SU+ @ Strathmore 

University Library 
 

  
 

Electronic Theses and Dissertations 

 

 

This work is availed for free and open access by Strathmore University Library.  

It has been accepted for digital distribution by an authorized administrator of SU+ @Strathmore University. 

For more information, please contact library@strathmore.edu 

 

 
2024 

 

The Effects of voluntary tax disclosure 

programme on improving tax compliance 

and revenue generation - a case study of 

Nairobi County. 

 
 

Mrombo, Jefta 
Strathmore Business School  
Strathmore University 
 

 

 

Recommended 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 

 
 
 

Follow this and additional works at: http://hdl.handle.net/11071/15523 

https://su-plus.strathmore.edu/
https://su-plus.strathmore.edu/
http://hdl.handle.net/11071/2474
mailto:library@strathmore.edu
http://hdl.handle.net/11071/15523
http://hdl.handle.net/11071/15523


THE EFFECTS OF VOLUNTARY TAX DISCLOSURE PROGRAMME ON 

IMPROVING TAX COMPLIANCE AND REVENUE GENERATION - A CASE 

STUDY OF NAIROBI COUNTY 

 
 
 
 
 
 
 
 
 

JEFTA MROMBO ADMISSION NUMBER: 138624 
 
 
 
 
 
 
 
 
 

A RESEARCH REPORT SUBMITTED IN PARTIAL FULFILMENT OF THE 

REQUIREMENTS FOR THE DEGREE OF MASTER OF PUBLIC POLICY 

MANAGEMENT OF STRATHMORE UNIVERSITY. 

 
 
 
 
 
 
 
 
 
 

May, 2024 



ii  

 
……………. 

DECLARATION 

I declare that this work has not been previously submitted and approved for the award of a degree 

by this university or any other university. To the best of my knowledge and belief, the proposal 

contains no material previously published or written by another person except where due reference 

has been duly made. 

Jefta Mrombo 

Signature: 

Date: 21st May 2024 
 
 
 

Approval 

I have reviewed and approved the thesis report as the university-appointed supervisor. Dr. 

Bernadette Wanjala. 

Signature:  

Date: 21st May 2024 



iii  

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.



iv  

TABLE OF CONTENTS 

DECLARATION ......................................................................................................................ii 

ABSTRACT .............................................................................................................................iii 

TABLE OF CONTENTS ......................................................................................................... iv 

LIST OF FIGURES ................................................................................................................ vii 

LIST OF TABLES .................................................................................................................viii 

LIST OF ABBREVIATION AND ACRONYMS .................................................................... ix 

CHAPTER ONE ....................................................................................................................... 1 

INTRODUCTION .................................................................................................................... 1 

1.1 Background of the study .................................................................................................. 1 

1.2 Problem statement ............................................................................................................ 5 

1.3 Research objectives .......................................................................................................... 6 

1.4 Research questions ........................................................................................................... 6 

1.5 Significance of the study .................................................................................................. 6 

1.6 Scope of the study ............................................................................................................ 7 

1.7 Chapter summary ............................................................................................................. 8 

CHAPTER TWO ...................................................................................................................... 9 

LITERATURE REVIEW ......................................................................................................... 9 

2.1 Introduction ..................................................................................................................... 9 

2.2 Theoretical literature review............................................................................................. 9 

2.3 Empirical Literature ....................................................................................................... 12 

2.4 Summary of Literature Review and Research Gap.......................................................... 20 



v 
 

2.5 Conceptual framework ................................................................................................... 21 

2.6 Operationalization of variables ....................................................................................... 22 

2.7 Chapter summary ........................................................................................................... 28 

CHAPTER THREE ................................................................................................................ 29 

RESEARCH METHODOLOGY ........................................................................................... 29 

3.1 Introduction ................................................................................................................... 29 

3.2 Research philosophy ...................................................................................................... 29 

3.3 Research design ............................................................................................................. 30 

3.4 Target Population and Sampling Technique ................................................................... 30 

3.5 Data Collection Methods and Procedure ......................................................................... 31 

3.6 Research Reliability and Validity ................................................................................... 31 

3.7 Data analysis .................................................................................................................. 31 

3.8 Model specification ........................................................................................................ 31 

3.9 Diagnostic tests .............................................................................................................. 32 

3.10 Chapter Summary .................................................................................................... 35 

CHAPTER FOUR ................................................................................................................... 37 

ANALYSIS, RESULTS, AND DISCUSSION ........................................................................ 37 

4.1 Introduction ................................................................................................................... 37 

4.2 Descriptive Statistics ...................................................................................................... 37 

4.3 Diagnostic Test .............................................................................................................. 41 

4.4 Hypotheses testing and model estimation results ............................................................ 49 

CHAPTER FIVE .................................................................................................................... 54 

SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS .......................................... 54 



vi 
 

5.1 Introduction ................................................................................................................... 54 

5.2 Summary of findings ...................................................................................................... 54 

5.3 Conclusion from findings of the study ............................................................................ 55 

5.4 Policy recommendation .................................................................................................. 57 

5.5 Suggestions for further studies ....................................................................................... 58 

REFERENCES ....................................................................................................................... 59 



vii  

LIST OF FIGURES 

Figure 1: Conceptual framework ........................................................................................................... 21 



viii  

LIST OF TABLES 

Table 1: Operationalization of variables ................................................................................... 22 

Table 2: Diagnostic tests........................................................................................................... 32 

Table 3: Overall Descriptive Statistics ...................................................................................... 37 

Table 4: Descriptive Statistics by Region.................................................................................. 38 

Table 5: Descriptive Statistics by year ...................................................................................... 39 

Table 6: Shapiro -Wilk test for normality ................................................................................. 41 

Table 7: VIF Multicollinearity Test Results .............................................................................. 42 

Table 8: Heteroskedasticity test results ..................................................................................... 43 

Table 9: Wooldridge test for autocorrelation in panel data results ............................................. 44 

Table 10: LLC Unit Root Test Results ...................................................................................... 45 

Table 11: Westerlund test for cointegration results ................................................................... 46 

Table 12: Hausman test results ................................................................................................. 48 

Table 13: Fixed effect model results on the effect of VTDP on tax compliance ......................... 50 

Table 14: Mean comparison test on the effect of cost-benefit on tax revenue and waived tax on 

VTDP. ...................................................................................................................................... 51 

Table 15: Difference in Difference analysis results on the effect of VDTP on revenue collected 

before and after program ........................................................................................................... 52 



ix  

LIST OF ABBREVIATION AND ACRONYMS 
 
 
 
 

EAC East African Community 

GDP Gross Domestic Product 

GoK Government of Kenya 

KRA Kenya Revenue Authority 

PIN Personal Identification Number 

SMEs Small and Medium Enterprises 

TPB Theory of Planned Behavior 

VAIDS Voluntary Assets and Income Declaration Scheme 

VTDP Value Added Tax 

VDIS Voluntary Disclosure of Income Scheme 



1  

CHAPTER ONE 

INTRODUCTION 

1.1 Background of the study 

This Chapter provides a background of the study to establish context. It offers an overview of 

Kenya’s tax system, delving into its potential challenges as well. It also examines the Country’s 

voluntary tax disclosure Programme. Subsequently, it clarifies the problem statement, research 

objectives, research questions, significance, and the scope of the study. 

1.1.1 Overview of Kenya’s Tax System 

Kenya’s tax system serves as the cornerstone of the country’s fiscal framework, providing the 

necessary revenue to finance public services, infrastructure development, and socio-economic 

programs. This section provides a comprehensive overview of Kenya’s tax landscape, 

encompassing its structure, legislation, revenue sharing mechanisms, and compliance challenges. 

Tax Structure: 

Kenya’s tax structure stands as a complex amalgamation of various tax types that are imposed at 

both the national and county levels. These taxes encompass a wide array of categories, with notable 

examples including Income Tax, Value Added Tax (VAT), Excise Duty, Property Rates, and more. 

Income Tax, governed by the Income Tax Act (ITA), serves as a cornerstone of the nation's 

revenue generation efforts, as it mandates taxes on individuals, entities, and corporations in 

accordance with their income levels (KRA, 2024). Recent studies underscore the pivotal role of 

Income Tax as a primary revenue source for the Kenyan government, highlighting its significance 

in sustaining public services and developmental initiatives (Otieno, 2021). 

Value Added Tax (VAT), another integral component of Kenya's tax structure, operates under the 

regulatory framework of the VAT Act, imposing taxes on the supply of goods and services at a 

standard rate of 16% (KRA, 2024). The efficacy of VAT administration has garnered attention in 

recent research, with scholars advocating for enhanced compliance measures to mitigate revenue 

leakages and bolster fiscal sustainability (Mwangi et al., 2023). 

Excise Duty represents yet another vital facet of Kenya’s tax regime, as it targets specific goods 

such as alcohol, tobacco, and petroleum products, thereby contributing significantly to government 

revenue streams (KRA, 2024). The administration of Excise Duty, governed by the Excise Duty 

Act, plays a crucial role in regulating the consumption and production of excisable goods, while 



2  

concurrently augmenting fiscal resources for public expenditure priorities. 

Property Rates, administered by county governments, assume a pivotal role in local revenue 

generation and infrastructure development, as they levy taxes on real estate properties within their 

respective jurisdictions (Kahutu, 2020). The imposition of Property Rates enables county 

authorities to finance essential public services, such as healthcare, education, and sanitation, while 

also facilitating investments in critical infrastructure projects aimed at enhancing the quality of life 

for residents. 

In essence, Kenya’s tax structure embodies a diverse array of tax categories, each playing a unique 

role in shaping the nation’s fiscal landscape and supporting its socio-economic development 

agenda. By fostering compliance, enhancing administrative efficiency, and promoting equitable 

taxation, Kenya can harness the full potential of its tax system to drive sustainable growth and 

prosperity for all citizens. 

Tax Legislation: 

The legal framework governing taxation in Kenya constitutes a cornerstone of the country's fiscal 

governance structure, delineating the powers and responsibilities of both the National Government 

and County Governments in imposing taxes. Central to this framework is Section 209 of the 

Constitution, which confers upon the National Government the authority to enact tax legislation 

through Acts of Parliament, thereby encompassing a broad spectrum of tax categories and 

modalities (Murray, 2013). Recent scholarly inquiries have delved into the ramifications of 

constitutional provisions on tax policy formulation and implementation, shedding light on the 

imperative for legislative reforms aimed at bolstering tax efficiency and optimizing revenue 

collection (Ochieng & Wangari, 2022). 

Furthermore, Section 210 of the Constitution delineates the procedural mechanisms governing tax 

imposition, waiver, or modification, emphasizing the primacy of parliamentary oversight and 

legislative control over tax matters (Murray, 2013). This constitutional provision underscores the 

foundational principles of transparency, accountability, and democratic governance in the realm of 

taxation, ensuring that tax policies align with broader national development objectives and societal 

needs. 

In practice, tax legislation in Kenya finds expression through a myriad of statutes, including but not 

limited to the Income Tax Act, VAT Act, and Excise Duty Act, each of which provides the 

statutory basis for tax administration and enforcement (KRA, 2024). These legislative instruments 

serve as the bedrock upon which tax policies are formulated, implemented, and enforced, guiding 



3  

the conduct of taxpayers, revenue authorities, and other stakeholders within the tax ecosystem. 

Moreover, regulatory frameworks complement tax legislation by delineating procedural aspects of 

taxation, such as compliance requirements, reporting obligations, and dispute resolution 

mechanisms (KRA, 2024). Through a symbiotic interplay of legislation and regulations, the tax 

regime in Kenya seeks to strike a delicate balance between fostering compliance, safeguarding 

taxpayer rights, and optimizing revenue mobilization for national development priorities. 

In essence, tax legislation in Kenya embodies the convergence of legal principles, constitutional 

mandates, and policy imperatives aimed at facilitating efficient, equitable, and transparent tax 

administration. By upholding the rule of law, promoting legislative oversight, and ensuring 

procedural fairness, Kenya's tax legislative framework lays the groundwork for a robust and 

resilient fiscal governance architecture, poised to support sustainable socio-economic development 

and inclusive growth. 

Tax Revenue Sharing: 

The framework for revenue sharing between the National Government and County Governments in 

Kenya is predicated on constitutional mandates aimed at fostering equitable distribution of financial 

resources and upholding principles of fiscal responsibility. At the heart of this framework lies 

Article 201 of the Constitution, which delineates the principles governing the allocation of national 

tax revenue between the two tiers of government, underscoring the ethos of devolution and 

decentralized governance (Murray, 2013). 

Recent scholarly inquiries have delved into the intricacies of revenue allocation and expenditure 

management within the purview of intergovernmental fiscal relations, shedding light on the 

complexities and challenges associated with ensuring revenue predictability, accountability, and 

effective resource utilization (Okoth & Adera, 2023). These studies have underscored the 

importance of robust institutional mechanisms and policy frameworks to facilitate transparent, 

efficient, and equitable revenue-sharing arrangements, thereby enhancing fiscal stability and 

promoting socio-economic development across all levels of government. 

Moreover, the Public Finance Management Act (2012) plays a pivotal role in buttressing fiscal 

responsibility by providing statutory guidelines for revenue allocation, expenditure management, 

and financial reporting practices (Kahutu, 2019). By institutionalizing principles of transparency, 

accountability, and prudence in public financial management, the Act serves as a bulwark against 

fiscal indiscipline, corruption, and mismanagement, thereby bolstering investor confidence, 

promoting economic stability, and safeguarding the public interest. 



4  

In essence, the framework for tax revenue sharing in Kenya embodies a delicate balance between 

decentralization, fiscal autonomy, and collective responsibility, underpinned by constitutional 

imperatives and legislative frameworks aimed at promoting socio-economic equity, fiscal 

sustainability, and good governance. Through ongoing research, policy dialogue, and institutional 

reforms, stakeholders can work collaboratively to address emerging challenges, enhance 

institutional capacities, and foster a conducive environment for inclusive growth and development. 

Tax Compliance Challenges: 

Addressing tax compliance challenges in Kenya requires a multifaceted approach, given the diverse 

array of factors contributing to non-compliance and revenue leakage. Despite ongoing efforts to 

streamline tax administration processes, the country continues to grapple with persistent challenges 

in ensuring taxpayer compliance across various sectors of the economy (KRA, 2024).A primary 

concern revolves around low compliance rates, particularly prevalent among self-employed 

individuals and small businesses, where tax evasion and underreporting of income are widespread 

(KRA, 2024). Recent empirical studies have emphasized the pivotal role of taxpayer education and 

awareness programs in bolstering compliance levels and expanding the tax base (Ng'ang'a et al., 

2022). By enhancing taxpayers' understanding of their rights and obligations, as well as the benefits 

of contributing to public coffers, such initiatives can foster a culture of voluntary compliance and 

civic responsibility, thereby mitigating tax evasion tendencies and enhancing revenue mobilization 

efforts. 

Moreover, the informal sector poses a unique set of challenges to tax enforcement and collection, 

characterized by cash transactions, informality, and limited record-keeping practices (KRA, 2024). 

The absence of formal financial documentation and transactional records hampers effective tax 

monitoring and enforcement, leading to revenue leakage and diminished fiscal outcomes. 

Addressing these challenges necessitates innovative strategies tailored to the specific needs and 

realities of informal sector participants, including simplified tax compliance procedures, targeted 

outreach programs, and enhanced digital solutions for tax registration and reporting. 

Furthermore, tax incentives intended to stimulate investment and economic growth have 

inadvertently contributed to narrowing the tax base and diminishing revenue yields (KRA, 2024). 

Recent empirical research has highlighted the need for a balanced approach to tax incentives, 

ensuring that they align with broader fiscal objectives while minimizing adverse impacts on 

revenue generation (KRA, 2024). By reassessing the design and scope of existing incentives and 

implementing robust monitoring mechanisms, policymakers can mitigate potential revenue losses 



5  

and optimize the effectiveness of incentive programs in driving sustainable economic development. 

Additionally, the advent of the digital economy has introduced new complexities and challenges to 

tax administration, as traditional tax codes struggle to accommodate the evolving nature of online 

business models and digital transactions (KRA, 2024). Recent studies have underscored the 

imperative of modernizing tax laws and regulations to address the unique characteristics of the 

digital economy, including cross-border transactions, digital platforms, and remote service delivery 

(KRA, 2024). By adopting innovative approaches to digital taxation, such as digital transaction 

taxes and digital service taxes, governments can enhance revenue collection from digital activities 

while promoting fairness and equity in the taxation of digital enterprises. 

In conclusion, addressing tax compliance challenges in Kenya requires a comprehensive and 

nuanced strategy encompassing taxpayer education, sector-specific interventions, and regulatory 

reforms tailored to the evolving dynamics of the economy. Through concerted efforts by 

policymakers, tax authorities, and other stakeholders, Kenya can overcome existing compliance 

barriers, strengthen revenue mobilization efforts, and foster sustainable economic growth and 

development. 

1.1.2 Voluntary Tax Disclosure Programme (VTDP) 

The Voluntary Tax Disclosure Programme (VTDP) emerged in Kenya following the enactment of 

the Finance Act of 2020, marking a significant milestone in the country's efforts to enhance tax 

compliance and revenue collection. This initiative aims to encourage taxpayers to voluntarily 

disclose previously undisclosed income and assets, thereby regularizing their tax affairs and 

contributing to the broader goal of strengthening the tax system. By providing relief from penalties, 

interest, and criminal prosecution for non-compliance, the VTDP offers a viable mechanism for 

taxpayers to rectify past discrepancies and align with regulatory requirements. 

International Context: 

In considering the specific mechanisms and outcomes observed in South Africa, Nigeria, and the 

United Kingdom, it is noteworthy to highlight the success of VTDP implementation. In South 

Africa, the adoption of VTDP initiatives under the Tax Administration Act of 2011 marked a 

significant turning point in the country's tax administration landscape. Dare et al. (2018) and 

Chikozho and Atela (2018) have extensively studied the impact of South Africa's VTDPs, 

highlighting their role in not only bolstering tax collection but also in fostering a culture of 

compliance among taxpayers. The success of VTDPs in South Africa can be attributed to their 



6  

comprehensive nature, which offered taxpayers a clear pathway to regularize their tax affairs while 

mitigating the risk of punitive penalties (Dare et al., 2018; Chikozho & Atela, 2018). 

Similarly, Nigeria's experience with the Voluntary Assets and Income Declaration Scheme 

(VAIDS) provides valuable insights into the potential of VTDPs to drive positive outcomes in 

emerging economies. Odesenya and Dushime (2021) have documented the transformative impact 

of VAIDS on Nigeria's tax landscape, citing significant improvements in tax compliance and 

revenue generation. By providing incentives for voluntary disclosure and offering relief from 

penalties and prosecution, VAIDS succeeded in expanding the tax base and enhancing overall fiscal 

sustainability. Moreover, the program's success in increasing the tax-to-GDP ratio underscores its 

role in strengthening the government's revenue mobilization efforts and promoting economic 

stability (Odesenya & Dushime, 2021). 

In the United Kingdom, the utilization of Voluntary Disclosure Opportunities has been instrumental 

in shaping the country's tax compliance framework and revenue outcomes. Reports from HM 

Revenue and Customs indicate that these initiatives have played a pivotal role in encouraging 

taxpayers to come forward and disclose their tax liabilities voluntarily. By offering incentives such 

as reduced penalties and criminal immunity, the UK's VTDPs have incentivized compliance while 

simultaneously widening the tax base and ensuring a fair distribution of tax burdens (HM Revenue 

& Customs, 2015). The success of these initiatives underscores the importance of proactive tax 

administration measures in promoting transparency, accountability, and sustainable revenue 

generation in developed economies. 

Implementation in Kenya: 

In Kenya, the Voluntary Tax Disclosure Programme (VTDP) was established under the Finance 

Act of 2020, representing a significant legislative endeavor aimed at fortifying the country's tax 

administration framework and promoting fiscal integrity (Osoro, 2021). Operational from January 

1, 2021, to December 31, 2023, the VTDP provided a structured avenue for non-compliant 

taxpayers to voluntarily declare their tax liabilities without fear of punitive measures (Rudich, 

2021). This legislative initiative underscored the government's commitment to fostering tax 

transparency and accountability while offering relief to taxpayers grappling with outstanding 

penalties and accrued interest (Osoro, 2021). By enacting provisions that incentivized voluntary 

disclosure, the Finance Act aimed to stimulate greater participation in the formal tax system and 

expand the tax base, thereby enhancing revenue collection efforts and supporting national 

development priorities. 



7  

Furthermore, the VTDP's legislative framework provided taxpayers with a window of opportunity 

to rectify past discrepancies in their tax obligations, thus contributing to a culture of compliance 

and responsible fiscal behavior (Rudich, 2021). During its three-year implementation period, the 

Programme facilitated constructive dialogue between taxpayers and tax authorities, fostering 

mutual trust and cooperation in achieving common fiscal objectives (Osoro, 2021). By offering 

amnesty from prosecution and penalties, the VTDP encouraged voluntary compliance while 

alleviating the administrative burden on tax authorities (Rudich, 2021). Additionally, the program’s 

emphasis on confidentiality and anonymity instilled a sense of security among participants, further 

incentivizing their engagement and cooperation (Osoro, 2021). Through these measures, the VTDP 

aimed to enhance tax compliance levels, streamline tax administration processes, and foster 

sustainable revenue mobilization for the benefit of Kenya's economy and society. 

Outcomes and Implications: 

The Voluntary Tax Disclosure Programme (VTDP) in Kenya carries profound implications for tax 

compliance, revenue generation, and economic progress. Through its provisions for incentivizing 

voluntary disclosure and adherence to tax obligations, the Programme is poised to yield tangible 

benefits in terms of heightened tax revenues, an expanded tax base, and enhanced fiscal resilience 

(Rudich, 2021). By encouraging taxpayers to come forward and rectify past discrepancies in their 

tax affairs, the VTDP can significantly bolster revenue collection efforts, thereby providing the 

government with additional resources to fund essential public services and development initiatives 

(Osoro, 2021). Furthermore, the programs emphasis on fostering a culture of transparency and 

accountability among taxpayers holds the potential to instill greater public trust in the tax system, 

promoting compliance and responsible fiscal behavior (Rudich, 2021). 

However, the long-term effectiveness of the VTDP hinges on several critical factors, including the 

implementation of robust enforcement mechanisms, effective monitoring and evaluation systems, 

and ongoing efforts to address systemic challenges in tax administration (Rudich, 2021). 

Sustainable success will necessitate proactive measures to strengthen institutional capacities, 

enhance taxpayer education and awareness, and streamline administrative processes to facilitate 

seamless compliance (Osoro, 2021). Additionally, the VTDP underscores the government's 

commitment to fostering a conducive environment for investment, innovation, and economic 

growth by ensuring a level playing field for all taxpayers and promoting fair and equitable tax 

practices (Rudich, 2021). Overall, the VTDP represents a strategic intervention in Kenya's tax 

compliance landscape, with far-reaching implications for revenue mobilization, governance, and 



8  

socio-economic development. 

1.2 Problem Statement 

This study aims to investigate the impact of the Voluntary Tax Disclosure Programme (VTDP) on 

taxation in Nairobi County, with a focus on assessing its influence on compliance, tax revenue 

collection, and remittance trends among taxpayers in the country. Despite Kenya Revenue 

Authority's (KRA) annual reports indicating a shortfall in tax collection compared to targets, the 

issue of noncompliance persists as a significant challenge within the country's taxation system 

(Saidimu, 2009). Noncompliance has long been a concern for tax authorities, with estimates 

suggesting high rates, such as 50% in 2013 (KRA, 2024), and 45% among small and medium-sized 

enterprises (SMEs) in 2017 (Keraro, 2017). Although there has been a slight improvement, with a 

reported compliance rate of 42.33% in 2019 (Otindo, 2019), tax evasion remains a pervasive issue. 

In response to these challenges, the Kenyan government introduced the VTDP as a measure to 

address tax noncompliance. However, despite its implementation from January 1, 2021, to 

December 31, 2023 (KRA, 2024), there is a lack of empirical research evaluating the effectiveness 

of the Programme in achieving its objectives of increasing revenue collection, expanding the tax 

base, improving compliance, and incentivizing tax payment. Existing studies have primarily 

focused on other aspects of taxation, such as the effects of tax audits on compliance (Ndirangu, 

2014; Abdul & Wang’ombe, 2017; Kelvin, 2017; Mathendu, 2022), the impact of tax reforms on 

revenue (Orieny, 2022), and determinants of tax compliance among SMEs (Majiwa, 2014; Keraro, 

2017). Therefore, this study seeks to fill this gap in the literature by examining the extent to which 

the VTDP influenced tax revenue, tax burden, and remittance trends during its operational period, 

thereby informing policy decisions regarding the adoption and continuation of similar initiatives in 

the future. Additionally, this research aims to contribute to the broader understanding of the effects 

of voluntary tax disclosure programs on taxation systems, both in Kenya and globally. 

This study will benefit various stakeholders, including policymakers, tax authorities, taxpayers, and 

the general public. Policymakers will gain insights into the effectiveness of VTDP as a tool for 

improving tax compliance and revenue generation, enabling them to make informed decisions 

regarding the design and implementation of future tax amnesty programs. Tax authorities, 

particularly KRA, will benefit from a better understanding of the factors influencing taxpayer 

behavior and compliance levels, allowing them to develop targeted strategies for enhancing 

revenue collection and enforcement efforts. Taxpayers will benefit from a more transparent and 



9  

equitable tax system, with reduced penalties and incentives for voluntary disclosure, fostering a 

culture of compliance and civic responsibility. Moreover, the general public will benefit from 

increased tax revenue, which can be allocated towards public services and infrastructure 

development, ultimately contributing to socio-economic development and improved quality of life. 

1.3 Research Objectives 

1.3.1 General research objective 

To assess the effectiveness of voluntary tax disclosure programs (VTDP) in Nairobi County, 

particularly in enhancing tax compliance, optimizing tax revenue collection, and influencing trends 

in tax remittance. 

1.3.2 Specific research objectives 

i. To investigate the impact of VTDP on tax compliance levels among taxpayers in Nairobi 

County and analyze the factors contributing to any observed changes. 

ii. To conduct a comprehensive cost-benefit analysis of VTDP by evaluating the relationship 

between the tax revenue collected and the amount of tax arrears waived since the initiation 

of the Programme. 

iii. To examine the temporal dynamics of VTDP implementation and its association with tax 

revenue outcomes, including revenue trends before, during, and after the program’s 

implementation period. 

1.4 Research Questions 

i. What is the magnitude of the effect of VTDP on tax compliance levels among taxpayers in 

Nairobi County, and what factors contribute to any observed changes? 

ii. How does the cost-benefit ratio of VTDP manifest, considering both the tax revenue 

collected and the amount of tax arrears waived since the inception of the Programme? 

iii. What is the temporal relationship between VTDP implementation and tax revenue 

outcomes, including revenue trends pre-, during, and post-implementation, and how do 

these dynamics inform the program’s effectiveness? 

1.5 Significance of the study 

This study holds immense significance for various stakeholders and the broader Kenyan economy. 

By examining the effects of the Voluntary Tax Disclosure Programme (VTDP), it provides 

valuable insights that can inform policy decisions and shape future tax compliance initiatives. One 

key aspect is its potential to guide the refinement of the VTDP or similar programs in the future. 



10  

Through a detailed analysis of the program's strengths and weaknesses, policymakers can gain a 

deeper understanding of its effectiveness and identify areas for improvement. This knowledge is 

instrumental in designing more targeted and efficient tax policies, ensuring optimal outcomes in 

terms of revenue collection and compliance. 

Moreover, understanding how the VTDP influences trends in tax remittance is crucial for the 

Kenya Revenue Authority (KRA) in devising strategies to manage tax resources effectively. By 

gaining insights into taxpayer behavior and compliance patterns, the KRA can tailor its 

enforcement efforts and resource allocation to maximize revenue collection while promoting 

voluntary compliance. This not only strengthens the integrity of the tax system but also fosters a 

culture of transparency and accountability among taxpayers. 

Furthermore, if the study demonstrates a tangible reduction in net tax obligations for compliant 

taxpayers due to the broadening of the tax base through the VTDP, it can have significant 

implications for trust-building and compliance. A fair and equitable distribution of the tax burden 

across different income strata and sectors is essential for maintaining taxpayer confidence and 

fostering a sense of justice. This, in turn, encourages greater compliance and reduces the likelihood 

of tax evasion or avoidance. 

On the economic front, if the VTDP proves effective in expanding the tax base, it could lead to 

increased revenues for Nairobi and the country as a whole. The additional revenue can be 

channeled towards funding essential public services, infrastructure development, and social welfare 

programs, thereby promoting economic growth and benefiting the broader population. Moreover, a 

successful VTDP that fosters tax compliance and transparency can enhance Kenya's reputation as a 

responsible and stable investment destination, both domestically and internationally. This can 

attract more investment inflows, stimulate development activities, and create additional 

employment opportunities, contributing to overall socio-economic progress and prosperity. 

1.6 Scope of the Study 

This study focuses on analyzing the effectiveness of the Voluntary Tax Disclosure Programme 

(VTDP) within the bustling Nairobi region of Kenya. Nairobi, being the economic and commercial 

epicenter of the nation, holds immense significance in terms of its contribution to the national tax 

base. By examining the impact of the VTDP in this specific context, the study aims to shed light on 

its potential to positively influence the Kenyan economy. Moreover, Nairobi's diverse economic 

landscape and the presence of taxpayers spanning various industries and income brackets provide a 



11  

rich microcosm for studying the effects of the Programme. Access to quality data on tax outcomes 

and economic indicators further enhances the feasibility of conducting a comprehensive 

assessment. 

The term "Nairobi region" in this study refers to the administrative classification used by the Kenya 

Revenue Authority (KRA) to delineate tax-administrative units, typically aligned with the 

boundaries of Nairobi County as defined by the Independent Electoral and Boundaries Commission 

(IEBC). Any variations among these jurisdictions will be duly noted and addressed in the study. 

The research will analyze data spanning a period of five years: two years preceding the 

implementation of the VTDP as the baseline period, and the subsequent three years during which 

the Programme was in effect. By utilizing secondary data from January 1, 2018, to December 31, 

2023, the study aims to assess the impact of the VTDP on tax revenue collection, the size of the tax 

base, compliance behavior, and trends in tax remittance. 

1.7 Chapter Summary 

This introductory chapter sets the stage for the proposed study by providing background 

information on Kenya's tax system, the challenges it faces, and the voluntary tax disclosure 

Programme (VTDP). The chapter articulates the problem statement, research objectives, research 

questions, significance, and scope of the study. It lays the groundwork for subsequent chapters, 

which will delve deeper into the analysis and findings related to the effectiveness of the VTDP in 

Nairobi County. 

 

 



12  

CHAPTER TWO 

LITERATURE REVIEW 

2.1 Introduction 

This chapter delves into the existing body of knowledge surrounding tax amnesty, unearthing the 

theoretical framework, empirical evidence, and critical debates that shape the understanding of key 

parameters such as tax compliance, tax base expansion, and tax revenue generation. 

2.2 Theoretical literature review 

The academic understanding of tax compliance motivation can be broadly categorized into two 

main approaches: deterrence model expansion capturing social and psychological issues. 

2.2.1 Economic deterrence theory 

The rationale of economic deterrence theory in relation to tax compliance has its roots in the work 

of Allingham and Sandmo (1972), who developed their model based on Becker's (1968) 

pathbreaking application of the economics of crime paradigm. This theory suggests that the 

economic environment is a significant element in taxpayers' decisions regarding compliance with 

tax obligations. The perceived probability of various utilities tied to the different actions – 

obedience, and disobedience- significantly shapes taxpayer behavior (Mitchell et al., 2019). Of all 

deterrence measures, general deterrence based on the fact of sanctions and punishment has received 

worldwide support for its success in promoting compliance (Alm et al., 2019). The underlying 

assumption is that globally, taxpayers behave rationally and like to have a higher rate of 

noncompliance when deterrence mechanisms are deficient (Ebimobowei & Peter, 2013). 

Economic deterrence theory is based on the idea that factors such as taxes, penalties, and detection 

probabilities have a direct effect on the way individuals decide to comply or not with the law 

regarding taxing (Allingham & Sandmo, 1972). Developing on this principle, Mohd Isa (2012) 

asserts that the features of deterrence can also be observed in such tax audits, tax agent force, tax 

intricacy, and taxpayer information. For this reason, this study relies on the economic deterrence 

theory espoused by Allingham and Sandmo (1972) to provide theoretical support for the findings 

pertaining to these constructs. 

In the earlier models of economic deterrence, predicting taxpayer compliance, the Theory of Crime 

by Becker (1968) was very popular regardless of the fact that tax evasion was compared to criminal 

behavior under the enforcement of the law. An ultimate spiral of theory on tax compliance has seen 

drastic changes since the 1970s, with Allingham and Sandmo (1972) defining an initial model for 



13  

tax evasion that occurred. This method, what is usually called the deterrence paradigm, considers 

taxation as a cost and assumes that taxpayers have an innate tendency to want to evade it altogether. 

All these are not enough to discourage taxpayers from cheating; they are only restrained by the 

likelihood of audits, detection, and penalties. The stylized taxpayers are seen as gamblers in this 

model and make choices regarding their stake depending on the odds and rates of reward from 

noncompliance. 

Models of economic deterrence portray individuals as rational who painstakingly compare the 

expected utility against possible costs (Allingham & Sandmo, 1972; Alm, 1988; Devos, 2005). The 

ultimate compliance decision comes from a cost-benefit analysis (Devos, 2005). As a result, the 

main effort has been geared towards direct factors such as the likelihood of audit and severity of 

penalties (Devos, 2005). They weigh noncompliance costs and the possible benefits of nonpayment 

against the satisfaction of properly reporting income (Alm, 2012). Under this paradigm, the 

expectation of utility is associated with taxpayers' choices following any contingent cost, which 

might include legal penalties (Slemrod, 2007). These earlier models were summarized to the 

assumptions that reported income tax to the government would rise in direct proportion to the 

intensity of enforcement actions and punishment practices (Allingham & Sandmo, 1972). This 

rationale implies that fear is the only thing that drives compliance, which means that taxpayers 

report all their income to escape economic punishments in case they get detected and punished 

(Alm, 2012). 

In the scope of the research, the economic deterrence theory may serve as an instrument that can 

assist in assessing and explaining how VTDP has improved tax compliance. The focus of this 

theory is also to evaluate the cost benefits of VTDP through an assessment of tax revenue collected 

and tax arrears or burdens waived when the Programme was in effect. 

2.2.2 Theory of planned behavior 

Ajzen's (1991) theory of planned behavior (TPB) provides a very informative model on the basis of 

which one can forecast and analyze human behavior that is influenced by policy action, with 

taxation being one such domain where TPB might be applied (104). According to this theory, 

human behavior is a result of several motiVTDPional determinants that were at least in part created 

by policy actions such as tax amnesty schemes adopted by governments. 

According to TPB, taxpayer compliance is influenced by three key determinants: (a) Attitudes in 

that personal perceptions towards the outcomes of their actions can relate to tax compliance. This 



14  

includes the perceived benefits and drawbacks of both compliance and noncompliance; (b). 

Subjective norms put emphasis on two constructs: (1) Perceived Social Pressure to Comply, which 

stresses the social pressure to comply with tax regulations. This includes elements such as 

information, nature of form complexity, and apparent risk of detection (Putra & bin Osman, 2019). 

Sudrajat and Ompusunggu (2015) explain that TPB is still applicable in understanding taxpayer 

responses in the context of tax amnesty policies where government-motivated factors may 

significantly impact compliance behavior. In a similar vein, Walsh (2012) discusses the importance 

of individual beliefs, social norms, and perceptions of control in influencing the decision-making 

process about taxpaying from within the TPB framework perspective. In addition to such core 

factors, the theory recognizes underlying influences of individual beliefs, social norms, and control 

capacities. As Benk et al. (2011) note, the motivation to undertake a particular behavior, such as 

obedience to the laws that govern taxation, depends on there being an inspiring reason to act in 

such a way. Building upon this, specifically, Ajzen (2002) indicates that these central determinants 

are influenced by “behavioral beliefs” (a consequence of the actions), “normative beliefs” (social 

norms), and “control beliefs” (capability to perform the behavior). 

Various researchers further underscore the relationship between the TPB and tax compliance. The 

authors mentioned above, Wenzel (2004b) and Braithwaite (2003), point out the significance of 

merging sociological and psychological factors in explaining a high level of compliance. Such 

concepts as trust in authorities Murphy (2004), perceived fairness of the tax system (Wenzel, 

2004b), and moral considerations and social norms (Frey, 2003; Wenzel, 2004a) become the central 

elements to be taken into consideration when viewing behavior from a TPB perspective. The TPB 

lens is a crucial part of the current study as it provides an opportunity to analyze the possible effects 

that the design and implementation of the VTDP present motiVTDPional factors that motivate 

taxpayers to comply and pay their taxes accordingly. Having integrated the motiVTDPional 

elements discussed in the TPB, the study can gauge how VTDP affects taxpayers’ attitudes related 

to compliance, social norms that stimulate compliance performance, and perceived control 

capacities that influence decision-making related to compliance. 

2.2.3 Theory of Rational Choice 

Theory of Rational Choice posits that individuals make decisions by weighing the costs and 

benefits of available alternatives and selecting the option that maximizes their utility or satisfaction 

(Simon, 1955). In the context of tax compliance and voluntary disclosure initiatives like VTDP, 



15  

this theory suggests that taxpayers will engage in a cost-benefit analysis when deciding whether to 

comply with tax obligations or participate in voluntary disclosure programs. Taxpayers will 

consider factors such as the potential penalties for non-compliance, the likelihood of detection, the 

amount of tax owed, and the benefits of voluntary disclosure, such as the waiver of penalties or 

reduced tax liability (Becker, 1968). 

By applying the Theory of Rational Choice to cost-benefit analysis, researchers can model taxpayer 

decision-making processes and assess the factors that influence compliance behavior (Thaler & 

Sunstein, 2008). This theoretical framework provides a systematic approach for evaluating the costs 

and benefits associated with VTDP, including the financial implications for taxpayers and the 

government (Alm & McKee, 2004). Additionally, the Theory of Rational Choice offers insights 

into how taxpayers weigh trade-offs between short-term gains and long-term consequences when 

making compliance decisions, shedding light on the effectiveness of voluntary disclosure programs 

in achieving their objectives (Kaplow, 2003). 

Moreover, the Theory of Rational Choice extends beyond individual decision-making to consider 

broader societal implications and interactions (Elster, 1986). It acknowledges that rational 

individuals may act in ways that collectively produce suboptimal outcomes due to institutional 

constraints or coordination problems (Ostrom, 2005). Therefore, by incorporating this theoretical 

perspective into the analysis of VTDP and tax compliance, researchers can explore not only the 

micro-level dynamics of taxpayer behavior but also the macro-level effects on overall compliance 

rates and revenue outcomes. 

In conclusion, the Theory of Rational Choice provides a robust framework for assessing the cost-

benefit dynamics of voluntary tax disclosure programs like VTDP. By analyzing the trade-offs 

between compliance and non-compliance, this theory offers valuable insights into taxpayer 

decision-making processes. Through its application, researchers can systematically evaluate the 

financial implications of VTDP for both taxpayers and the government. This study aims to leverage 

the Theory of Rational Choice to understand how taxpayers weigh potential penalties against the 

benefits of voluntary disclosure, thereby assessing the effectiveness of VTDP in achieving its 

objectives. Thus, this theory serves as a valuable tool for understanding the economic motivations 

underlying tax compliance behavior and the impact of voluntary disclosure initiatives on revenue 

outcomes. 



16  

2.2.4 Comparative Institutional Analysis 

In the context of taxation and voluntary disclosure programs like VTDP, Comparative Institutional 

Analysis allows researchers to assess the impact of the program by comparing tax compliance, 

revenue collection, and other relevant indicators before and after its implementation (North, 1990).  

By employing this framework, researchers can identify trends, patterns, and causal relationships 

associated with the introduction of VTDP (Thelen, 1999). This theoretical approach facilitates a 

systematic examination of how the program affects tax compliance behavior, revenue outcomes, 

and other key variables over time (Mahoney & Thelen, 2010). Moreover, Comparative Institutional 

Analysis enables researchers to control for external factors and contextual differences that may 

influence the observed changes, thus providing a more rigorous assessment of the program's 

effectiveness (Hall & Taylor, 1996). 

Overall, Comparative Institutional Analysis offers a robust theoretical foundation for evaluating the 

pre and post VTDP dynamics and understanding the program's implications for tax administration 

and compliance outcomes (Mahoney & Thelen, 2010). Through a comparative lens, researchers can 

analyze the evolution of tax compliance and revenue trends in Nairobi County before and after the 

implementation of VTDP, shedding light on the program's effectiveness and identifying areas for 

improvement (Thelen, 1999). By systematically comparing institutional arrangements, policy 

frameworks, and enforcement mechanisms, researchers can gain valuable insights into the 

mechanisms driving tax compliance and revenue collection, informing future policy decisions and 

program design (North, 1990). 

2.3 Empirical Literature 

This section provides an empirical review of the literature on the study variables. 

2.3.1 Effect of VTDP on Compliance 

Researchers have tried to examine the correlation between VTDP and tax compliance, focusing on 

how tax amnesty initiatives such as voluntary tax disclosure impact tax compliance. However, 

much of this research has been done in different contexts and nations, raising concerns about 

whether contextual factors play a role. Larasdiputra and Saputra (2021) analyzed the data regarding 

tax amnesty, compliance costs, and sanctions’ effects on Asians’ behavior in terms of their tax 

payment. Using questionnaires and regression analysis, they found that all three interventions were 

compliant and had a potential for general implementation by the region (Larasdiputra & Saputra, 

2021). Fox and Murray (2011) had made similar findings in their study on how tax amnesties 



17  

influence filing rates and revenue collection in the United Studies. Fox and Murray’s (2011) 

descriptive and regression analyses showed that effective amnesty programs might improve both 

indices, as well as reiterate the importance of adequate amnesty policy design for achieving 

complete compliance. In their Indian study, Sudrajat and Ompusunggu (2015) suggested a 

conceptual framework for measuring tax compliance, focusing on (1) compliance with the 

regulations and (2) trust in government impartiality. The regression analysis of their findings 

demonstrates a high correlation between citizen support and compliance. This provides necessary 

evidence in favor of the need to develop trust for continued compliance behavior (Sudrajat & 

Ompusunggu, 2015). 

Wadesango et al. (2020) concentrated their attention on a specific context – Zimbabwean SMEs, 

adopting a descriptive research design and multiple regression analysis as the methodology. The 

scholars discovered a negatively correlated relationship between tax amnesty and compliance, 

which suggests that future compliance could be achieved by stricter sanctions (Wedesango et al., 

2020). However, a Nigerian study conducted by Okoye (2019) reported controversial findings. 

Okoye (2019) examined whether tax amnesty programs influenced compliance in Nigerian 

taxpayers, using political trust as a moderation variable. By questionnaire distribution and 

regression analysis, Okoye (2019) discovered a positive link between unannounced amnesty 

programs and compliance, noting the significance of communication clarity and program design. 

Substantial research on tax amnesty programs (such as VTDP) has been conducted in Nigeria. 

Oladele et al. (2019) analyzed the effect of audit probability and the penalties enforced on 

companies in Nigeria. By applying Ordinary Least Square analysis, they concluded that a minor 

increase in both variables could result in better compliance with tax audits in Ondo State. In 

another Nigerian study, Atawodi and Ojeka (2012) investigated the effect of factors that influence 

tax behavior among SMEs in the Country. Using a logit model, the research established barriers to 

SME compliance in issues related to fulfillment processes and high tax charges as the most serious 

obstacles (Atawodi & Ojeka, 2012). Other factors, like lack of knowledge about tax and multiple 

taxations, which were minimally significant, contributed as well. This observation fell in line with 

the studies by Witte and Woodbury (1985), Park and Hyun (2003), and Tanzi (1980). 

Oladipupo and Obazee (2016) also focused their study on Nigeria, investigating the impact of 

taxpayer knowledge and penalty systems on tax compliance in the case of SMEs in the Country. 

Through the use of a survey research design, they conducted data collection using questionnaires 

and analyzed the information through Ordinary Least Square regression. The results of their 



18  

research revealed that both tax knowledge and the effect of penalties had a statistically significant 

impact on compliance, albeit it was positive and marginal. This implies, from the perspective of 

Nigerian SMEs, that increasing taxpayers’ awareness regarding compliance, as opposed to focusing 

solely on penalty systems, will lead to a greater increase in tax compliance. Much of the regional 

literature on the study topic has also been concentrated in Ethiopia. Assfaw and Sebhat (2019) 

explored factors influencing ethical tax practice in Ethiopia. The logit regression analysis of the 

data collected in three zones revealed several positive factors. The effects of taxpayer education, 

training awareness, knowledge, and a simple tax system combined with a more positive attitude 

toward taxes, the efficient allocation of funds by government administration, and loyalty reward 

schemes all result in increased compliance. Tilahun (2018) further explored the economic and 

social variables determining voluntary compliance within the Ethiopian context but narrowed his 

research to Bahirdar City. Using ordered logit analysis, the study uncovered significant 

determinants such as tax rate, tax perception of government spending, tax system efficiency, audit 

penalties, and compliance costs. The results from Tilahum (2018) and Assfaw and Sebhat (2019) 

are in harmony with earlier findings of Riahi-Belkaoui (2004) and Richardson (2008). 

In another Ethiopian study, Manaye and Alemu (2018) investigated tax compliance determinants 

among taxpayers in Wolaita Sodo and Tercha Towns. Utilising multiple linear regression, Manaye 

and Alemu (2018) discovered that tax audits, financial constraints to the individual, and policy 

shifts in government all impacted the nature of compliance, echoing the findings of Jackson and 

Milliron (2002), Riahi-Belkaoui (2004), Richardson (2008), and Deyganto (2018). Deyganto 

(2018) focused on the determinants of voluntary compliance with taxation among taxpayers in 

Gedeo Zone, Ethiopia. The research used a mixed method research design and binary logistic 

regression models to employ seven key variables influencing compliance behavior (Deyganto, 

2018). Items included were age, perceived audit probability, gender, poor tax knowledge, 

perception of the tax rate, penalty awareness, and the simplicity of the tax system. Significantly, as 

per Wärneryd and Walerud (1982), Deyganto's (2018) conclusion was consistent. 

Jemaiyo and Mutai (2016) further expanded the contextual scope of the study topic by investigating 

the factors affecting the levels of compliance in taxation among Kenyan taxpayers based in Eldoret 

town. Their research methodology was ex-post facto, which focused on a community of 605 

individuals in the town of Eldoret. Applying the snowball and purposive sampling methods, they 

finalized the sample size of 68 respondents, a number of which were real estate investors, tax audit 

officers, and tax compliance officers. Data collection, on the other hand, resorted to a structured 



19  

questionnaire, while the basic analytical tool used was chi-square tests. Interestingly, the study 

revealed a significant relationship between four key factors and tax compliance: Tax compliance 

cost, knowledge of the tax, tax penalties, and audits. These findings imply that targeting these 

mentioned peculiarities could, perhaps, serve as vital in improving the rate of tax compliance in the 

real estate industry. 

2.3.2 Cost-benefit of VTDP 

Limited literature is available on the cost-benefit of the VTDP or tax amnesties following their 

implementation. A 2015 European Commission report tried to assess the cost benefit of tax 

amnesties, highlighting that the VAT Gap among the 26 EU member states involved in the 

assessment was an indicator of the effectiveness of VTDP enforcement and compliance measures, 

as it offered a projection of revenue loss due to tax avoidance, tax evasion, tax fraud, bankruptcies, 

financial insolvencies, and miscalculations (European Commission, 2015). While this report does 

not clearly establish the cost-benefit of the implementation of tax amnesty programs such as VTDP, 

it signals that there could be some cost-benefits considering their broader adoptions across 

countries. In their study focusing on Chile, Jenkins et al. (2023) do not clearly establish the cost- 

benefit of tax amnesty programs (such as VTDP) either. However, their conclusion that prefilling 

tax returns addresses the challenges of high taxpayer compliance costs, tax gaps, and burdensome 

audits, inspections, and tax evasion suggests a potential link between increased tax returns and 

VTDP. This points to a possibility of tax amnesties having cost-benefits after all. 

Alm et al. (2009) study on whether tax amnesties work focusing on revenue effects of tax 

amnesties during the transition in the Russian Federation in the 1990s reports crucial findings 

suitable for the development of the cost-benefits of the VTDP hypothesis. In their study, Alm et al. 

(2009) found that tax amnesties had a minimal short- or long-term impact on tax revenues, 

concluding that most tax amnesties seem unlikely to have significant as well as demonstrate 

negative or positive impacts on tax revenues. Even though this finding and deduction call into 

question the effectiveness and usefulness of tax amnesties as policy measures, it theories a possible 

correlation between VTDP and increase tax revenues. Kwatemba (2016), involving a time series 

methodology to examine the impact of tax amnesty on tax revenues in Kenya, also establishes the 

basis for a potential correlation between VTDP and enhanced tax returns. Findings from 

Kwatemba’s (2016) study emphasise the need for the Kenya Revenue Authority to adopt tax 

amnesties to boost tax revenue, highlight that these programmes may have some cost-benefits. 



20  

Much of the existing research on the link between tax amnesty and tax revenue has concentrated in 

Indonesia. Fox and Murray (2014) used an empirical framework involving the Bayesian Analysis 

paradigm to conduct an assessment of tax revenue due to the application of tax amnesty in 

Indonesia. The statistics indicated that the first amnesty program in Indonesia boosted revenue (Fox 

& Murray, 2014). It is, however, important to note that sub-sequential amnesties tend to have a 

positive impact on revenue performance. Still, the level of the beginning is lower compared to the 

first amnesty. Consequently, besides decreases during the amnesty period, filing rates tend to 

decrease below the levels before the amnesty. The data seems to indicate that amnesties have a very 

small negative effect on tax compliance and revenues in the short run, leaving a gap in knolwedge 

and literature on the effects in the long-term. 

In another Indonesian study, (Mahestyanti et al., 2018) sought to analyse the influence of the tax 

  

amnesty program that was implemented in Indonesia in 2016 on different categories, including tax 

penalties, wealth, and tax compliance. The researchers used primary data, which was collected via 

empirical economics and analyzed using variance analysis methodology (Mahestyanti et al., 2018). 

The findings of the study reveal that there is a relationship between tax compliance and wealth, 

where low tax compliance is positively related to high wealth (Mahestyanti et al., 2018). Moreover, 

there was a strong correlation between the adverse side effects, such as significant tax penalties and 

an increased likelihood of being audited (Mahestyanti et al., 2018). The findings showed that tax 

amnesties were having a two-dimensional or dual impact on the systems of taxation. The latter 

demonstrates that this lens can, to some extent, be efficient in raising funds for governments. 

Nevertheless, tax amnesties were shown to be conflicting and resulted in an overall decrease in tax 

compliance. This means that despite the fact that they help them make more profits in the short run, 

these practices have adverse effects in the long term. 

In another Indonesian-based study, Said (2017) used a descriptive research approach to analyse the 

country’s tax amnesty policies. As per the results of the study, tax amnesty programs were shown 

to have an impact on the tax-to-GDP ratio and a negative influence on the number of instances of 

tax compliance decreased with such programs (Said, 2017). From this research, it is clear that in the 

short-term period, tax amnesty had adverse effects on government revenues, while in the long-term 

period, tax amnesty had positive impacts on government revenues. This finding is consistent with 

the results and conclusions made by another Indonesian study conducted by Gunawana and 

Resitarini (2019). Conducting an empirical case study involving 17 companies in Indonesia and 



21  

selected using purposive sampling, Gunawana and Resitarini (2019) found a positive correlation 

between tax amnesty policies and tax revenue. The results of a multiple linear regression analysis 

revealed a positive relationship between tax amnesty and the amount taxed collected Gunawana 

and Resitarini (2019). The motivation levels of taxpayers to pay taxes also have a positive effect 

during the tax amnesty measures, and it will eventually lead to an increase in the compliance level. 

Sari et al. (2021) focused on the regional context, examining the relationship between tax amnesty 

programs and tax revenue among Asian developing countries. Utilising panel data from a sample of 

200 subsidiaries across 10 countries, covering the time frame of 2010 to 2014, Sari et al. (2021) 

discovered that study revealed that the implementation of tax amnesty programs, along with strict 

tax inspections, sanctions, and tax audit systems, has the potential to improve tax revenues and 

compliance. Bozdoğan and Şimşek (2018) conducted a similar study but in Turkey. Using a vector 

autoregressive analysis (VAR) to analyse 1980 to 2014 data, it was found that tax amnesties 

seemingly lead to declining results in terms of the amount of tax revenue raised with time. On the 

contrary, the effect of GDP is a monotonically increasing function. The statement strongly implies 

that tax amnesties are detrimental and cause a major loss to the revenues of taxes. Since Bozdoğan 

and Şimşek (2018) findings are inconsistent with previous research in Asian countries such as 

Indonesia, it raises concerns about whether or not contextual or regional factors are also at play. 

Agbonika (2015) conducted an analysis of the successes and failures of amnesty programs put in 

place in Nigeria. Employing the exploratory approach to analyse diverse pieces of literature on the 

results of revision in tax laws using amnesty schemes, Agbonika (2015) found that tax amnesties 

had a positive impact on tax bureaucracies, which resulted in the drastic change in the means of 

handling the problem of tax evasion. The research established that the rate of participation rose and 

ever increased with the provision of tax amnesty programs as one-time opportunities. However, a 

South African study conducted by Junpath et al. (2016) reported controversial findings, raising 

concerns about the role of contextual factors. Junpath et al. (2016) carried out an attitudinal and 

perception analysis among taxpayers in South Africa on the nature of compliance with tax amnesty 

programs. A survey was carried out in an attempt to determine the perceptions of taxpayers towards 

compliance with tax and amnesty (Junpath et al., 2016). The researchers employed ordinary least 

squares estimation for their study (Junpath et al., 2016). The result of the study revealed that the 

amnesties did not facilitate increasing the tax collection (Junpath et al., 2016). Secondly, they also 

concluded that amnesties offered platforms for further cases of tax evasion (Junpath et al., 2016). 

The incentive for taxpayers’ non-adherence with tax regulations was their expectation of future tax 



22  

amnesties. 

Since conducting a cost-benefit analysis of VTDP will also involve assessing penalties waived, 

assessing literature on the correlation between VTDP and tax penalties or burdens can also assist in 

building up this hypothesis. Unfortunately, there are not enough studies that have tried to examine 

the correlation between tax amnesties and taxpayers’ tax liabilities. However, it is known that tax 

amnesties such as VTDP are usually deployed to motivate non-compliant taxpayers to comply by 

promising to forgive tax penalties accrued. Mookherjee and Gupta (1995) noted that tax amnesty 

schemes offer taxpayers immunity from tax penalties or imprisonment in exchange for disclosing 

all income that was not declared in the past. Parys (2012) further highlighted that a significant 

number of developing nations increasingly deploy tax incentives to reduce the tax burden for 

foreign investors. This observation suggests that tax amnesty schemes, including tax incentives, can 

reduce tax or waiver burden for taxpayers. 

2.3.3 Contribution of VTDP to Tax Collected and Revenue Trends 

Much literature on the correlation between VTDP and tax collected (tax revenue) has been 

reviewed above. Thus, the literature on the correlation between VTDP and revenue trends is 

explored herein. Evidently, much of the research on the link between tax amnesties and revenue 

trends has been conducted in Asian countries. Ha and Phan (2017) evaluated Vietnamese taxpayer 

involvement in VTD programs and their behavioral characteristics. They found that confidence in 

tax authorities, perceived VTD justice and social norms drive voluntary compliance and tax 

remittance behavior in surveys and focus groups. When the VTD program was open, egalitarian, 

and consistent with society, participants were more willing to pay taxes voluntarily. The research 

stressed the need for confidence and credibility in VTD activities to boost taxpayer involvement 

and tax remittances. 

A subsequent study conducted in Malaysia by Balamurugan and Sinapayan (2018) offered 

contradicting and controversial findings, questioning whether contextual factors really matter. In 

their research, Balamurugan and Sinapayan (2018) observed that even with VTD systems, high- 

income people and major enterprises had minimal tax remittance. The report ascribed these 

concerns to structural factors, including corruption, insufficient enforcement, and tax authority 

distrust. The results highlighted the need for substantial changes beyond VTD programs to remove 

compliance hurdles and boost tax remittances. Balamurugan & Sinapayan (2018) also compared 

European VTD initiatives to tax remittance patterns. The analysis found considerable differences in 



23  

VTD initiative effectiveness between jurisdictions. Some nations saw significant tax remittance rate 

gains with VTD systems, whereas others struggled due to administrative complexity and poor 

taxpayer engagement. The results stressed the significance of context-specific VTD program design 

and implementation for compliance. 

In another Asian research, De Simone and Markle (2020) examined how VTD initiatives affect 

Singaporean tax remittances. A detailed review of tax data and questionnaires showed that VTD 

programs significantly increased individual and corporate tax submission rates. The research found 

that VTD initiatives promoted openness and accountability, improving government compliance and 

income. Kim and Lee (2021) further evaluated how VTD initiatives affect South Korean tax 

remittances. According to tax data analysis, tax remittance increased significantly when a VTD 

system was implemented. They also saw taxpayers remit more quickly and accurately due to the 

VTD program's incentive effect. The study implies that VTD programs can boost tax remittance 

rates and revenue collection. 

Contrary to these findings, Pramanayogi et al. (2022) observed conflicting results from VTD 

programs on Indian tax remittance trends. People paid slightly more tax when VTD programs were 

launched. This increment eventually faded. According to the researchers, several issues prevented 

VTD programs from working as intended. Complex VTD program rules and methods were a major 

issue. Because many people didn't know about these programs, they didn't participate. The 

government didn't police the laws enough; thus, some people didn't feel pressured to pay taxes after 

joining VTD programs. These issues revealed systemic issues that must be addressed to improve 

VTD programs' tax compliance. Pramanayogi et al. (2022) recommended improving VTD 

programs. They suggested that the government clarify rules and make programs easy to grasp. They 

also suggested the government promote VTD programs so more people know about them and may 

participate. They urged the government to enforce the rules more strictly to put people under 

pressure to comply. The researchers believed these improvements would help VTD programs 

persuade people to pay their taxes on time and in full, improving the country's finances. Moreover, 

Hoopes et al. (2018) examined VTD programs' effects on tax remittance trends across countries. 

Those having VTD programs were compared to those without. They observed that VTD programs 

improved tax payments on time. Additionally, fewer people tried to avoid taxes. These VTD 

applications made it easier to know who was paying what, making people more likely to follow the 

regulations. This study reveals that these initiatives help ensure everyone pays their fair amount of 

taxes, making the system more honest and dependable. Hoopes et al. (2018) also found another 



24  

thing. They found that VTD programs clarified tax reporting. The procedure was illuminated, 

making it easier to understand. Clear and open tax reporting fostered a culture of tax accountability. 

When VTD initiatives are implemented, more people pay their taxes properly and become more 

aware of their responsibilities, improving the system for everyone. 

Additionally, Slemrod (2019)   examined   the   behavioral   determinants   affecting   taxpayer 

involvement in VTD programs and tax remittance patterns. They discovered via surveys and 

interviews that VTD programs' fairness and effectiveness strongly affected participants' tax 

remittance decisions. VTD systems that were fair, transparent, and consistent with moral and 

ethical norms encouraged voluntary taxation. The research stresses the relevance of psychological 

and motiVTDPional variables in VTD attempts to promote tax remittance compliance. 

2.4 Summary of Research Gaps  

Existing research on tax amnesty programs offers valuable insights but also reveals significant 

knowledge gaps. While studies provide useful suggestions on the effects of tax amnesty programs 

on compliance and profitability, there's a need for further inquiry into their long-term effects and 

the sustainability of behavioral changes. Moreover, deeper analysis of program design elements 

such as amnesty duration, penalty structures, and outreach campaigns could enhance understanding 

and improve program effectiveness in diverse circumstances. 

Additionally, the current literature predominantly focuses on formal taxpayers, overlooking the 

complexities of integrating the informal sector into the tax system through compliance incentives or 

simplified filing processes. Exploring psychological and behavioral factors like trust in 

government, perceived fairness, and social norms could provide deeper insights into taxpayer 

motivations within amnesty programs. Furthermore, the literature lacks clarity on the cost-benefit 

analysis associated with VTDP following tax amnesty implementations, and much of the existing 

research is based on international contexts, potentially overlooking unique factors pertinent to 

Kenya. Bridging these gaps is essential for evaluating the effectiveness of the Kenyan VTDP, 

informing policy decisions, and shaping future iterations of tax amnesty programs to better serve 

the needs of the country's taxpayers and revenue collection efforts. Through thorough exploration 

of program effects and design features, this research aims to provide valuable insights for 

enhancing the effectiveness and efficiency of tax amnesty initiatives in Kenya.  

 

 



25  

Table 2.1 Research Gaps 

Author Title Findings Gap in Study 

Alm et al. 

(2009) 

Revenue Effects of 

Tax Amnesties: A 

Comparison 

Tax amnesties had minimal 

short- or long-term impact on 

tax revenues, raising questions 

about their effectiveness as 

policy measures. 

Limited research has explored 

the long-term effects of tax 

amnesties, leaving gaps in 

understanding their overall 

impact on tax revenues. 

Jenkins et al. 

(2023) 

Prefilled Tax Returns 

and Tax Amnesty 

Programs: Evidence 

from Chile 

Prefilled tax returns may 

address compliance challenges 

and enhance tax returns, 

indicating potential benefits of 

tax amnesty programs. 

Further research is needed to 

directly assess the cost-benefit 

relationship of tax amnesty 

programs like VTDP, 

particularly in diverse contexts. 

Sari et al. 

(2021) 

Tax Amnesty 

Programs and Tax 

Revenue: A Panel 

Data Analysis 

Tax amnesty programs, along 

with strict tax inspections and 

sanctions, have the potential to 

improve tax revenues and 

compliance. 

Despite evidence suggesting 

positive impacts of tax amnesty 

programs on tax revenues, 

more studies are needed to 

understand their long-term 

effects and sustainability. 

Junpath et al. 

(2016) 

Taxpayer Perceptions 

and Compliance with 

Amnesty Programs: A 

Case Study of South 

Africa 

Amnesty programs did not 

facilitate increased tax 

collection and may have 

incentivized further tax 

evasion, indicating potential 

flaws in their design. 

There is a need for more 

research to investigate the 

nuanced effects of tax amnesty 

programs on taxpayer behavior 

and compliance across 

different contexts. 

Mookherjee 

& Gupta 

(1995) 

Tax Amnesty 

Schemes: Theory and 

Evidence 

Tax amnesty schemes offer 

taxpayers immunity from 

penalties in exchange for 

disclosure, suggesting potential 

benefits in reducing taxpayer 

burdens. 

Further empirical research is 

needed to quantify the impact 

of tax amnesty programs on 

reducing taxpayer penalties 

and liabilities, particularly in 

diverse socioeconomic 

contexts. 



26  

Said (2017) Impact of Tax 

Amnesty Programs on 

Tax-to-GDP Ratio and 

Tax Compliance: 

Evidence from 

Indonesia 

Tax amnesty programs initially 

had adverse effects on 

government revenues but 

showed positive impacts in the 

long term. 

More research is necessary to 

understand the transitionary 

dynamics of tax amnesty 

programs, including their 

short-term disruptions and 

long-term benefits for tax 

compliance and revenue 

collection. 

Bozdoğan & 

Şimşek (2018) 

The Impact of Tax 

Amnesties on Tax 

Revenue: A Case 

Study in Turkey 

Tax amnesties in Turkey led to 

declining tax revenue over 

time, indicating potential 

drawbacks of such programs. 

Further investigation is needed 

to explore the underlying 

mechanisms driving the 

decline in tax revenue 

associated with tax amnesty 

programs, considering 

contextual and policy factors. 

Pramanayogi 

et al. (2022) 

Evaluation of Tax 

Amnesty Programs: 

Insights from Indian 

Taxation 

Tax amnesty programs in India 

had mixed effects on tax 

remittance trends, highlighting 

challenges in program design 

and enforcement. 

Additional research is required 

to identify and address the 

systemic issues affecting the 

effectiveness of tax amnesty 

programs, particularly in 

diverse cultural and regulatory 

contexts. 

 

2.5 Conceptual framework 

The conceptual framework, as defined by Chandran and Menon (2004), encompasses a set of 

interconnected variables that logically represent the key aspects of the situation under study. Adrian 

(2014) further elucidates this definition, emphasizing the framework's role in situating the 

researcher within the research context. By articulating assumptions and perspectives, the 

framework delineates the researcher's stance, indicating areas of alignment or divergence with 

prevailing discussions and issues. In the context of this research, the conceptual framework serves 

to map out the interrelationships between the independent variables and the dependent variable, 



27  

guiding an exploration of their interactions and effects. 

The independent variables identified for this study include the Voluntary Tax Disclosure Program 

(VTDP) and factors such as Tax Compliance (assessed through Tax penalties), Cost-Benefit 

Analysis of VTDP (comparing Tax collected to Tax waived), Tax Revenue Collected, and Tax 

Revenue Trends. These variables are crucial in understanding the dynamics of tax compliance 

behavior and the efficacy of VTDP in revenue generation and tax burden alleviation. The 

dependent variable, VTDP taxes, represents the taxes disclosed voluntarily through the program. 

A critical aspect of the conceptual framework is the inclusion of a moderating variable, Compliance 

Incentives (Tax waived). This variable plays a pivotal role in shaping the relationship between 

VTDP and tax compliance behavior. Compliance incentives, in the form of waived taxes or 

penalties, can significantly influence taxpayers' decisions to disclose their liabilities voluntarily. 

The inclusion of this moderating variable is essential to elucidate its value-added contribution to the 

analysis by examining how compliance incentives moderate the relationship between VTDP and 

tax compliance outcomes. The framework is shown in the Figure 1. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



28  

Independent Variables      Dependent Variable 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 2.1 Conceptual Framework 

Source: Researcher (2024) 

The above conceptual framework identifies the relationship between the selected variables of the 

research and how they are hypothesized. The variable is operationalized as shown in Table 2.2 

 

 

 

 

 

Moderating Variable 
Compliance incentives (Tax 

waived) 
 

 
Tax Compliance (Tax penalties) 

 

Cost Benefit Analysis of 
VTDP (Tax collected vs tax 

waived) 

Tax revenue Collected 

Tax revenue Trends 

Voluntary Tax Disclosure 
Program (VTDP) taxes 



29  

Table 2.2 Operationalization of Variables 

Variable Type Indicators Source of Data Type of Analysis  

Voluntary Tax 
Disclosure 
Program 
(VTDP) 

Dependent • Effect on Tax compliance 
• Effect on Tax revenue 

collected 
• Effect on Tax remittance 

Trends 

Quantitative: 
Surveys, tax 
records 

Descriptive Statistics, 
Quantitative Analysis 

Compliance 
Change 

Independent • Change (Increase) in 
compliance rate  

• Change (Decrease) in 
noncompliance rate 

Quantitative Descriptive Statistics, 
Quantitative Analysis 

Tax Revenue Independent • Change (Increase) in tax 
revenue collected 

• Change (Increase) in 
number of taxpayers added 
to the tax system 

Quantitative: 
Tax records 

Descriptive Statistics, 
Quantitative Analysis 

Tax Waivers Independent • Increase in number of 
noncompliant taxpayers 
disclosing and paying their 
taxes 

• Assessment of penalties 
waived 

Quantitative Descriptive Statistics, 
Quantitative Analysis 

Tax revenue 
remittance 
trends 

Independent • Change in people starting 
to file returns 

• Change in non-compliant 
taxpayers starting to 
comply 

• Change in taxpayers and 
entities constantly paying 
their taxes 

• Change in people doing 
follow-ups about their tax 
status and obligations 

Quantitative Descriptive Statistics, 
Quantitative Analysis 

Compliance 
incentives 

Moderating Penalty waivers Qualitative: 
Perception 
assessment 

Descriptive Statistics, 
Qualitative Analysis 



30  

 

2.7 Chapter summary 

In the literature review, the theoretical approaches to analyze the motivation of taxpayer 

compliance are considered. It elaborates on the economic deterrence model and the extension to 

include social and psychological factors. In the review, it is stressed that both sociological and 

psychological factors should be considered in explaining high levels of compliance, including the 

sense of trust in authorities, the perception of fairness of the tax system, moral issues, and social 

norms. Moreover, it underscores the significance of TPB theory in comprehending taxpayer 

compliance and the importance of investigating how the particular design and implementation of 

tax amnesty arrangements might affect taxpayer compliance by influencing key variables. Also, the 

article provides empirical literature on tax amnesty programs, highlighting the importance of clear 

communication, design of the program, and trust in the government's impartiality for long- term 

compliance behaviour. The review further outlines research gaps like the durability of program 

impacts in the long run, formal sector integration into the tax system, and the psychosocial and 

behavioural factors in amnesty programs. As a whole, the literature review gives an in-depth 

understanding of what affects taxpayers’ compliance and the implications of VTDP on the tax base 

and tax revenue. 

  



31  

CHAPTER THREE 

RESEARCH METHODOLOGY 

	3.1 Introduction 

This chapter discusses the methodological approach for the study, which comprises research design, 

population and sampling, data collection procedure, data analysis methods, data presentation, and 

ethical considerations. 

3.2 Research philosophy 

In the present study, a positivist research philosophy was utilized as the base for understanding 

research knowledge and its nature (Saunders et al., 2003). This approach, also known as a research 

paradigm, included wide theoretical and practical proposals that allowed for managing the research 

work. It was viewed as a careful process where researchers-built bridges between the research 

questions and objectives through proven processes. 

Gliner et al. (2000) further clarified the idea of a paradigm as a particular strategy for thinking and 

studying. Although not a methodology in and of itself, it acted as a guiding philosophy that informed 

how research was conducted. This philosophy, which took into account the individual’s mental 

model, perception, and belief system towards reality, influenced the values and beliefs of the 

researcher, thus ensuring the validity of arguments and the reliability of results. 

Positivist philosophy was adopted as the philosophy in this research because it closely associated 

itself with objectivism (Cooper & Owen, 2007). This method focused on objectivity in the social 

realm, requiring the researcher to discard their values and biases. Scientists working within the 

positivist research paradigm preferred to collect data that was generalizable and collected from large 

samples rather than data gathered from focused investigations. Additionally, this type of 

methodology did not allow the personal beliefs of the researcher to affect the study. Saunders et al. 

(2003) also pointed to how positivism related to the focus on observations and experiments that 

generated simple, quantifiable data. This school of thought was based on the assumption of the 

existence of a singular truth that was not affected by human bias and could be measured and 

observed objectively through standardized procedures.  

 



32  

3.3 Research design 

In terms of the research design for this study, a quantitative approach was chosen due to the nature 

of the study and the type of secondary data involved. The quantitative approaches, including surveys 

and statistical analysis, provided useful tools for variable measurement, pattern detection, and 

broadening the scope of generalization.  

While a causal quantitative research design was deemed a perfect fit for the purpose of the study, 

which aimed to explain the causal relationship between VTDP implementation and improvements in 

compliance, decline in tax burden, tax base expansion, and trends in tax remittance in Kenya, it's 

worth noting that the regression and mean comparison tests employed did not strictly adhere to this 

framework. Despite this, the quantitative approach allowed for a comprehensive understanding of 

causal mechanisms within the process of how the VTDP affected various tax-related indicators, as 

suggested by Gay and Airasian (2003), who highlight that such designs are particularly useful for 

determining the causal impact of one factor on others. Generally, as described by Green and Tull 

(2009), the research design reflects the specific methods and procedures used in collecting the 

required data. It serves not only as the project’s performance guide but also as a data collection plan 

that defines what data will be collected, where it will be collected from, and how. Thus, the chosen 

quantitative approach facilitated the examination of the causal relationships underlying the VTDP's 

effects on tax-related outcomes in Kenya. 

3.4 Data 

The dataset employed consists of panel data encompassing 250 firms and 6 years. It comprises tax 

data collected before and during the adoption of VTDP, sourced from the Kenya Revenue Authority 

(KRA). The sectors included in the dataset encompass manufacturing, services, and finance, and the 

regions covered are urban and rural areas with respective distributions of firms within these sectors 

and regions over the study years. It's worth noting that the data constitutes an unbalanced panel. 

Kothari (2004) defines a population as the entire body of individuals or units from which 

conclusions about a given sampling are drawn. The target data units in this study are tax data 

obtained before and during the adoption of VTDP. According to Mugenda (2008), the essence of 

sampling is to achieve a sample that represents a unit of interest. This is in line with the principle 

that sampling, as defined by Burns and Grove (2010), is the selective process of choosing 

individuals, situations, or behaviours for study. In this research, data collection was conducted to 



33  

reflect information from 2018 to 2023. Secondary data was collected for the period 2018 to 2023, 

capturing two years prior to the implementation of the VTDP (baseline) and its operational period. 

This timeframe allowed for the gathering of baseline data and the observation of the VTDP's 

potential effects on the selected variables over a significant period, facilitating a more accurate 

evaluation of its effectiveness. 

3.5 Data analysis 

A multivariate regression model was employed to evaluate the connections between the independent 

variables and the dependent variable. This model aimed to test the significance of the links between 

the VTDP and tax compliance, the cost benefits of VTDP, and tax collected and revenue trends in 

Kenya. Additionally, the analysis incorporated time series data of five years from 2018 to 2023. 

Before fitting the regression model, the data underwent extensive diagnostic testing to identify 

issues such as heteroskedasticity, serial correlation, fixed effects, and autocorrelation. It's worth 

noting that the data sourced from the Kenya Revenue Authority (KRA) facilitated the analysis. 

3.6 Model specification 

In this study, the benefits of panel data were utilized to analyze the effects of VTDP implementation 

on tax revenue, the enlargement of the tax base, and the reduction of the tax burden in Kenya, 

covering a period of three years: 2020-2023. As noted by Hsiao and Pesaran (2004), the special 

quality of longitudinal data allowed for the examination of more complex dynamic relationships that 

may otherwise have been lost in cross-sectional or time-series analyses. The study used the pooled 

OLS method for analysis. 

The empirical model was as follows: 

Y = 𝛽0 + 𝛽1𝑋1𝑖𝑡 + 𝛽2𝑋2i𝑡 + 𝛽3𝑋3i𝑡 + 𝛽4𝑋4i𝑡 + 𝛽5𝑋5i𝑡 + 𝜀𝑡	

 

Where: 

Yit - Voluntary Tax Disclosure Programme (VTDP)  

β0 - Regression Coefficients constant  

β1….3 - is the coefficients of the regressor variables  

X1 - Tax Compliance Rates 

X2 - Cost Benefits of VTDP  

X3 - Tax Collected 



34  

X4 - Tax Waived  

X5 - Revenue Trends  

εt  - The error term 

3.7 Diagnostic tests 

In order to proceed further with the normality test of the data to explore the effect of VTDP 

implementation on tax revenue, tax base expansion, and tax burden reduction in Kenya, and the 

moderating effect of Compliance incentives, it was essential to check the data suitability for the 

analysis. This involved running a set of diagnostic tests to address various problems, such as 

heteroskedasticity, serial correlation, fixed and random effects, autocorrelation, multicollinearity, 

and stationarity. Table 3.1 provided a comprehensive overview of the tests that were conducted, 

outlining the specific criteria that were employed for decision-making in each case. 

Table 2: Diagnostic tests 

Source: Author (2024) 

Test Used Test Parameter Interpretation 

Time Fixed Effects Testsparm test If the p-value exceeds 0.05, it suggests that the 

coefficients for all years are statistically 

indistinguishable from zero. In such a scenario, the 

null hypothesis stating the absence of time-fixed 

effects cannot be rejected. Consequently, introducing 

a two-way fixed effects model or dummy variables 

for each year becomes unnecessary, as the data 

doesn't warrant accounting for distinct year-specific 

effects. 

Heteroskedasticity Wald Chi-square test If the P-value < 0.05, the presence of 

Heteroskedasticity is confirmed. 

Serial correlation Wooldridge Drukker 

test 

If the p-value associated with the relevant test 

exceeds 0.05, it indicates that the null hypothesis of 

no first-order autocorrelation cannot be rejected. In 

simpler terms, this suggests that the observed data 

does not exhibit significant serial correlation. 



35  

Multicollinearity VIF If the p-value associated with the relevant test 

exceeds 0.05, it indicates that the null hypothesis of 

no first-order autocorrelation cannot be rejected. 

Unit 

roots/stationarity 

Levin-Lin-Chu Unit 

test for ICFs/ Harris-

Tzavalis test for icfs 

If the p-value associated with the test statistic falls 

below 0.05, it signifies that the null hypothesis of a 

unit root can be rejected. 

Normality Jacque Beta test If P > 0.05, then this implies normality. 

 

3.7.1 Heteroscedasticity 

As noted by Woodridge (2005) and Baltagi (2008), even though OLS estimators were still unbiased 

and consistent under heteroscedasticity, the standard errors became distorted, affecting the accuracy 

of t-statistics and F-statistics for hypothesis testing. In this research, the Breusch-Pagan-Godfrey test 

was used to test for heteroscedasticity. If the null hypothesis of homoscedasticity was rejected (p-

value < 0.05), it indicated unequal error variances across the observations. This situation demanded 

robust standard errors to mitigate the impact of heteroscedasticity on hypothesis testing. 

3.7.2 Auto Correlation 

Another potential issue in time series analysis was autocorrelation, where error terms in specific 

periods depended on those in earlier periods (Woodridge, 2005). Autocorrelation could bias the 

standard errors of estimated coefficients, leading to inaccurate results and