Tax Compliance Procedures and Tax Compliance of Small and Medium Enterprises in Thika Town, Kiambu County, Kenya

Small and medium-sized enterprises are an important part of the taxpayer population in any country around the globe. Their taxation usually poses a number of challenges. They are numerous but contribute relatively little to the state coffers, while often absorbing a large share of scarce tax administration resources much needed elsewhere in administering the tax system. The purpose of the study is to investigate the effect of tax procedures complexity on tax compliance of Small and Medium Enterprises in Kiambu County. The theories guiding the study include the ability-to-pay taxation theory, Prospect theory of taxation, and the Allingham and Sandmo theory. This study adopted a cross-sectional survey design because the design is best suited for finding out the prevalence of a phenomenon, situation, problem, attitude or issue, by taking a cross-section of the population as it stands at the time of the study. The target population comprised of 3616 registered businesses in Kiambu County. A sample of 385 SMEs managers and owners were selected using stratified random sampling method. Primary data was collected with structured questionnaires. Secondary data was collected by use of secondary data collection sheet to supplement the primary data. A pilot study was undertaken on 38 SMEs to test the reliability and validity of the questionnaire. The tool of analysis that was used for this study was Statistical Package for Social Sciences version 28. Correlation and multiple linear regression analyses was used to determine the relationship between the tax code complexity and tax compliance among small and medium sized enterprises in Kiambu County. Before taking part in the study, top management of the SMEs were asked for their informed consent in order to ensure that the research is carried out in a suitable setting free from internal interferences and influences. The study findings established that tax filing procedure, tax registration, tax remittance and tax rate determination have significant effect on tax compliance of small and medium enterprises. It is concluded that the procedures for online tax filing provided by the tax agency are a bit complex to understand by small and medium enterprises. The study concludes that tax registration by small businesses is received positively and not misconstrued as been punitive. Further, the tax agency should roll out tax filing education programs to small traders to make it easy to file taxes and the tax filing period should be reviewed to be flexible. The tax collector should revise the current compulsory requirements to register for tax by SMEs as it was found to affect tax compliance.