Effect of Tax Audits on Tax Compliance on Monthly Residential Rental Income in Kawangware Area, Nairobi, Kenya

Abstract

Purpose: Tax non-compliance limits the capacity of governments to raise revenue for development and recurrent expenditure purposes. One of the strategies used by Kenya Revenue Authority to address tax non-compliance is the use of tax audits. However, it is not clear whether use of tax audits creates the intended purpose of enhancing tax compliance. The general objective of the study was to determine the effect of tax audits on tax compliance on monthly residential rental income in Kawangware area, Nairobi, Kenya. The study sought to examine the effect of desk audit, field audit and correspondence audit on tax compliance on monthly residential rental income in Kawangware area, Nairobi, Kenya. Methodology: The sample size was 179 taxpayers in the Monthly Rental Income category registered with Kenya Revenue Authority. The study relied on primary research data that was extracted using structured questionnaires. Findings: The study obtained a 69% return rate. The study concluded that correspondence audits have positive and significant effects on tax compliance on monthly residential rental income in Kawangware area, Nairobi, Kenya. Findings highlight that while desk and field audits did not have a significant effect on tax compliance. Unique Contribution to Theory, Practice and Policy: Based on this finding, the study recommends that policymakers strive to enhance compliance by increasing the quality and depth of tax education. The study also recommends that that policy makers ensure they make the compliance process easier to encourage compliance behavior and initiate tax education in schools to cultivate a culture of compliance early and also shape perceptions of tax compliance as a responsibility and that the tax system is fair.