Tax compliance, enforcement and taxpayer service in Kenya: the case of self-employed individual income taxpayers
The purpose of this study is to explore the relationship between enforcement policies and taxpayer service on tax compliance. The argument is that while enforcement policies are tried and tested means of ensuring compliance, taxpayer service is not. Thus, including taxpayer service as a variable in determining the level of tax compliance would offer insight into the compliance behavior of taxpayers. Therefore, the study also aims to explore the relationship between tax enforcement and taxpayer service. Previous studies have found tax compliance and its analogous subject of “why people pay taxes” a puzzle. Inconclusive empirical results on enforcement policies of audit, penalty and criminal sanctions are common, leaving researchers and practitioners wondering what influences tax compliance. All the while, studies on taxpayer service are rare. This study makes use of simple regression analysis of aggregate variables representing tax compliance against audit, penalties, criminal sanctions and taxpayer service. The period between years 2003 and 2012 is choice due to the availability of data. At the individual level, the effect of prior audit and penalty charge is regressed against tax compliance. Prior audit and penalty charges exist as categorical variables. Audit and penalties have a positive relationship with tax compliance; taxpayer service and criminal sanctions have a negative relationship with tax compliance. All estimators apart from the audit rate are non-significant; this would indicate that even in Kenya, tax compliance is a puzzle. With variability in audit rate accounting for only 31% of the variability in tax compliance and all other estimators showing non-significant predictions, why taxpayers comply in Kenya remains an interesting question. At the individual level of analysis, both variables representing prior audit and penalty charge have a negative relationship with tax compliance however; they are non-significant for all but three years.