Electronic Filing and VAT Compliance among Small and Medium-Sized Enterprises in Eldoret, Kenya: Empirical Evidence and Policy Implications

Abstract

Value Added Tax (VAT) is a cornerstone of tax revenue mobilization in many economies, yet its compliance rates remain uneven, especially among small and medium-sized enterprises (SMEs). To address persistent gaps, many tax administrations have embraced digital reforms, with electronic filing (e-filing) emerging as a leading innovation. This study adopted an explanatory survey research design to investigate the effect of e-filing on VAT compliance among SMEs in Eldoret City, Kenya. Using survey data collected from 275 VAT-registered SMEs in Eldoret City, Kenya. Using survey data collected from 275 VAT-registered SMEs and analyzed through linear regression, the paper isolates the contribution of e-filing to compliance outcomes. Results reveal a positive and statistically significant effect (β = 0.30, p < 0.001), with e-filing explaining 27 percent of the variance in VAT compliance. Findings demonstrate that SMEs using the iTax system are more likely to submit accurate, timely, and complete VAT returns than those using manual methods. However, the explanatory power of the model indicates that e-filing alone is insufficient and that complementary factors such as taxpayer education, ICT infrastructure, and system usability play vital roles. The paper concludes that while e-filing has transformed compliance dynamics, its effectiveness hinges on integrating technological reforms with broader taxpayer support. Policy recommendations include simplifying the iTax interface, expanding localized training in towns such as Eldoret, investing in ICT infrastructure, and embedding automated reminders in the system. These insights offer practical implications for strengthening VAT compliance in Kenya and contribute to the global discourse on digital taxation reforms.