INFLUENCE OF TAX COMPLIANCE REQUIREMENT ON FORMALIZING SMALL AND MEDIUM ENTERPRISES IN KENYA

Abstract

Purpose: The researcher sought to determine the influence of tax compliance requirement in formalizing small and micro enterprises in Kenya.Methodology: The study took the form of a descriptive survey design. The target population was 1200 SME's operating in Nairobi Central Business District and registered with the Nairobi County government. The sample size was 369 respondents, calculated using Yamane Sampling Formula. The study employed stratified and systematic random sampling to select SME's from 4 main sectors and also incorporated commercial banks and microfinance institutions in the sampling distribution. Data was collected by use of open and close-ended questionnaires supplemented by an interview schedule and an observation checklist. The researcher used descriptive and inferential statistics such as mean, standard deviation, correlation and multiple regression analysis. Statistical Package for Social Sciences (SPSS) version 21.0 was used to aid in coding, entry and analysis of quantitative data obtained from the closed-ended questions.Results: Study results revealed that the tax compliance requirement is an essential tool in fostering formalization of business operations.Unique contribution to theory, practice and policy: The study recommended that the government should review business formalization structures such as the tax administration system and business registration to accelerate formalization