The Effects of voluntary tax disclosure programme on improving tax compliance and revenue generation - a case study of Nairobi County
Date
2024
Authors
Mrombo, J.
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
Kenya's Voluntary Tax Disclosure Programme (VTDP) was implemented to address the challenge of undeclared income and assets, offering amnesty and incentives for voluntary disclosure. This study analyzes the effectiveness of VTDP in enhancing tax compliance and its cost-benefit implications since its inception. Specifically, the study aimed to analyze how VTDP has improved tax compliance; to establish the cost of benefit analysis of VTDP by examining how much tax revenue has been collected versus how much has been waived since the implementation of the program; and to relate the VTDP with the tax revenue collected and the revenue trends before, and after the program. Using secondary panel data from 2018 to 2023 sourced from the Kenya Revenue Authority, the study employed difference-in-difference (DID) analysis, mean comparison tests, and fixed effects models to achieve its objectives. The findings indicated a significant positive association between VTDP and tax compliance, with an approximately 11.77% increase in compliance per unit increase in VTDP. Mean comparison tests revealed that collected tax revenues exceeded waived amounts, demonstrating the program's effectiveness in enhancing revenue generation or taxpayer compliance. DID regression analysis showed statistically significant increments in revenue, with a 2% increase in 2021, followed by 2.2% in 2022, and 2.3% in 2023. These results were supported by average treatment effect on the treated (ATET) analysis, affirming VTDP's positive impact on revenue outcomes. The findings of this study provide valuable insights into the effectiveness of Kenya's VTDP in enhancing tax compliance and revenue generation. The significant positive association between VTDP and tax compliance underscores the importance of voluntary disclosure programs in encouraging taxpayers to comply with their tax obligations. Additionally, the cost-benefit analysis revealed that the revenue collected through VTDP exceeded the waived amounts, indicating a positive return on investment for the government. The DID regression analysis further supported these findings, showing statistically significant increments in revenue following the implementation of VTDP. These results have important policy implications for tax authorities in Kenya and other developing countries facing similar challenges of tax evasion and non-compliance. It is recommended that the government expands existing VTDPs and actively promotes them through outreach programs, advertising campaigns, and partnerships with tax professionals and business associations. By doing so, the government can further enhance tax compliance and revenue collection, ultimately contributing to the country's socio-economic development. Additionally, future research could explore the long-term effects of VTDP on taxpayer behavior and the overall tax system in Kenya.
Description
Full - text thesis
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Citation
Mrombo, J. (2024). The Effects of voluntary tax disclosure programme on improving tax compliance and revenue generation—A case study of Nairobi County [Strathmore University]. http://hdl.handle.net/11071/15523