Determinants of Value Added Tax compliance and moderating role of start up size in Kenya

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dc.contributor.authorAnching'a F. N.
dc.date.accessioned2026-01-29T16:41:06Z
dc.date.available2026-01-29T16:41:06Z
dc.date.issued2025
dc.descriptionFull - text thesis
dc.description.abstractVAT compliance is crucial for effective tax administration and significantly contributes to government revenue. However, Kenya's VAT compliance rate is currently below the target, resulting in substantial revenue losses. This study aimed at assessing the determinants of Value Added Tax (VAT) compliance among startups in Kenya, with a specific focus on the moderating effect of startup size. The study identified four key determinants: tax knowledge, compliance costs, taxpayer perception, and technological changes, while also exploring how startup size influences these relationships. Drawing on theoretical foundations such as Fiscal Exchange Theory, Economic Deterrence Theory and the Taxable Capacity Theory, the study investigated both voluntary and enforcement-driven compliance mechanisms. The study, carried out between March and April 2025 employed an explanatory research design to examine the relationships, targeting 308 startups in Nairobi County, with a sample size of 174 determined through stratified random sampling. Primary data was collected using structured questionnaires, and data analysis was conducted using both descriptive and inferential statistics, with Ordinal Logistic Regression applied to assess the moderating effect of startup size. The study findings revealed that Value Added Tax (VAT) compliance among startups in Kenya have effects on tax knowledge, compliance cost, taxpayers’ perception and technological changes. The study further revealed that there was a strong positive correlation between Value Added Tax (VAT) compliance among startups and tax knowledge, compliance cost, taxpayers’ perception and technological changes. Results showed that increases in tax knowledge, compliance costs, taxpayer perception, and technological changes significantly improved VAT compliance among startups. Additionally, startup size significantly moderated these effects, strengthening the positive relationships between determinants and compliance. The study concludes that tax knowledge, compliance costs, taxpayer perception and technological changes significantly enhance VAT compliance among startups. The study contributes by quantifying the impact of key determinants on VAT compliance using an ordinal regression approach while highlighting the role of startup size as a moderator, which is rarely addressed in prior research. Limitations include the cross-sectional design and focus on startups in Nairobi County, which may affect generalizability. The study recommends that, the Kenya Revenue Authority (KRA), in collaboration with startup support organizations, should develop and implement comprehensive tax education programs. The government, through the National Treasury and KRA, should consider streamlining tax compliance processes to reduce unnecessary financial and administrative burdens. Future studies could explore compliance with other tax obligations, such as corporate income tax, excise duty, or withholding tax.
dc.identifier.citationN, A. F. (2025). Determinants of Value Added Tax compliance and moderating role of start up size in Kenya [Strathmore University]. http://hdl.handle.net/11071/16043
dc.identifier.urihttp://hdl.handle.net/11071/16043
dc.language.isoen
dc.publisherStrathmore University
dc.titleDeterminants of Value Added Tax compliance and moderating role of start up size in Kenya
dc.typeThesis
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