Influence of Government Spending on Tax Compliance in the Informal Sector in Kenya : Survey of Nyeri Town

DOI: 10.21276/sb.2017.3.10.13 Abstract: Tax non-compliance reduces tax collection and the tax performance within a country. The Kenyan government has implemented various strategies to bring businesses in the informal sector into the tax bracket. However, available data shows that tax collections from the informal sector are above average but on a declining trend. The purpose of this study was to identify predictors of tax compliance in the informal sector in Nyeri Town. Specifically the study aimed to assess how tax rates, attitudes towards government spending, complexity of tax returns and tax enforcement strategies influence tax compliance. The study adopted a cross-sectional survey design and targeted 715 informal businesses in Nyeri Town. Stratified random sampling technique was used to select 143 informal businesses to participate. Researcher-administered questionnaires were used to collect data from the respondents. Descriptive methods such as frequency distribution, percentages, mean, were used to summarize and organize data. Chi-square tests and correlation analysis were employed to establish relationships between study variables. Findings were presented using tables of frequencies and percentages. Majority (66%) agreed that there was too much corruption in the government. Attitudes towards government spending (p=0.001) had a significant relationship with tax compliance at 95% confidence level. The study concluded that, attitudes towards government spending, is important predictor of tax compliance in the informal sector. It was recommended that the government should seek to end corruption in all sectors to enhance tax compliance.