Effect of Digital Record Keeping on Turnover Tax Compliance Among Youth-Owned Micro and Small Enterprises in Central Business District, Nairobi, Kenya

Abstract

Tax compliance plays a pivotal role in fostering economic growth across the globe, spanning both developed and developing nations. However, turnover tax compliance in Kenya has been low compared to other taxes, such as VAT, income tax, among others, despite it being mostly introduced to enhance tax compliance among youth owned youth-owned micro and small enterprises (MSEs). Nevertheless, there are limited studies that have attempted to understand business digitalisation and its effect on turnover tax compliance. Therefore, the general objective of this study was to determine the effect of digital record keeping on turnover tax compliance among youth-owned micro and small enterprises in the central business district, Nairobi, Kenya. The study was anchored on diffusion innovation theory. An explanatory research design was employed. The study target population of 3,218 registered youth-owned MSEs within Nairobi CBD. Stratified and random sampling were used to select a sample size of 356. The study used five-point Likert scale questionnaires to collect primary data. Data was quantitatively analysed by use of both descriptive (means, frequency, percentage, and standard deviations and inferential analysis (Pearson correlation and linear regression model). The beta coefficient results revealed that digital record keeping (β = 0.204, p = 0.013) had a statistically significant and positive effect on turnover tax compliance. Digital record keeping was found to have a significant impact on turnover tax compliance, with evidence suggesting that a supportive and equitable tax structure amplifies this effect. Managers and policy enforcers should prioritize initiatives that promote routine and accurate digital bookkeeping among youth-led enterprises. Further studies could explore how factors such as taxpayer education, trust in tax authorities, and peer influence mediate or moderate these relationships.