EFFECT OF TAXPAYERS PERCEPTION TOWARDS E-FILING SYSTEM ON TAX COMPLIANCE AMONG SMALL AND MEDIUM ENTERPRISES IN KAKAMEGA COUNTY, KENYA

Abstract

Around the world, many tax agencies that are adopting electronic tax administration systems continue to face significant challenges due to taxpayer opposition, underutilization, and reluctance to use electronic filing systems. This study aimed to investigate the impact of taxpayers' perceptions of the E-filing system on Small and Medium Enterprises' tax compliance within Kakamega County. Specifically, it aimed to assess how the perceived usefulness, perceived ease of use of the E-filing, perceived risks, and training and educational programs towards e-filing system influence tax compliance among SMEs in the county. The study adopted descriptive research design and the target population was 2,272 Small and Medium Enterprises within Kakamega County. The sample size of 340 was determined. Data was collected through structured questionnaires comprising both open-ended and close-ended questions. The validity and reliability of instruments was established through conducting a pilot study. The questionnaires gave Cronbach alpha coefficients of α above 0.7, an indication of a high level of reliability. The collected data was then coded and analyzed using the SPSS version 28 computer program. Data was analyzed using descriptive statistics such as frequencies, percentages, means, and standard deviations and inferential statistics such as correlation analysis, multiple regression analysis, analysis of variance and hypothesis testing. Multiple regression analysis results showed that taxpayers’ perception towards e filing system significantly influenced tax compliance amongst SMEs. From the results, the corrected R-square value of 0.329 implied that the model explains 32.9% of tax compliance through predictor factors such as perceived usefulness, perceived ease of use, perceived risks, and training and educational programs. The hypothesis testing results showed that perceived usefulness of the E-filing system, perceived ease of use of the E filing system, perceived risk of using the E-filing system, and training and education programs for E-filing systems significantly affects tax compliance. From the study findings, we concluded that Perceived usefulness of the e-filing system was found to have a significant positive effect on tax compliance which suggests that when taxpayers perceive the e-filing system as useful, they are more likely to comply with tax regulations. Additionally, Perceived ease of use also showed a significant positive effect on tax compliance which indicates that the simpler and more user-friendly the e-filing system is perceived to be, the higher the likelihood of tax compliance. Interestingly, perceived risks were positively associated with tax compliance which suggests that awareness of potential risks or penalties associated with non-compliance encourages taxpayers to adhere to tax regulations. Finally, Training and educational programs related to the e-filing system was found to significantly influence tax compliance which underscores the importance of providing adequate training and information to taxpayers to facilitate the effective use of the e-filing system. These findings imply that Management should invest in comprehensive training programs and workshops to equip taxpayers with the necessary knowledge and skills to use the e-filing system. Based on the study's findings, conclusions, and recommendations, it is suggested that additional research be performed to better understand the psychological and behavioural aspects that influence SMEs' adoption and consistent usage of e-filing systems. Such a study may look into how characteristics like trust in government institutions and perceived fairness of the tax system affect e-filing uptake.