to address
real-time challenges facing ordinary Kenyans when filling their returns or using the itax
platform to make other applications.
Serem, Robert and Philip (2017) pointed that tax authority are doing their level best on
having online supported tax filling process to enhance tax compliance. Further, they
outlined that their relevance in having a simpler tax return system from the taxpayers’ point
of view. This is based on the assumption that tax authority may assume the process to be
very simple and easy to compute as opposed to the taxpayers’ experience that seems to be
technical to breakdown and digest in their own language. The taxpayers must have an
absolute say and their involvement in designing is relevant, pilot study needs to be
conducted by the revenue body on different parts of the republic to ascertain on the
simplicity of the itax among some of randomly selected individuals, small and medium
scale owners and managers of large scale corporations from all corners of the country
(Walsh, 2012). In United Kingdom, evidence indicates that uncomplicated tax returns play
22
a major critical role in promoting tax compliance even though tax knowledge and
simplicity of tax returns yields a mixed effect of tax compliance. Taxpayers with little tax
knowledge using a simple tax filling process accurately provide tax returns than those who
are professional (Palil, 2012).
Consistency in the process of tax filling must be maintained throughout the year in previous
and current tax returns, this helps to encourage and give confidence to the taxpayers to file
their taxes due in appropriate time with little or no support from tax consultants that may
bring fear and complications in the process. The itax system isn’t that complex and has
been hailed for reducing unnecessary contacts between the revenue authority and taxpayers
as well as other tax expert parties that were previously involved in the process that was
manual, tiresome and exploitative. This barred lots of taxpayers from seeking genuine
support from the revenue body on matters relating to tax process and reporting of tax
income (KRA, 2016). The itax system is very simple and the users are required to register
then issued with the personal identification number. The number will help in facilitating
service delivery to the users and tax authority in the process of tax administration. Since
its adoption, the platform has helping to eliminate unnecessary contact between the
taxpayer and the revenue authority personnel, simplified the process of filling taxes,
minimized instances of tax avoidance and evasion by leveraging on the electronic data of
the taxpayer and matching on the transactions for third party information (World Bank,
2017).
Serem et al. (2017) conducted a study on the effect of tax system simplicity and tax
compliance among the rental income earner in Eldoret. The study was based on causal
descriptive research design with a sample population of 181 respondents who were
provided with questionnaires. The study adopted descriptive and inferential statistic where
it was evidenced that there was a positive correlation between tax system simplicity and
tax compliance. The study recommended that for effective revenue collection from rental
income earners, there is need to simplify the process that makes it not necessary for tax
experts to interpret but a one step process. This is very instrumental in increasing revenue
collection not only to the rental income earners but also from vast majority of taxpayers
with taxable income who rely on other professionals to support their tax filling process.
23
According to Budak and James (2018), noted that increase in the level of tax complexity
leads to noncompliance among taxpayers which leads to the tax system that is more
complex is attributed to many factors at national and international level. Borrego, Lopes
and Ferreira (2018) asserts that VAT framework and tax complexity among local authorities
where there is misuse of exemptions and no subjections imply no payment of taxes by
citizens. The study had an in-depth analysis on the qualitative and quantitative tax
complexity perceived in the local tax administration in Portugal by involving in binding
tax information that organizations request. The results indicated presence of top-level
complexity in tax perception that is uncertain and coupled with lack of transparency
relating to tax framework of the activities of the local authority. Further, the study noted
that perceived complexity is essentially legal. The study recommended a shift from more
complex legal changes in tax impact and increase in number of binding tax information
that is simplified.
According to Olaoye, Ayeni and Alaran (2017), examined tax information, administration
and knowledge of taxpayers on tax compliance in Nigeria. The study was motivated by the
need to establish how complexity bars potential taxpayers from making their fair share to
the revenue authority in a simple and satisfactory manner. The study was based on
descriptive research design and adopted questionnaires for data collection. A sample of 200
respondents were involves, the study findings indicated that tax information and tax
knowledge had a positive impact on tax compliance. The findings indicated that tax
information, tax knowledge has higher tendency to promote tax compliance than tax
administration. The study recommended that government should through its agencies
educate the potential taxpayers on tax laws and regulations by direct free symposia and
seminars.
2.4.2 Straightforwardness of Tax System
A straightforward tax system gives more emphasis on a very simplified taxation approach
that eliminates cases of corruption and tax evasion with regard to the amount of payment,
time of payment and manner of payment. Abdul and Wangombe (2018) conducted a study
on tax costs and tax compliance behavior among medium and large corporate taxpayers in
Kenya. The study adopted the use of Structural Equation Modelling (SEM) technique to
24
establish the key cost drivers built using survey data, while controlling for key attributes
of the tax system as well as firm characteristics. The study result indicated that tax
compliance in Kenya significantly declines with increase in tax compliance cost, that relate
to complex tax laws and changes in tax policies. The study recommends that the tax
authority and policymakers must focus on measures of minimizing tax compliance costs
with a primary emphasis on investing in opportunities that reduce financial pressure on
firms to encourage tax compliance and reduce corruption.
Simplifying tax law and tax policies is a key facilitation of encouraging tax compliance
among the taxpayers via interpretation and clearly noting the law and tax structure with
ease to better declare genuine income and tax liabilities accrued. Many taxpayers today
perceive that itax system is complex and the process viewed as burdensome (Baum &
Gupta, 2017). Baum et al. (2017) conducted a study on the effects of corruption on the
states capacity to raise revenue. The findings indicated that complex tax system and lack
of accountability from the ruling class creates a corruption pocket in the revenue
administration making corruption to have a negative impact on tax revenue collection. The
study recommended that tax complexity process needs to be scraped and the call to have
large taxpayers’ offices within the revenue administrations to improve on revenue
collection and support in tax compliance.
Celimene, Dufrenot and Mophou (2016) conducted a study on tax evasion, tax corruption
and stochastic growth influences on the level of investment and public spending hindering
growth in the economy in Michigan States. The study stressed on the several channels
through which volatility are impacted in equity market that aren’t regulated and tax
cheaters sheltering their proceeds of illegal activities from official financial and tax
recognition. This creates low productivity of public spending leading to tax evasion and
tax corruption with contribution of the development of private capital investment from the
illegal activities in the equity markets.
2.5 Chapter Summary
The chapter gave a precise and detailed analysis of the study literature review on the three
independent objectives being; certainty of iTax, convenience of iTax and simplicity of iTax
25
as key nomenclatures of canons of taxation and their effect on revenue collection. The
presentation of reflective study objectives drew concepts and past studies that related to the
study and helped reaffirm on to the significance of the current study. The next chapter three
will present on the research methodology that was adopted in conducting the study and will
entail research design, study population, sampling methods, data collection and analysis.
26
CHAPTER THREE
3.0 RESEARCH METHODOLOGY
3.1 Introduction
This chapter outlines the research methodology that was used in carrying out the study.
This included the research design, population, sampling design, data collection tools and
technique, and data analysis methods. This research methodology aims in ensuring the
researcher obtains sufficient data for data analysis.
3.2 Research Design
According to Williman (2017), research design specifies the methods and procedures for
collecting and analyzing the needed information. It indicates a framework or blueprint for
the research as well as the research methods chosen to determine the information needed.
It defines the sampling method, sample size, measurement and data analysis processes.
According to Mugenda and Mugenda (2012), a descriptive research design provides a valid
and accurate representation of factors and variables, which pertain to the research
questions.
The study adopted the use of descriptive research using a sampling approach to give on to
the nature of the study population and the relationship of the study variables (Mugenda,
2012). According to Nassaji (2015), argues that descriptive research design represents
statement of affairs on the study variable that the research has no control, it is aimed at
casting light on the present challenges by involving data collection and analysis to enable
or describe the situation significantly than employing a method in a phenomenon.
3.3 Population and Sampling Design
3.3.1 Population
Population is said to be a set of elements, events, people or household under the inquiry
that a researcher wants to make some references (Williman, 2017). Mugenda and Mugenda
(2012) defined population as the entire group of individuals, events or objects having a
27
common observable characteristic that the researcher intents to find out and generalize the
results of its characteristics for decision making. According to the Human Resource at KRA
the total population is 94 employees working in the large taxpayer’s in which they hold
different positions such as chief manager, managers, assistant managers, supervisors, and
officers. The Table 3.1 below indicated the positions of KRA officials from large taxpayer’s
department.
Table 3.1: Population Distributions
Categories Target Population Percentage Distribution (%)
Chief Manager 1 1%
Manager 7 7%
Assistant Manager 12 13%
Supervisor 36 38%
Officers 38 40%
Total 94 100%
Source: KRA Human Resource Department (2019)
3.3.2 Sampling Design
Mugenda (2013) defined sampling design as the procedure by which the researcher selects
a particular sample from a population. Sampling design is meant to systematically present
on how the study sample was arrived at.
3.3.2.1 Sampling Frame
Sampling frame is said to entail all the study elements that are accessible to the researcher
at the time of carrying out a research study. It consists of a set of information that is
generally applied to identify a sample population for statistical treatment in a study by
including a numerical identifier for each individual, characteristics and more in-depth
analysis (Marshal & Rossman, 2014). It comprises a list of all those within a population
who can be sampled, and may include individuals, households, organizations or
institutions. The sampling frame for the study will comprise employees from Kenya
Revenue Authority large taxpayer’s department.
28
3.3.2.2 Sampling Technique
Sampling technique involves choosing a group of elements, people, sets or behavior with
similar characteristics to involve in a study. Sampling technique must entail a
predetermined model to be used when drawing samples from a target population in a
manner that that helps to establish hypothesis of the population when the analysis becomes
statistically insignificance (Dang & Pheng, 2015). A census sampling technique was
employed to encompass all the 94 employees at KRA.
3.3.2.3 Sample Size
A sample is a representation of elements, people or items drawn from particular target
population of interest with desired and special features for the study (Bryman & Bell,
2015). Appropriate sample size must have a statistical consideration with the criteria of
having a level of precision that gives the range in the value of true population being
estimated. The main aim for selecting a sample size is to be able to draw valid conclusions
about the study and population characteristics. Since the study adopted the use of census
sampling technique, the sample size for the study comprised of all employees of Kenya
Revenue Authority large taxpayer’s department who were 94 in total.
Table 3.2: Sample Size Distribution
Categories Target Population Percentage Distribution (%)
Chief Manager 1 1%
Manager 7 7%
Assistant Manager 12 13%
Supervisor 36 38%
Officers 38 40%
Total 94 100%
3.4 Data Collection Methods
According to Daniel and Harland (2017), data collection methods is a procedure of
gathering information from all the relevant sources by responding to the questions through
29
writing, interview, observations or content analysis and presenting the answers to the
research problem for outcome analysis. The study relied on primary data which was
gathered using drop and pick method consisting of both closed questions. This was used
because closed-ended questions ensured that the respondents are restricted to certain
categories in their responses. The main advantage of using the questionnaire is to uphold
privacy promised to the respondent so as to directly enhance and facilitate the sincerity of
the information given out. The respondents indicated their extent of agreements to the given
statements on a 5-Likert scale. The scale (1) strongly disagree: (2) disagree (3) neutral, (4)
agree: (5) strongly agree. The respondents were in a good position to state more
information beyond the limitations of the structured questions.
3.5 Research Procedures
The first step of data collection was to seek a letter of introduction from the United States
International University researcher office. The researcher contacted the target respondents
to sought for permission to administer the questionnaire to the employees of KRA. The
researcher will start by administering a pilot test involving 5 employees at Kenya Revenue
Authority large taxpayer’s department who were randomly selected. The process of
conducting a pilot study was beneficial in identifying respondents ease on answering the
questionnaires and also correcting questions that are ambiguous to the respondents. The
opinion of a project supervisor was used to discover if the questions provide details that
are required for relevant information to the study. The researcher adopted a drop and pick
strategy when issuing out the questionnaires to the respondents.
Reliability is the degree to which measures are free from errors and therefore yield constant
results. The reliability of a measure indicates the stability and consistency with which the
instrument measures the concept and helps to access the goodness of a measure. The closer
the reliability coefficient gets to 1.0, the better it is, and those values over 0.80 are
considered as good. The values in the 0.70 are considered acceptable those reliability
values less than 0.60 are considered to be poor. Validity is defined as the extent to which a
concept is accurately measured in a quantitative study (Mugenda & Mugenda, 2012). To
ensure the validity of the questionnaire, the researcher made the changes on the
30
questionnaire. This ensured that the questions in the questionnaire answered the research
questions of the study. To enhance the validity of the questionnaire, the necessary
modification and revision was done.
3.6 Data Analysis Methods
Data analysis is the processing of data collected to make meaningful information out of
them. Sekeran (2006) defines data analysis as a mechanism to reduce and organize data to
generate results which necessitate interpretations by the researcher. The data was collected
via the use of the questionnaires which was coded, entered and cleaned and computed by
the use of Statistical Package for the Social Sciences (SPSS) version 24 software. Then
thereafter, the researcher ensured that the information captured is accurate, consistent and
uniformly entered. Both the descriptive and inferential statistics was used by the study.
Descriptive statistics is the analysis of data that assists in describing, presenting or briefly
showing data in a helpful way such that, for example, patterns might be obtained from the
input. The descriptive statistics was analyzed in form of the frequency, percentages, mean,
and standard deviation.
The analysis of inferential statistics was based on the coefficient of correlation, coefficient
of determination for model of fitness, analysis of variance (ANOVA) for model
significance, and regression model. The data analysis tool to be used was the SPSS software
that will give the best review of variables in both graphical and numerical order relating to
the nature of the data being analyzed as shown:
Y = β0 + β1 X1 + β 2 X 2+ β 3 X 3 + e
Y = Revenue collection
Β0 = Y Intercept
X1 = Certainty of iTax
X 2 = Convenience of iTax
X 3 = Simplicity of iTax
e = Error Term
β1, β 2 and β 3 = Coefficients of X1, X 2 and X3 respectively
31
3.7 Chapter Summary
The overview of the chapter provided a detailed approach by introducing the study
methodology, the study research design, population and sampling design adopted, sampling
frame, sampling technique, sample size and the method used for data analysis. The next
chapter four captured on data analysis and presentation and chapter five to finalize on
summary, conclusion and recommendations for the study.
32
CHAPTER FOUR
4.0 RESULTS AND FINDINGS
4.1 Introduction
This chapter presents the research findings through data analysis and presentation of the
research findings. The chapter begins with response rate, descriptive statistics and lastly
inferential statistics. The aim of the study was to establish the effect of iTax platform on
revenue collection target among large taxpayers by Kenya Revenue Authority. The chapter
presents the findings in line with research objectives and research variables demonstrating
the relationship among the various variables, the data is presented in the form of tables and
figures.
4.2 General Information
The general information assessed in the study included gender, age, position in the
organization, level of education and working experience for the employees in KRA
working in the large taxpayer’s department. The findings are presented below.
4.2.1 Response Rate
A total of 94 questionnaires were distributed to the employees of Kenya Revenue Authority
large taxpayer’s department of which 67 were returned. This represented a response rate of
71% which is considered high enough to justify generalizability of findings as it is above
the 60% recommended by Mugenda and Mugenda (2010) for descriptive studies presented
each section.
Figure 4.1: Response Rate
33
4.2.2 Gender of Respondents
From the results of the study 51% of the respondents indicated that they were female while
49% indicated that they were male. This implies that most of the employees working at the
Kenya Revenue Authority were female. From the findings it can be deduced that the large
taxpayer’s department there is almost equal number of male and female hence gender
balance is considered.
Figure 4.2: Gender of Employees
4.2.3 Age of Respondents
The employees were also requested to indicate their age bracket and the results were as
shown in Figure 4.3. From the findings, 20% of the respondents indicated that they were
aged between 18 and 28 years, 55% were aged between 29and 39 years, 18% were aged
between 40 and 50 years 5% were aged between 51 and 61 years, and 2% indicated that
they were 61 years and above. This shows that most of the employees in KRA were aged
between 29 and 39 years.
34
Figure 4.3: Age of Respondents
4.2.4 Position in the Organization
The respondents were requested to indicate their position in the organization. The results
were as shown in Figure 4.4. According to the findings, 1% of the employees indicated as
being chief manager, 3% indicated that they were managers, 5% indicated they were
assistant managers, 25% were supervisors, while 66% were officers of the organization.
This implies that majority of the employees in KRA large taxpayers’ sections are working
as officers.
Figure 4.4: Position in the Organization
20%
55%
18%
5%2%
0%
10%
20%
30%
40%
50%
60%
18-28 years 29 – 39 years 40-50 years 51-61 years 61 years and
Above
Age of Respondents
1% 3% 5%
25%
66%
0%
10%
20%
30%
40%
50%
60%
70%
Chief Manager Manager Assistant
Manager
Supervisor Officer
Position in the Organization
35
4.2.5 Highest Education Attained
The respondents were requested to indicate their highest level of education. The results
were as shown in Figure 4.5. According to the findings, 2% of the employees indicated that
they had diploma education, 53% indicated that they had bachelor’s degree and 45%
indicated that they had master’s level of education. This implies that majority of the
employees in KRA large taxpayers’ sections had bachelor’s degree and above.
Figure 4.5: Highest Education Attained
4.2.6 Number of the years working in the Organization
The respondents were asked to indicate for how long they had been working in KRA large
taxpayer’s department. According to the findings, 10% of the employees indicated that they
had been working in the organization for less than 1 year, 39% indicated for between 2 and
4 years, 24% indicated for between 5 and 7 years, 10% indicated for between 8 and 10 year
and 17% indicated for above 10 years. This shows that most of the employees had been
working in Kenya Revenue Authority for between 2 and 4 years.
2%
54%
45%
0%
10%
20%
30%
40%
50%
60%
Diploma Bachelor’s Degree Masters
Highest Education Attained
36
Figure 4.6: Number of the years working in the Organization
4.3 Effects of Certainty on Revenue Collection
The study sought to establish the certainty and revenue collection by Kenya Revenue
Authority on large taxpayers. Therefore, a mean close to 5 meant that the respondents
agreed with the statement while a mean close to 1 means that the employees disagreed with
the statement.
4.3.1 Time of Payment on Revenue Collection
The study sought to determine the effects of time of payment on revenue collection by
KRA. The overall mean was 4.008 indicating that time of payment has an effect towards
revenue collection. The standard deviation of 0.873 indicated the deviations of responses
of employees from the mean where few respondents did not agree that time of payment
affect revenue collection. The employees agreed to a small extent that iTax system has clear
time specifications on tax components applicable to every tax payer during payment, this
was demonstrated by a mean of 3.985 and standard deviation of 0.879, and they also agreed
that KRA has clear time policies on the payment procedures in the iTax platform which
was shown by a mean of 4.179 and standard deviation of 0.737. The respondents agreed
that during time of payment tax payers access services online more efficiently which was
shown by a mean of 3.881 and standard deviation of 0.929, and that the time of payment
is enhanced before a deadline of specific tax heads with a mean of 3.985 and standard
deviation of 0.945. The Table 4.1 below shows the summary of time of payment on revenue
collection.
10%
39%
24%
10%17%
0%
10%
20%
30%
40%
50%
Less than 1
year2– 4 years 5 – 7 years 8 – 10 years Above 10
years
Number of Years Working in the Organization
37
Table 4.1: Time of Payment on Revenue Collection
Time of Payment N Mean
Std.
Deviation
iTax system has clear time specifications on tax components
applicable to every taxpayer during payment 67 3.985 0.879
KRA has clear time policies on the payment procedures in
the iTax platform 67 4.179 0.737
During time of payment Taxpayers access services online
more efficiently 67 3.881 0.929
Time of payment is enhanced before a deadline of specific
tax heads 67 3.985 0.945
Average 67 4.008 0.873
4.3.2 Effects of Manner of Payment on Revenue Collection
The study sought to determine the effects of manner of payment on revenue collection by
KRA. The grant mean was 4.022 and standard deviation of 0.936. The results of the study
on the manner of payment meant that most of the employees agreed while only 0.936
showed the dispersion of the responses of the employees. The respondents agreed that some
specific manner of payment affects collection of revenue which was shown by a mean of
3.791 and standard deviation of 1.149, and that KRA secure payment of any tax due require
a firm to furnish a security in such manner that the authority prescribes where a mean of
3.642 and standard deviation of 1.177. Employees also agreed that a firm is required to
submit a tax return in the approved form in the manner prescribed by the authority in which
a mean of 4.328 and standard deviation of 0.805, and that KRA require every firm to have
information relating to the tax liability in the manner specified in the notice this was shown
by a mean of 4.328 and a standard deviation of 0.613. The Table 4.2 shows the summary
on the effects of manner of payment on revenue collection.
38
Table 4.2: Effects of Manner of Payment on Revenue Collection
Manner of Payment N Mean
Std.
Deviation
Some specific manner of payment affects collection of
revenue. 67 3.791 1.149
KRA secure payment of any tax due require a firm to furnish
a security in such manner that the authority prescribes. 67 3.642 1.177
A firm is required to submit a tax return in the approved form
in the manner prescribed by the authority 67 4.328 0.805
KRA require every firm to have information relating to the
tax liability in the manner specified in the notice 67 4.328 0.613
Average 67 4.022 0.936
4.3.3 Effects of Quantity to be Paid on Revenue Collection
The study sought to determine the effects of quantity to be paid on revenue collection by
KRA. The overall mean for the quantity to paid was 4.086 showing that employees agreed
with and only 0.977 indicated a varying response from the main mean. The respondents
agreed that KRA always specifies the quantity to be paid by firms for tax collection this
was demonstrated by a mean of 3.731 and a standard deviation of 1.226, and that iTax
generates correct amount of tax due on identifiable taxable income where a mean of 4.119
and standard deviation of 0.946. The employees further agreed that having iTax system that
is real time has helped minimize tax distortion in the quantity that is to be paid and a mean
of 4.328 and standard deviation of 0.726 was realized, and they also agreed that tax
loopholes and evasion is a major impediment to iTax revenue collection in determining the
quantity to be paid this was shown by a mean of 4.164 and standard deviation of 1.009.
The Table 4.3 below shows the summary of effects of quantity to be paid on revenue
collection.
39
Table 4.3: Effects of Quantity to be Paid on Revenue Collection
Quantity to be Paid N Mean
Std.
Deviation
KRA always specifies the quantity to be paid by firms for tax
collection 67 3.731 1.226
iTax generates correct amount of tax due on identifiable
taxable income 67 4.119 0.946
Having iTax system that is real time has helped minimize tax
distortion in the quantity that is to be paid 67 4.328 0.726
Tax loopholes and evasion is a major impediment to iTax
revenue collection in determining the quantity to be paid 67 4.164 1.009
Average 67 4.086 0.977
4.4 Effects of Convenience on Revenue Collection
The study sought to establish the effects of convenience on revenue collection by Kenya
Revenue Authority on Large Taxpayers. Therefore, a mean close to 5 meant that the
respondents agreed with the statement while a mean close to 1 means that the employees
disagreed with the statement.
4.4.1 Effects of Convenient Time of Payment on Revenue Collection
The study sought to determine the effects of convenient time of payment on revenue
collection by KRA. The overall mean for convenient time of payment was 4.138 while
there was a varying response from the main mean of 0.878. The respondents agreed that
convenience of iTax is achieved by taxing at source for payments made on time and
remitting the deducted tax to KRA this was shown by a mean of 4.224 and standard
deviation of 0.867, and that KRA imposes tax waivers to bring convenience during time of
payment for tax defaulters where a mean of 3.731 and standard deviation of 1.123 was
reported. The employees agreed that every income earned by tax payers must be accounted
for to bring convenience during time of payment in a mean of 4.343 and standard deviation
of 0.664, they further agreed that KRA has developed infrastructure that has made the iTax
platform very convenient during time of payment in which a mean of 4.254 and standard
deviation of 0.859 was reported. The Table 4.4 shows the findings on effects of convenient
time of payment on revenue collection.
40
Table 4.4: Effects of Convenient Time of Payment on Revenue Collection
Convenient Time of Payment N Mean
Std.
Deviation
Convenience of iTax is achieved by taxing at source for
payments made on time and remitting the deducted tax to KRA 67 4.224 0.867
KRA imposes tax waivers to bring convenience during time of
payment for tax defaulters 67 3.731 1.123
Every income earned by taxpayers must be accounted for to
bring convenience during time of payment 67 4.343 0.664
KRA has developed infrastructure that has made the iTax
platform very convenient during time of payment 67 4.254 0.859
Average 67 4.138 0.878
4.4.2 Effects of Tax on income Received on Revenue Collection
The study sought to determine the effects of tax on income received on revenue collection
by KRA. The overall mean for the tax on income was 4.060 and standard deviation of
0.818 showing individual responses variations from the main mean. The employees in the
organization agreed that the use of iTax has increased income received by KRA where a
mean of 4.508 and standard deviation of 0.561 was realized, they were also in agreement
that KRA makes the refund process convenient to large taxpayers on income received this
was demonstrated by a mean of 3.358 and standard deviation of 1.240. The respondents
agreed that tax on income received must be established and imposed immediately for
convenience when making payments this was shown by a mean of 4.105 and standard
deviation of 0.699, and they also agreed that KRA educates potential tax payers on tax laws
and regulations to increase their income collection where a mean of 4.269 and standard
deviation of 0.770 was reported. The Table 4.5 shows the findings of effects of tax on
income received on revenue collection.
41
Table 4.5: Effects of Tax on income Received on Revenue Collection
Tax on income Received N Mean
Std.
Deviation
Use of iTax has increased income received by KRA 67 4.508 0.561
KRA makes the refund process convenient to large taxpayers
on income received 67 3.358 1.240
Tax on income received must be established and imposed
immediately for convenience when making payments 67 4.105 0.699
KRA educates potential taxpayers on tax laws and regulations
to increase their income collection 67 4.269 0.770
Average 67 4.060 0.818
4.5 Effects of Simplicity on Revenue Collection
The study sought to establish the simplicity and revenue collection by Kenya Revenue
Authority on Large Taxpayers. Therefore, a mean close to 5 meant that the respondents
agreed with the statement while a mean close to 1 means that the employees disagreed with
the statement.
4.5.1 Effects of Non-Technicality of the System on Revenue Collection
The researcher sought to determine the effects of non-technicality of the system on revenue
collection by KRA. The overall mean for the non-technicality of the system was 3.922 and
standard deviation of 1.039 showing the dispersion of responses from the mean. The
employees agreed that iTax system is very simple to use transactions by tax administrators
this was shown by a mean of 4.313 and standard deviation of 0.679 and that KRA has
available support services where taxpayers make use of to have their tax issues solved in a
simplified manner where a mean of 4.119 and standard deviation of 0.879. They further
agreed that iTax is very simple to use hence no technical support is needed from officers
where a mean of 3.448 and standard deviation of 1.608 was realized, and that filing process
in the iTax system is not very technical for use by taxpayers where they agreed to a small
extent and a mean of 3.806 and standard deviation of 0.988 was realized. The Table shows
the findings on the effects of non-technicality of the system on revenue collection.
42
Table 4.6: Effects of Non-Technicality of the System on Revenue Collection
Non-Technicality of the System Mean
Std.
Deviation
iTax system is very simple to use transactions by tax administrators. 4.313 0.679
KRA has available support services where taxpayers make use of to
have their tax issues solved in a simplified manner. 4.119 0.879
iTax is very simple to use hence no technical support is needed
from officers 3.448 1.608
The filing process in the iTax system is not very technical for use
by taxpayers 3.806 0.988
Average 3.922 1.039
4.5.2 Effects of Straight forwardness of Tax System on Revenue Collection
The researcher sought to determine the effects of straight forwardness of tax system on
revenue collection by Kenya Revenue Authority. The overall mean for the straight
forwardness was 4.071 and standard deviation of 0.876 showing that there were variations
of responses for the employees from the main mean. The respondents agreed that complete
automation of revenue collection has made administration of taxes by KRA straightforward
this was demonstrated with a mean of 4.105 and standard deviation of 0.890, and that KRA
conducts training sessions to educate taxpayers to simplify on the use of iTax systems to
make the tax process straightforward where a mean of 4.194 and standard deviation of
0.723 was realized. The employees of KRA agreed to a small extent that iTax system has
been tailored to reflect taxpayers’ point of view making it straightforward where a mean of
3.925 and standard deviation of 0.893 was realized, and that iTax system has simplified
revenue collection by eliminating direct personal contact between taxpayers and tax
administrators which improves straightforwardness of the process this was shown by a
mean of 4.060 and standard deviation of 0.998. The Table 4.7 shows the summary of effects
of straight forwardness of tax system on revenue collection.
43
Table 4.7: Effects of Straight forwardness of Tax System on Revenue Collection
Straight forwardness of Tax System Mean
Std.
Deviation
Complete automation of revenue collection has made administration
of taxes by KRA straightforward 4.105 0.89
KRA conducts training sessions to educate taxpayers to simplify on
the use of iTax systems to make the tax process straightforward. 4.194 0.723
iTax system has been tailored to reflect taxpayers’ point of view
making it straightforward 3.925 0.893
iTax system has simplified revenue collection by eliminating direct
personal contact between taxpayers and tax administrators which
improves straightforwardness of the process 4.06 0.998
Average 4.071 0.876
4.6 Inferential Statistics
4.6.1 Multiple Correlation Analysis
The Pearson Correlation analysis was also used in an attempt to understand the magnitude
or strength and direction of relationship between effect of iTax plaform on revenue
collection. There exists a statistically significant positive relationship between certainty
and revenue collection as evidenced (r=0.734, p-value= 0.000) and statistically significant
since the Sig. (2-tailed) value of 0.000 is less than 0.01 level of significance. Secondly,
there exist a statistically significant positive relationship between convenience and revenue
collection where (r=0.863, p-value=0.000) the Sig. (2-tailed) value of 0.000 is less than
0.01 level of significance and lastly there is statistically significant positive relationship
between simplicity and revenue collection where (r=0.646, p-value=0.000) and statistically
significant since the Sig. (2-tailed) value of 0.000 is less than 0.01 level of significance.
44
Table 4.8: Multiple Correlation Analysis
Revenue
Collection Certainty Convenience Simplicity
Revenue
Collection
Pearson Correlation 1
Sig. (2-tailed)
N 67
Certainty Pearson Correlation .734** 1
Sig. (2-tailed) .000
N 67 67
Convenience Pearson Correlation .863** .627** 1
Sig. (2-tailed) .000 .000
N 67 67 67
Simplicity Pearson Correlation .646** .618** .621** 1
Sig. (2-tailed) .000 .000 .000
N 67 67 67 67
**. Correlation is significant at the 0.01 level (2-tailed).
4.6.2 Multiple Regression Analysis
The researcher conducted a multiple regression analysis to establish the effect of iTax
platform on revenue collection among large taxpayers by Kenya Revenue Authority. The
findings are indicated in the subsequent sections.
Table 4.9: Model Summary
Model R R Square Adjusted R Square
Std. Error of the
Estimate
1 .899a .807 .798 .22277
a. Predictors: (Constant), Simplicity, Certainty, Convenience
The findings on R which is the coefficient of determination which indicates the deviations
in the response variable that is as a result of changes in the predictor variables. The
coefficient of determination which the R-Squared which is 0.899. The value of R-Squared
indicated a discovery of 80.7% of the deviations of revenue collection is caused by
45
certainty, convenience, and simplicity. The results indicate that other factors not studied in
the model accounts for 19.3%.
Table 4.10: Analysis of Variance (ANOVA)
Model
Sum of
Squares df Mean Square F Sig.
1 Regression 13.110 3 4.370 88.055 .000b
Residual 3.127 63 .050
Total 16.236 66
a. Dependent Variable: Revenue Collection
b. Predictors: (Constant), Simplicity, Certainty, Convenience
The results of the ANOVA in the above Table 4.10 show that the independent variables;
certainty, convenience, simplicity significantly affects revenue collection by KRA (p=
0.000<0.05). The results show that the relationship of the variables. The value of F-value
is 88.055 and 66 degrees of freedom the test is highly significant; thus, we can assume that
there is a linear relationship between the variables in the model. The significance level in
the model is less than 0.05 therefore statistically significant in predicting how the
independent variables affect revenue collection from Kenya Revenue Authority.
Table 4.11: Regression Coefficients
Model
Unstandardized
Coefficients
Standardized
Coefficients
t Sig. B Std. Error Beta
1 (Constant) -.350 .277 -1.262 .212
Certainty .347 .089 .297 3.888 .000
Convenience .684 .082 .641 8.336 .000
Simplicity .047 .063 .057 .753 .002
a. Dependent Variable: Revenue Collection
To determine the relationship that exists between revenue collection and the three
independent variables, a multiple regression analysis was conducted. The results of the
study show that holding convenience and simplicity constant a unit change in certainty will
46
lead to 0.347 increase in revenue collection. This was statistically significant at p<0.05.
The study findings indicated that that holding certainty and simplicity a unit change in
convenience will lead to 0.684 increase in revenue collection. This was shown by the
p<0.05. while lastly holding certainty and convenience??? a unit change in simplicity will
lead to 0.047 increase in revenue collection. This was statistically significant at p<0.05.
The conclusion is that certainty, convenience, and simplicity had a positive relationship
and significant relationship that leads to an increase in revenue collection for KRA. In this
case, the regression equation was as follows; Y= α + βX1+βX2 + βX3 + e;
This translates to the; Y= -0.350 + 0.347X1 + 0.684X2 + 0.047X3 + e.
4.7 Chapter Summary
The study has presented the results and findings of the study on the effect of iTax plaform
on revenue collection among large taxpayers by Kenya Revenue Authority. The findings
have been presented in both descriptive statistics and inferential where there was a positive
relationship between all the independent variables i.e certainty of iTax, convenience of
iTax, and simplicity of iTax in the revenue collection. The next chapter presents the
discussion, conclusions and recommendations of the study to the management and policy
makers for the revenue authority.
47
CHAPTER FIVE
5.0 DISCUSSION, CONCUSIONS, AND RECOMMENDATIONS
5.1 Introduction
The chapter covers an account of the study findings, discussions as well as the conclusions
drawn from the findings. In line with the study findings and conclusion, the chapter also
suggests policy implications and areas for further research.
5.2 Summary
The general objective of the study was to establish the effect of iTax plaform on revenue
collection target among large taxpayers by Kenya Revenue Authority. The study was
guided by the following specific objectives; to establish the effect of certainty of iTax on
revenue collection, to assess the effect of convenience of iTax on revenue collection, and
to determine the effect of simplicity of iTax adoption on revenue collection by Kenya
Revenue Authority on Large Tax Payers.
The study adopted the use of descriptive research using a sampling approach to give on to
the nature of the study population and the relationship of the study variables. The total
target population was 94 employees working in the large taxpayer’s in which they hold
different positions such as chief manager, managers, assistant managers, supervisors, and
officers. A census and stratified sampling technique were employed to encompass all the
94 employees at KRA. The sample size for the study comprised all the employees of Kenya
Revenue Authority large taxpayer’s department who are 94 employees. The study relied on
primary data which was gathered using drop and pick method consisting of both closed
questions.
The data was collected via the use of the questionnaires which was coded, entered and
cleaned and computed by the use of Statistical Package for the Social Sciences version 25.
The descriptive statistics was analyzed in form of the frequency, percentages, mean, and
standard deviation. The analysis of inferential statistics was based on the coefficient of
48
correlation, coefficient of determination for model of fitness, analysis of variance
(ANOVA) for model significance, and regression model.
The findings of the study showed that time of payment has an effect towards revenue
collection. The employees agreed to a small extent that iTax system has clear time
specifications on tax components applicable to every taxpayer during payment and KRA
has clear time policies on the payment procedures in the iTax platform. The results of the
study on the manner of payment has a significant contribution to the revenue collection.
The revenue authority specifies the quantity to be paid by firms for tax collection. There
exists a statistically significant positive relationship between certainty and revenue
collection as evidenced (r=0.734, p-value= 0.000) and statistically significant.
The results of the study indicated that convenience of iTax is achieved by taxing at source
for payments made on time and remitting the deducted tax and that KRA imposes tax
waivers to bring convenience during time of payment for tax defaulters. The agreed that
the use of iTax has increased income received and the authority makes the refund process
convenient to large taxpayers on income received. Secondly, there exist a statistically
significant positive relationship between convenience and revenue collection where
(r=0.863, p-value=0.000).
The results of the study showed that iTax system is very simple to use transactions by tax
administrators and KRA has available support services where taxpayers make use of to
have their tax issues solved in a simplified manner. The respondents agreed that complete
automation of revenue collection has made administration of taxes by KRA straightforward
and the authority conducts training sessions to educate taxpayers to simplify on the use of
iTax systems to make the tax process straightforward. There is statistically significant
positive relationship between simplicity and revenue collection where (r=0.646, p-
value=0.000) and statistically significant. The coefficient of determination which the R-
Squared which is 0.899. The value of R-Squared indicated a discovery of 80.7% of the
deviations of revenue collection is caused by certainty, convenience, and simplicity.
49
5.3 Discussion
5.3.1 Effects of Certainty on Revenue Collection
The study findings indicated that the overall mean for time of payment had an effect
towards revenue collection. According to Ordonez, (2014), noted that taxpayers must be
aware of when to pay tax, where to pay and how much to be paid so as to establish a clear
information on the certainty of tax liability beforehand. The responses of employees from
the mean where few respondents did not agree that time of payment affect revenue
collection. The employees agreed to a small extent that iTax system has clear time
specifications on tax components applicable to every taxpayer during payment, and they
also agreed that KRA has clear time policies on the payment procedures in the iTax
platform. The respondents agreed that during time of payment taxpayers access services
online more efficiently and that the time of payment is enhanced before a deadline of
specific tax heads. The results of the study are supported by Farrell (2016) who conducted
a study to examine the concept of certainty of tax based on the time perspective of the tax
administrators. The study findings indicated how late filling and payment of tax brought
challenging issues to the parties involved in revenue collection by demonstrating a robust
stewardship of tax certainty and account for tax collection that commensurate with the
ongoing economic activity.
The results indicated that respondents agreed that some specific manner of payment affects
collection of revenue and that KRA secure payment of any tax due require a firm to furnish
a security in such manner that the authority prescribes. The results are supported by Khan,
Khwaja and Olken (2015) who conducted a study on the tax farming redux and its effect
on performance pay for tax collectors in Pakistan. The findings also indicated that some
specific manner of payment affects collection of revenue and that KRA secure payment of
any tax due require a firm to furnish a security in such manner that the authority prescribes.
Employees also agreed that a firm is required to submit a tax return in the approved form
in the manner prescribed by the authority and that KRA require every firm to have
information relating to the tax liability in the manner specified in the notice.
50
The findings showed that respondents agreed that KRA always specifies the quantity to be
paid by firms for tax collection and that iTax generates correct amount of tax due on
identifiable taxable income. The employees further agreed that having iTax system that is
real time has helped minimize tax distortion in the quantity that is to be paid and they also
agreed that tax loopholes and evasion is a major impediment to iTax revenue collection in
determining the quantity to be paid. There exists a statistically significant positive
relationship between certainty and revenue collection and statistically significant. This is
in agreement with a study conducted by Maiga (2015) who examined the relationship
between the collection of taxes and revenue targets generated by each of the Financial
Services at the Directorate General Taxes of the Republic of Mali. There was a positive
correlation between the collection of taxes and revenues generated by financial services of
the Directorate General of Taxes of Mali. The results of the study is also supported by that
of Afuberoh and Emmanuel (2014), who examined the impact of taxation on revenue
generation in Nigeria. The research discovered among others that, taxation has a significant
contribution to revenue generation and taxation has a significant contribution on Gross
Domestic Product and firms are required to submit a tax return in the approved form in the
manner prescribed by the authority.
5.3.2 Effects of Convenience on Revenue Collection
The results showed that respondents agreed that convenience of iTax is achieved by taxing
at source for payments made on time and remitting the deducted tax to KRA and the
authority imposes tax waivers to bring convenience during time of payment for tax
defaulters. McCluskey and Franzsen, (2017) opined that taxation by the government
through the revenue body are aimed on addressing to all taxpayers being levied in a way
that accords maximum ambience of ease or convenience. Tax convenience can be
appropriately established by taxing at source. The employees agreed that every income
earned by taxpayers must be accounted for to bring convenience during time of payment.
The findings indicated that the authority has developed infrastructure that has made the
iTax platform very convenient during time of payment. Results of McCluskey and
Franzsen, (2017) who conducted a study on reviewing land value taxation in Italy is in
agreement. Taxpayers indicated that they prefer having their tax due imposed immediately
51
to enables the revenue collection body to have a smooth operation and minimizes on the
chances of nonpayment. Convenience timing is very significant and makes the taxpayer to
also account on their tax liability when accrued and settling without delay. This is the same
as the findings of Chowdhury (2015) who analyzed tax paying behavior of Bangladeshis
in convergence with the principles of taxation. They presented on the concept of tax
convenience by emphasizing the comfort to be accorded towards tax paying time. The
study findings indicated that tax fairness and tax convenience were simultaneously attached
as the main discourse to the learned in the society from an early on period.
The findings showed that employees in the organization agreed that the use of iTax has
increased income received by KRA. The findings are supported by Yesegat and Joseph
(2017) who conducted a study on the implications of VAT withholding on revenue
collection and refunds in Kenya. The findings indicated that in the overall, there was an
increase in the amount of revenue collection. Results is also in agreement with Maina
(2017) in which he conducted a study on the effect of consumption taxes, poverty and
income inequality in Kenya. The study indicated that consumption tax contributes
significantly to the revenue collection with 39% of total tax revenues realized in 2015.
Throughout, there has been progressive reforms in the administration of consumption
taxes. They were also in agreement that KRA makes the refund process convenient to large
taxpayers on income received. The respondents agreed that tax on income received must
be established and imposed immediately for convenience when making payments and they
also agreed that KRA educates potential taxpayers on tax laws and regulations to increase
their income collection. There exists a statistically significant positive relationship between
convenience and revenue collection. The findings of Moor and Prichard (2017) is in
disagreement where they conducted a study to establish how low-income countries in
Africa collect more tax revenue. The study findings noted that lack of basic support to
small businesses, unregulated credit market, poor infrastructure development and revenue
administration extension services to the rural communities is inexistence. The response
showed that the government of the day still has a long way to go in aiming to increase the
proportion of Gross Domestic Product to raise tax revenue. This is related to the risks when
52
emphasizing on the anticipated increase in revenue collection at the expense of ordinary
taxpayers.
5.3.3 Effects of Simplicity on Revenue Collection
The findings indicated that employees agreed that iTax system is very simple to use
transactions by tax administrators. According to Manaye and Alemu, (2018) whose
findings were in agreement and they noted that tax system should be simple in nature and
process such a taxpayer may not need a technical expert to interpret it for them. The canon
of simplicity is thus intended to protect taxpayers from undue exploitation by the tax
authority, tax accountants, tax lawyers and tax consultants or other peoples who deal with
tax issues given the prior knowledge and information they may possess on matters to do
with taxation. The International Monetary Fund (2013) were in agreement where they
outlined that complete automation of revenue collection platform that is simple and the one
with the central point of management as a strategy of revenue collection.
The revenue authority has available support services where taxpayers make use of to have
their tax issues solved in a simplified manner. This is supported by Onyegbule and Indies,
(2016) who opined that lack of information and public awareness on the available support
services that are free, and the taxpayers can make use of such avenues and have their tax
issue solved in a simplified manner. They further agreed that iTax is very simple to use
hence no technical support is needed from officers and that filing process in the iTax system
is not very technical for use by taxpayers where they agreed. The findings of the study
disagree with that of Serem, Robert and Philip (2017) who pointed that tax authority may
assume the process to be very simple and easy to compute as opposed to the taxpayers’
experience that seems to be technical to breakdown and digest in their own language.
The results of the study showed that respondents agreed that complete automation of
revenue collection has made administration of taxes by KRA straightforward and that KRA
conducts training sessions to educate taxpayers to simplify on the use of iTax systems to
make the tax process straightforward. The employees of KRA agreed to a small extent that
iTax system has been tailored to reflect taxpayers’ point of view making it straightforward
and that iTax system has simplified revenue collection by eliminating direct personal
53
contact between taxpayers and tax administrators which improves straightforwardness of
the process. Baum and Gupta, (2017) pointed out that simplifying tax law and tax policies
is a key facilitation of encouraging tax compliance among the taxpayers via interpretation
and clearly noting the law and tax structure with ease to better declare genuine income and
tax liabilities accrued. Many taxpayers today perceive that itax system is complex and the
process viewed as burdensome.
There was statistically significant positive relationship between simplicity and revenue
collection. The results of the study are supported by Serem et al., (2017) who conducted a
study on the effect of tax system simplicity and tax compliance among the rental income
earner in Eldoret. The study adopted descriptive and inferential statistic where it was
evidenced that there was a positive correlation between tax system simplicity and tax
compliance. Another study that supports the results is that of Olaoye, Ayeni and Alaran
(2017) who examined tax information, administration and knowledge of taxpayers on tax
compliance in Nigeria. The findings indicated that tax information, tax knowledge has
higher tendency to promote tax compliance than tax administration.
5.4 Conclusions
5.4.1 Effects of Certainty on Revenue Collection
The study concludes that time of payment had an effect towards revenue collection. There
are clear time policies on the payment procedures in the iTax platform specified by the
authority. During time of payment taxpayers access services online more efficiently and
that the time of payment is enhanced before a deadline of specific tax heads. The study also
concludes that manner of payment affects collection of revenue and the revenue authority
secure payment tax due require a firm to furnish a security in such manner that the authority
prescribes. The firms are required to submit a tax return in the approved form in the manner
prescribed by the authority and require every firm to have information relating to the tax
liability in the manner specified.
54
5.4.2 Effects of Convenience on Revenue Collection
In conclusions there exists a statistically significant positive relationship between
convenience and revenue collection. The revenue authority has developed infrastructure
that has made the iTax platform very convenient during time of payment and that the use
of iTax has increased income received by KRA. Tax convenience can be appropriately
established by taxing at source. The employees agreed that every income earned by
taxpayers must be accounted for to bring convenience during time of payment.
5.4.3 Effects of Simplicity on Revenue Collection
The study concludes that there was statistically significant positive relationship between
simplicity and revenue collection. The revenue authority has automated its platform that is
simple and has central point of management by KRA. There is support services where
taxpayers make use of to have their tax issues solved and complete automation of revenue
collection has made administration of taxes by KRA to be straightforward. The revenue
authority also conducts training sessions to educate taxpayers to simplify on the use of iTax
systems.
5.5 Recommendations
5.5.1 Recommendations for Improvement
5.5.1.1 Effects of Certainty on Revenue Collection
The study recommends that KRA should have clear policy on tax payment this will enable
the larger taxpayers’ firms to be well prepared and not to miss the specific timeframe given
by the revenue authority. The iTax systems should be upgraded so that to allow taxpayers
access services online more effectively and efficiently. It should also upgrade to improve
both Taxpayers’ registration as well as tax filing process. From the past the system has been
reported to having issues of breakdown, by upgrading this enhance efficiency in revenue
collection.
55
5.5.1.2 Effects of Convenience on Revenue Collection
The study recommends that the iTax system should be automated to be simple to use by
the taxpayers for the revenue authority to collects more income and they should have
spread of payment in installments at different times within the financial year. KRA must
ensure there is a thorough scrutiny on the operations of this large firms with key measures
of increasing the threshold of registration which will enhance and increase revenue
collection.
5.5.1.3 Effects of Simplicity on Revenue Collection
On the recommendations on simplicity on revenue collection, KRA should have a
simplified iTax that is simple to both small and large firms to allow them to have an ease
in submitting and filing of tax returns. The government should through KRA educate the
potential taxpayers on tax laws and regulations to enhance more revenue collections by
informing business for any changes in laws that arises. The revenue authority should focus
on measures of minimizing tax compliance costs that arises due late filling of tax with
emphasis on investing in opportunities that reduce financial pressure on firms to encourage
tax compliance.
5.5.2 Recommendations for Further Studies
The study recommends on further studies to determine the effect of iTax plaform on
revenue collection on both small and large taxpayers by Kenya Revenue Authority and the
focus should be to the users of the iTax system and this are both small and large taxpayers
in Kenya. This will enable the authority to assess the certainty, convenience, and simplicity
in revenue collection by the authority.
56
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63
APPENDICES
APPENDIX I: INTRODUCTORY LETTER
Annrita Wanjiru Njenga
P.O.Box 1734-00800
Naivasha Kenya.
Dear Respondents,
RE: PERMISSION TO CONDUCT A STUDY
I am a final year student at United States International University studying master’s in
business administration. I am carrying out a research study to establish the effect of iTax
platform on revenue collection among large taxpayers by Kenya Revenue Authority.
I am kindly requesting for your generous participation in filling the attached questionnaire.
The information obtained was strictly used for academic purpose and the respondents are
guaranteed that the information provided was treated with utmost confidentiality.
Yours Sincerely
Sign……………
Annrita Wanjiru Njenga
64
APPENDIX II: QUESTIONNAIRE
This questionnaire intends to gather information your views in establish the effect of iTax
platform on revenue collection among large taxpayers by Kenya Revenue Authority. Your
participation in this study is highly welcome and your responses and statements will be
handled confidentially and ethically, and your identity will be concealed in the final
research report. Kindly respond to the attached questions by marking the box that
represents your choice.
PART I: GENERAL INFORMATION
Kindly answer all the questions either by ticking in the boxes or writing in the spaces
provided.
1. Gender of Respondents Male Female
2. Age of Respondents
18-28 years 40-50 years
29 – 39 years 51-61 years
61 years and Above
3. Position in the Organization?
Chief Manager Supervisor
Manager Officer
Assistant Manager
4. Highest Education Attained
Diploma Masters
Bachelor’s Degree PhD
5. Number of the years working at Kenya Revenue Authority large tax payer’s
department
Less than 1 year 2– 4 years
5 – 7 years 8 – 10 years
Above 10 years
65
PART II: CERTAINTY OF ITAX ANDREVENUE COLLECTION
Please indicate the level of agreement with the following statement relating to certainty of
iTax on revenue collection by Kenya Revenue Authority on Large Tax Payers. Use the
following Likert scale to rate your views whereby; (1) = strongly disagree, (2) = disagree,
(3) = neither agree nor disagree, (4) = agree and (5) = strongly agree.
No Statement SD D N A SA
Time of Payment
i
iTax system has clear time specifications on tax components
applicable to every tax payer during payment
ii
KRA has clear time policies on the payment procedures in the
iTax platform
iii
During time of payment Tax payers access services online
more efficiently
iv
Time of payment is enhanced before a deadline of specific tax
heads
Manner of Payment
v
Some specific manner of payment affects collection of
revenue.
vi
KRA secure payment of any tax due require a firm to furnish a
security in such manner that the authority prescribes.
vii
A firm is required to submit a tax return in the approved form
in the manner prescribed by the authority
viii
KRA require every firm to have information relating to the tax
liability in the manner specified in the notice
Quantity to be Paid
ix
KRA always specifies the quantity to be paid by firms for tax
collection
x
iTax generates correct amount of tax due on identifiable
taxable income
xi
Having iTax system that is real time has helped minimize tax
distortion in the quantity that is to be paid
xii
Tax loopholes and evasion is a major impediment to iTax
revenue collection in determining the quantity to be paid
66
PART III: CONVENIENCE AND REVENUE COLLECTION
Please indicate the level to which you agree or disagree on the following statement relating
to convenience of iTax and revenue collection by Kenya Revenue Authority on Large Tax
Payers. Use the following likert scale to rate your views whereby; (1) = strongly disagree,
(2) = disagree, (3) = neither agree nor disagree, (4) = agree and (5) = strongly agree.
No Statements SD D N A SA
Convenient Time of Payment
i
Convenience of iTax is achieved by taxing at source for payments
made on time and remitting the deducted tax to KRA
ii
KRA imposes tax waivers to bring convenience during time of
payment for tax defaulters
iii
Every income earned by tax payers must be accounted for to bring
convenience during time of payment
iv
KRA has developed infrastructure that has made the iTax platform
very convenient during time of payment
Tax on income Received
v Use of iTax has increased income received by KRA
vi
KRA makes the refund process convenient to large taxpayers on
income received
vii
Tax on income received must be established and imposed
immediately for convenience when making payments
viii
KRA educates potential tax payers on tax laws and regulations to
increase their income collection
PART IV: SIMPLICITY AND REVENUE COLLECTION
Please indicate the level to which you agree or disagree on the following statement relating
to the simplicity of iTax adoption on revenue collection by Kenya Revenue Authority on
Large Tax Payers. Use the following likert scale to rate your views whereby; (1) = strongly
disagree, (2) = disagree, (3) = neither agree nor disagree, (4) = agree and (5) = strongly
agree.
No Statement SD D N A SA
Non-Technicality of the System
i iTax system is very simple to use transactions by tax administrators.
67
ii
KRA has available support services where taxpayers make use of to
have their tax issues solved in a simplified manner.
iii
iTax is very simple to use hence no technical support is needed from
officers
iv
The filing process in the iTax system is not very technical for use by
taxpayers
Straight forwardness of Tax System
v
Complete automation of revenue collection has made administration
of taxes by KRA straightforward
vi
KRA conducts training sessions to educate taxpayers to simplify on
the use of iTax systems to make the tax process straightforward.
vii
iTax system has been tailored to reflect taxpayers’ point of view
making it straightforward
viii
iTax system has simplified revenue collection by eliminating direct
personal contact between taxpayers and tax administrators which
improves straightforwardness of the process
Thank you for your response
