The Effect of Legislative Reforms on Consumption Tax Compliance Among Small and Medium Enterprises in Nakuru Town, Kenya

Despite undertaking many tax reforms, the Kenya Revenue Authority has been trying to establish ways of ensuring that the set revenue targets are achieved. The Kenya Revenue Authority has consistently missed its consumption tax targets over the years although the revenue collections have been growing. This study sought to determine the effect of legislative reforms on consumption tax compliance among small and medium enterprises in Nakuru Town, Kenya. The study was guided by the following theories: Ability to pay and Neoclassical Theory. The study adopted an explanatory design and the target population was 3748 small and medium enterprises in Nakuru town. Primary data collection was collected using structured questionnaires. The data was analyzed using descriptive which included mean and standard deviation. Inferential statistics included multiple linear regression analysis. Results showed legislative reforms had a statistically significant positive effect on consumption tax compliance (β = 0.391, p = 0.000). The study recommends in regards to legislative reforms that policymakers should prioritize revising the Tax Procedures Act to reduce regulatory complexity in consumption tax reporting while introducing SME-targeted provisions such as graduated penalty systems and compliance incentives. Future research should explore the effect of behavioural factors such as tax morale, and economic variables such as the impact of cash flow patterns on consumption tax.