Effect of Tax Literacy on Digital Income Tax Compliance among E-Commerce Traders in Nairobi, Kenya

Abstract

Purpose: The global digital economy has created a disruptive market where goods and services are exchanged online without requiring a physical presence at the point of sale. This poses a challenge for many governments worldwide in terms of collecting appropriate tax revenues from these digital platforms. The purpose of this study was to determine the effect of tax literacy on digital income tax compliance among e-commerce traders in Nairobi, Kenya. The theory that guided this study was the unified theory of acceptance and use of technology. Methods: Explanatory research design was used in this study. The target population was 130 e-commerce traders in Nairobi, Kenya and a census survey was applied. The survey had 110 responses, which thereby 84.6% response rate. Questionnaires were used to collect primary data and analysis included both descriptive and inferential statistics. Null hypothesis was tested at 95% confidence level, and consequently, a significance level of 0.05 using the multiple regression analysis. Results: The findings reveal that tax literacy has a positive and significant effect on digital income tax compliance among e-commerce traders in Nairobi, Kenya (β=0.206, p-value=0.004). Conclusion: The Kenya Revenue Authority (KRA) should implement comprehensive education programs to increase tax literacy among e-commerce traders. These programs could focus on simplifying complex tax laws, providing practical guidance on compliance, and leveraging digital platforms for easy access to information. Future studies may examine the impact of psychological factors, such as taxpayer morale, on digital income tax compliance.