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IOSR Journal of Business and Management (IOSR-JBM)
e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 18, Issue 10. Ver. II (October. 2016), PP 82-92
www.iosrjournals.org
DOI: 10.9790/487X-1810028292 www.iosrjournals.org 82 | Page
Influence of Online Tax Filing on Tax Compliance among Small
and Medium Enterprises in Nakuru Town, Kenya
Ondara Thomas Gwaro1, Dr. Kimani Maina2, Dr. Josphat Kwasira3
1Master of Business Administration (Finance) student at Jomo Kenyatta University of Agriculture and
Technology, Nakuru Campus, Kenya.
2Lecturer at Jomo Kenyatta University of Agriculture and Technology, Nakuru Campus, Kenya.
3Senior lecturer at Jomo Kenyatta University of Agriculture and Technology, Nakuru Campus, Kenya.
Jomo Kenyatta University of Agriculture and Technology P.O Box 62000-00200, Nakuru
Abstract: The Kenya Revenue Authority has introduced online filing through the iTax system that replaced the
Integrated Tax Management Systems. The online filing of tax returns introduces benefits that were not possible
through manual filing of the tax returns. These benefits include the element of convenience to the taxpayer,
reduced costs on the revenue authority, and quality data on tax returns due to elimination of data entry errors
associated with manual filing. This study aims to assess the level of awareness regarding online filing of tax
returns in the context of the Small and Medium Enterprises in Nakuru. The Small and Medium Enterprises in
Nakuru Central Business District have been chosen owing to the fact that Nakuru town is the fastest growing
town in East and Central Africa due to the high number of Small and Medium Enterprises in the town. The
specific objectives of the study included examination of the effect of computer literacy on tax compliance among
Small and Medium Enterprises in Nakuru, examination of the impact of online tax filing on tax compliance
among Small and Medium Enterprises and an examination of perceived security on tax compliance. The study is
based on four theories as part of the theoretical framework, that is, the Theory of Technological Acceptance
Model, Unified Theory of Acceptance and Use of Technology, Theory of Reasoned Action and Diffusion of
Innovation Theory. These theories deal with the factors influencing the adoption of new information systems
such online filing. The study utilized the survey descriptive research design in which quantitative data was
collected through use of primary data collection techniques. Primary data was collected using questionnaires. A
sample size of 100 respondents from the Small and Medium Enterprises in Nakuru was utilized. The study found
amongst the independent variables only the computer literacy had significant effect on the influence tax
compliance levels amongst Small and Medium Enterprises in Nakuru.The multiple correlation effect of 0.954
indicates a relatively strong positive relationship effect between the three independent variables and the
dependent variable. The coefficient of determination (R Square) indicates the variance on the dependent
variable attributed to the three independent variables. In this context, the coefficient of determination (R
Square) of 0.911 indicates that the three independent variables contributed to 91.1% of the variance in the
dependent variable.
Keywords: Tax Compliance, Small and Medium Enterprises, Online Tax Filing
I. Introduction
Governments are adopting Information and Communications Technologies (ICT) to improve on
service delivery, enhance convenience among citizenry and increase accessibility to government information is
on the rise (Azmi & Kamarulzaman, 2010). Introduction of the electronic tax filing is a major form of electronic
government services (Lai & Choong, 2010). The various governments in the world are also introducing
electronic tax filing in order to achieve greater tax administrative and compliance efficiency (Mandola, 2013).
Governments around the world are introducing electronic filing of the tax returns due to the various advantages
associated with it (Young, 2012).
Among these advantages include convenience of the taxpayers as they are able to file tax returns at
home or cybercafés, and eliminates or reduces errors associated with manual filing as the system auto checks
the application (Osebe, 2013). Other advantages include reduced workload and cost for the tax collector among
amongst others (Simiyu, 2013). However, there are challenges associated with the online filing including
taxpayer’s perception, challenges associated with learning the electronic filing system from service provider,
limited accessibility of internet infrastructure and electronic filing system down times (Azmi & Bee, 2011).
Several countries have had different experiences in regards to the electronic filing of tax returns.
Electronic filling of tax returns was first done in the Unites States of America in 1986 (Lai & Choong,
2010). Several countries in both the developing and developed countries have since adopted the electronic filing
system. For example, Uganda through the Uganda Revenue Authority (URA) introduced Electronic filling of
tax in 2009 (Auyat, 2013). In South Africa, the services were introduced in 2003 by the South African Revenue
Influence of Online Tax Filing on Tax Compliance among Small and Medium Enterprises in Nakuru...
DOI: 10.9790/487X-1810028292 www.iosrjournals.org 83 | Page
Services (SARS) with significant developments in 2006 while in Malaysia, the services was implemented by the
Inland Revenue Authority (Ferreira, 2008; Razak, 2009).
In South Africa, there are three ways of tax returns including the manual returns, electronic filling (e
filing) of tax returns and electronic based form filing of tax returns (Ferreira, 2008). The manual tax returns
include filing the manual tax return forms from the South African Revenue Services (SARS) and returning the
completed forms to the authority. The electronic form filing involves filling the manual equivalent of the form
electronically and printing the form for submission to the authority(Ibrahim, 2012).
The E filling of the tax returns in South Africa involves the electronic filling and submission of the tax
returns. There are several benefits that have been realized in the South African context in regards to online tax
returns. These includes extended time for tax payers to submit their returns that is up to January of the preceding
year as opposed to October of a current year for the tax returns (Ferreira, 2008). The major challenges with the
e filing of the tax returns in South Africa included software requirements of the SARS program that utilized
adobe acrobat 8 software. This software required at least a Pentium 11 computer to run which was not widely
available in South Africa at the time of e filing introduction. The issue of comprehensive online help menus was
a challenge as well as the navigation of the e filing site (Lai & Choong, 2010).
In Malaysia, the Inland Revenue Board (IRB) introduced the electronic filling of the returns (e filing)
(Razak, 2009). The E filling in Malaysia involved four basic steps that is enrollment and verification of the
digital signature, the entering of the gross earnings, relief and deductions before the system automatically
calculates the tax amount due. The IRB receives the submission electronically and the verified tax form returned
emailed back to the taxpayer (Razak, 2009). Razak (2009) notes that the challenges encountered in the use of
the e filing in Malaysia included technological challenges such as standards, data integration, legacy
maintenance, privacy and security.
In Kenya, the earliest form of the online filing of tax returns was through the implementation of the
Integrated Tax Management System (ITMS) in 2013. This was to facilitate the online payments of Value Added
Tax (VAT), Cooperate Tax amongst others (Lukorito, 2012). The ITMS also connected the Electronic Tax
Registers (ETR) devices (registers) to enable simplification of the VAT declarations. The ITMS enabled the
taxpayers to undertake electronic filling. In the context of the system requirements, the ITMS required internet
explorer 7 or higher of Mozilla Firefox 3.0.3 (Mandola, 2013). Kenya Revenue Authority (KRA) was to later
phase out the ITMS and replaced it with the iTax system. The iTax enabled the taxpayer to undertake internet
based registration, filing, paying and status inquiries with real time monitoring of the accounts (Mandola, 2013).
The electronic filing or online filing of tax returns is a general term for electronic filing or electronic
lodgment or electronic declaration of tax returns through submission of tax data to a taxing authority in a
computer file format through an internet connection (Ibrahim, 2012). On the other hand, Mandola (2013)
defines electronic filing as an internet based system that enables the taxpayers to register and submit their tax
returns over the internet. The platform or system could have an inbuilt software that has been pre-approved by
the relevant tax authority to assist the taxpayers in calculating and consequently submit the correct amount of
tax due (Mandola, 2013). The e-filing incorporates the process of registration, tax preparation, tax filing and tax
payment (Lukorito, 2012). The taxpayer requires access to a computer, the tax software, a reliable internet
connection and the knowledge to utilize the electronic filing (Hussein, Mohamed, Ahlan, Mahmud, &
Aditiawarman, 2010).
Ada (2009) classifies the tax administration into either the British or American Model. The British
model assumes the incompetence of the tax payers and hence audits and independently verifies the supplied data
on tax returns (Nakiwala, 2010). On the other hand, the American model runs on a voluntary compliance system
which assumes the competence of the taxpayer and hence only independently verifies about 5% of the tax
returns (Auyat, 2013). There are however heavy penalties for non-compliance (Auyat, 2013).
There are several advantages associated with the online tax filing including convenience as the filing
can be done any time (day and night) and within one owns comfort e.g. at home (Geetha & Sekar, 2012). There
is also an element of the certainty of delivery and quick confirmation of the delivery as the online tax system
confirms successful receipt of the taxpayers’ submission. The online tax returns also eliminates data entry errors
as the system automatically ensures that the data has been filled in the correct places(Hussein et al., 2010).
Finally, document handling and storage is easier (Lukwata, 2011).
According to Ada (2009) taxation is the enforced proportional contributions from persons and property,
levied by the state, by the virtue of its sovereignty, for the support of government and for all public needs. On
the other hand Muhangi (2012) defines tax as a compulsory level imposed by government ( central or local) on
the profit, income, wealth or consumption (e.g. sales or VAT) of an individual or estate through trustee or
executor and corporate organization. Auyat (2013) further defines tax as a financial charge or other levy
imposed upon a taxpayer (an individual or non-individuals) by a state or functional equivalent of a state, such
that failure to pay is punishable by law. Auyat (2013) further defines tax as compulsory contribution from the
person to government to defray the expenses incurred uncommon interest of all without reference to special
Influence of Online Tax Filing on Tax Compliance among Small and Medium Enterprises in Nakuru...
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benefit concurred. In summary, tax can be defined as the compulsory contribution levied by a sovereign power
on the incomes, profits, goods, services or properties of individuals or corporate persons, trusts and settlements,
which when collected, are used for carrying out government functions (Ada, 2009; Auyat, 2013; Muhangi,
2012). There are several element of tax including the tax base, tax rate and tax yield (Ofori, 2009). The tax
base is the legal description of an object on which tax is imposed or charged which can be the income of the
taxpayer, gain from certain activities he engaged in, property or asset owned or some services received (Simiyu,
2013). On the other hand, the tax rate is the proportion of tax base that is payable as tax while tax yield is the
total amount of revenue generated from tax (Ramoo, 2006). There are two tax classifications that is the direct
versus indirect taxes and the proportional versus progressive loans (Odongo, 2014). The direct taxes are those
that affect the individual directly through a deduction from earnings. On the other hand, the indirect taxes are
those that are paid to the government by an intermediary and then passed on to the final user by including the
tax in the final price (Nakiwala, 2010). Examples of direct taxes include income tax, property tax etc. On the
other hand, the examples of indirect taxes include export and import duties, excise and local production, value
added tax (VAT) and others (Ofori, 2009). The tax is said to be progressive if when with increasing income the
tax liability not only increases in absolute terms but also proportionate to income (Simiyu, 2013). On the other
hand, Ada (2009) defines proportional tax as form of tax that assesses a taxpayer to tax at flat rate on his total
assessable income and as such the tax is payable proportional to the taxpayer’s income. The progressive tax is a
form of tax that is graduated as it applies to higher rates of tax as income increases (Ferreira, 2008).
According to Ssetuba (2012), tax compliance is the ability to pay taxes on time and timely reporting of
the correct tax information. Other definitions of tax compliance concentrate on the accuracy of the information
contained in the tax returns and the cost of making the tax returns. For example, Auyat (2013) defines tax
compliance as the supply of accurate and timely lodgment of income tax return together with the required
payments whenever due. There are two types of tax compliance; voluntary and involuntary tax compliance
(Mandola, 2013). The voluntary tax compliance requires no state enforcement for the taxpayers to comply with
the tax requirements in contrast to the involuntary tax compliance (Hussein et al., 2010).
Tax compliance is concerned on the timely and accurate submission of tax remittance information to
the revenue authority. The online filing system has a direct impact on the tax compliance levels (Nakiwala,
2010). The system ensures that the taxpayer has filled all the required mandatory fields before allowing him to
proceed to the next level. This has the effect of ensuring that the revenue authority receives relatively high
quality data compared to the manual returns of the data (Nakiwala, 2010). The online filing of the tax returns
ensures that there is lack of inconsistencies, missing information and unintentional errors (Mandola, 2013).
SMEs are faced with numerous challenges in the context of taxation. For example, Odongo (2014)
found tax compliance levels among the SMEs in Uganda to be very low. There are several factors that led to low
tax compliance levels in Uganda including poor book keeping, low sales turn overs , and frequent ownership
changes of SMEs (Nakiwala, 2010). Other challenges include large proportion of SMEs who are ignorant of
taxation processes and computations, and lack of comprehensive sensitization programmes by the Uganda
Revenue Authority (URA) (Odongo, 2014).
There are challenges associated with the tax compliance levels among the SMEs in Kenya due to the
nature of the firms (Simiyu, 2013). The turnover tax in Kenya introduced through the Finance Act of 2007
specifically targets the SMEs especially those with less than 5 million annual gross income (Osebe, 2013). Some
of the challenges facing the taxation of the SMEs in Kenya include the fact that small businesses are normally
owned by the owners who are also in charge of the accounting book (Muhangi, 2012). There is thus less
incentive to comply with tax requirements.
II. Literature Review
Theoretical Review
The theoretical framework is going to be based on the Theory of Technological Acceptance Model
(TUM). The theory of TAM was formulated in 1989 as a derivative of the Theory of Reasoned Action (TRA) in
an attempt to explain the user acceptance and adoption of new technology (Hussein et al., 2010). The key
features of the TAM is the perceived ease of use and usefulness .The perceived usefulness is defined as the
degree to which a person believes that a particular technology will enhance his performance (Azmi & Bee,
2011). On the other hand, the perceived ease of use is the degree to which the person believes that using a
particular system will be free from of effort. The Behavioural Intent is the extent to which an individual intends
to perform a specific behaviour (Ramoo, 2006). The TAM theory argues that perceived usefulness and
perceived ease of use influences the computer user’s intention and actual usage of anew information system
(Hussein et al., 2010). There are varied thoughts among the scholars on whether the perceived usefulness or the
perceived ease of use is the primary determinant in the usage of a new information system (Azmi & Bee, 2011).
Azmi & Bee (2010) included perceived risk in their study The Acceptance of the e-Filing System by Malaysian
Influence of Online Tax Filing on Tax Compliance among Small and Medium Enterprises in Nakuru...
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Taxpayers: A Simplified Model. The perceived risk was being used increasingly in studies touching on e
governance. In their model, the y introduced perceived risk with two facets; privacy risk and performance risk.
Azmi & Bee (2010) defined perceived risk as taxpayers’ perception on the reliability of the system’s
usefulness/functionality and the control of their personal data information in an online environment. They
further defined privacy risk as the concerns over the safeguard of various types of data that are collected during
taxpayers’ interaction with the e-filing system due to concerns on third parties accessing their personal
information. The performance risk refers to the possibility of the system failing to deliver on its promises. In the
study on the interaction between the perceived risk and the traditional perceived usefulness and the perceived
ease of use, Azmi & Bee (2010) argue that complex systems that take time to learn are considered risk to adopt
and use.
Impact of Computer Literacy Levels on Tax Compliance
The computer literacy level and accessibility to internet infrastructure has a direct impact towards the
use of the online tax returns (Auyat, 2013). The online tax services are often internet based platforms and basic
knowledge of the usage of the internet is required (Azmi & Bee, 2010). In this context, the user must be able to
self-navigate on the web-based platform with minimal difficulties if any and use the self-help menus available in
the website (Hussein et al., 2010). Mandola (2013) noted that half the sampled respondents in her study on the
adoption of ITMS system indicated that any online e government services needs to be easy to use to enable even
those with little internet experience to effectively use the service. In this context, she found a correlation
between an individual’s internet experience, the availability and access to internet facilities, and the ease in
which the potential user can learn and use e government services such as online filing.
The lack of the appropriate computer literacy levels therefore makes online tax filing expensive
(Osebe, 2013). Lack of the ability to use the e filing system quickly and efficiently or lack of understanding the
type of information required by the online tax filing system forces taxpayers to engage third parties (Mandola,
2013). These third parties could be the cybercafé attendants and would charge premium for such services
(Odongo, 2014). The net effect is that it becomes expensive to use online tax filing in contexts where the
taxpayer is computer illiterate hence a preference for the manual filing (Ofori, 2009). The taxpayer may also
opt to execute the electronic filling on their own despite the challenges in navigating the online system
(Muhangi, 2012). The difficulties in the ability to navigate the online filing system quickly and efficiently
without constantly referring to the help menus or consulting third parties results in prolonged time taken to
complete the online filing (Ramoo, 2006). The tax payer may therefore be burdened by the time and effort spent
learning the system and hence influence the adoption of the system (Lukwata, 2011).
Impact of Perceived Security Risks Concerns on Tax Compliance
The dependent on the third parties to assist a tax payer undertake online tax returns has the effect of the
tax payer losing data privacy (Lai & Choong, 2010). The taxpayer need to reveal personal financial details about
his business such as the income derived from the business (Lukwata, 2011). A majority of the taxpayers may not
be comfortable divulging such information to third parties who are not connected to their business (Ramoo,
2006). This is because it exposes them to security risk of being robbed. In this context, the taxpayer may opt to
fill the manual tax returns in a bid to protect the privacy of his data (Ssetuba, 2012). The lack of the computer
literacy in general and the lack of confidence around the online filing system may lead to psychological
predispositions that may influence the adoption of electronic filing (Muhangi, 2012). For example, Mandola
(2013) argues that a feeling of increased anxiety and stress due to lack of experience or comfort with using
technology or feeling threatened by technology could prevent a customer being inclined to adopt the e filing
system. Concerns over security issues or perceived risks on the usage of the online filing services inhabit its
adoption. Ramoo (2006) argues that perceived risk influences the adoption and usage of the online filing. The
perceived risk is defined as the taxpayers’ perception on the reliability of the system’s usefulness/functionality
and the control of their personal data information in an online environment (Ramoo, 2006). In this context,
taxpayers using the online could be concerned on whether third parties can access their personal tax information
without their knowledge or permission (Geetha & Sekar, 2012). The failure of the system to deliver on its
objectives due to either technical issues or other reasons affects the potential users’ adoption of the system. In
this context, Kamarulzaman & Azmi (2010) argues that the risk factor that taxpayers’ perceived to have towards
the system, which promise to complete their transaction securely and to maintain the privacy of their personal
information, will affect their voluntary adoption of the e-filing system.
Impact of Online Tax System Stability on Tax Compliance
The online tax filing system must be stable to handle the high traffic during the peak times. In this
context, Kamarulzaman & Azmi (2010) argue that the online system must run smoothly and efficient during the
Influence of Online Tax Filing on Tax Compliance among Small and Medium Enterprises in Nakuru...
DOI: 10.9790/487X-1810028292 www.iosrjournals.org 86 | Page
peak times especially closer to the deadlines. The inability of the system to handle huge information during the
peak hours and may change the perception of the users that the system in unreliable (Nakiwala, 2010).
Customers in this context may thus opt to utilize the manual filing due to the perception that the system is
always unreliable (Mugo, 2013). According to Azmi & Bee (2010), improvement on the e filing systems that
will enhance the tax payer’s perceived ease of use, usefulness and reduced riskiness of the system are essential
in the adoption of the e filing system. Mugo (2013) notes that reducing taxpayer’s perception of risk in
electronic filing not only increases their perception on the usefulness of the electronic filing but also leads them
to adoption of the system.
Ramoo (2006) argues that computer anxiety affects the adoption of the electronic filing of tax returns.
The computer anxiety is defined as the fear and the apprehension felt by an individual when considering the
utilization of the computer technology or when actually using it (Nakiwala, 2010). There are two components of
computer anxiety that is the cognitive and the emotive components. The cognitive component underlies the
negative expectancies and the emotional expectancy leads to negative physiological reactions (Ramoo, 2006).
The computer anxiety has been shown to impact on the perceived ease of use, computer use and computing
skills which leads to the low adoption of the electronic filing system. The computer anxiety is most likely to be
an issue among the illiterate, semi illiterate and the elderly taxpayers (Hussein et al., 2010). Some of the traders
in the SME sector have relatively low education levels which may reduce their confidence around computer
technologies such as the online filing system.
III. Objective of The Study
The specific objectives of the study were as follows;
1. To establish the impact of the computer literacy aspects of online tax filing on tax compliance among small
and medium enterprises in Nakuru, Kenya
2. To examine the impact of perceived security risks concerns of online tax filing on tax compliance among
small and medium enterprises in Nakuru, Kenya
3. To determine the impact of the online tax system stability of online tax filing on tax compliance among
small and medium enterprises in Nakuru, Kenya
IV. Research Hypotheses
The following research hypothesis guided the study;
H01: There is no significant relationship between computer literacy levels and tax compliance among small and
medium enterprises in Nakuru, Kenya
H02: There is no significant relationship between perceived security risks concerns and tax compliance among
small and medium enterprises in Nakuru, Kenya
H03: There is no significant relationship between online tax system stability and tax compliance among small
and medium enterprises in Nakuru, Kenya
V. Methodology
According to Ada (2009), a research design refers to the explanation of the method adopted in carrying
out of the research and is thus a plan or structure of any aspect of the research procedure. The descriptive
research technique will be used in the study. According to Simiyu (2013) a descriptive study enables the current
description of the phenomena being studied. On the other hand, Chepkangor (2012) argues that descriptive case
studies are used to describe an event/process in its natural ambit and the main objectives is to answer how, who
and what questions. This research technique is ideal in the context that the researcher was interested in
examining the factors influencing the adoption of the online tax filing among the SMEs in Nakuru CBD. The
questionnaires were used to describe an existing phenomena by asking individuals about the perception,
attitudes and behaviour or values (Kipkenei, 2012).The target population of this study is the SMEs within
Nakuru County. According to Kariuki (2013), there are about 20,355 registered SMEs within Nakuru County
which were used as the target population for this study. This study employed Nassiuma’s (2009) formula to
calculate the size of the sample. The formula to scientifically derive the sample from the target population is
illustrated hereunder.
22
2
1eNC NC
n
Where
n = sample size
N =size of target population
C = coefficient of variation (0.5)
e = error margin (0.05)
Substituting these values in the equation, estimated sample size (n) were:
Influence of Online Tax Filing on Tax Compliance among Small and Medium Enterprises in Nakuru...
DOI: 10.9790/487X-1810028292 www.iosrjournals.org 87 | Page
n = 20,355(0.5)2 / (0.52+ (20,355-1)0.052))
n = 99.51 that is 100 respondents
The study used 100 respondents as the sample size.
The study utilized 100 sample size derived through the use of Nassiuma’s (2009) formula. Therefore,
100 questionnaires were distributed to potential respondents. The questionnaires that were returned were 91
making a response rate of 91%. This high response rate was attributed to efforts made to increase the response
rate such as constant reminders through short text messages on the need to fill the questionnaires on time. The
telephone contacts had been collected at the point of questionnaire distribution. A response rate of 91% was
deemed sufficient as it exceeded the 80% minimum threshold recommended by researchers.
VI. Findings and Discussions
Computer Literacy Levels
The frequency distribution of the computer literacy level were illustrated in Table 1
Table 1; Computer Literacy Levels
The following computer literacy levels have
played a significant role in tax compliance
amongst SMEs;
SA
Freq. (%)
A
Freq. (%)
U
Freq. (%)
D
Freq. (%)
SD
Freq. (%)
5)
Proficiency of internet usage
43 (47.3)
25 (27.5)
14 (15.4)
9 (9.9)
0 (0.0)
6)
Basic computer trouble shooting skills
16 (17.6)
35 (38.5)
20 (22.0)
20 (22.0)
0 (0.0)
7)
Understanding of itax site navigation process
55 (60.4)
26 (28.6)
10 (11.0)
0 (0.0)
0(0.0)
8)
Ability to use self-help menus on itax platform
21 (23.1)
40 (44.0)
15 (16.5)
15 (16.5)
0 (0.0)
9)
Ability to determine successful application
50 (54.9)
25 (27.5)
12 (13.2)
4 (4.4)
0 (0.0)
In the context of the proficiency of internet usage affecting tax compliance, a majority of 47.3% of the
respondents strongly agreed that it did affect tax compliance. This is attributable to the fact that the online tax
returned is internet based and as such proficiency of internet usage is a key requirement. This also is the reason
attributed to the minimum number of respondents that is 9.9% who disagreed that it affect tax compliance. The
majority of the respondents 38.5% agreed that basic computer trouble shooting skills affected the tax
compliance compared to 22% who disagreed. This is attributable to the fact that the online tax returns is a self-
help and self-navigation module in which the user is needs to have little technical know-how in trouble shooting
in times of challenges. On the other hand, a majority of 44% of the respondents agreed that ability to use self-
help menus on itax platform affects the tax compliance. This high percentage is attributed to the module of
online tax returns which is self-navigated at the itax platform with no onsite help from KRA officials. Finally,
the ability to determine successful application affects tax compliance as agreed by a majority of 54.9% of the
respondents.
Table 2; Means and Standard Deviation of Computer Literacy Levels
N
Min
Max
Mean
Std.Dev.
5)
Proficiency of internet usage
91
1
5
4.12
1.00
6)
Basic computer trouble shooting skills
91
1
5
3.51
1.03
7)
Understanding of itax site navigation process
91
1
5
4.49
0.68
8)
Ability to use self-help menus on itax platform
91
1
5
3.73
0.99
9)
Ability to determine successful application
91
1
5
4.32
0.86
Valid N (listwise)
91
The means and standard deviations of computer literacy were examined. The respondents on average
tended to agree that the proficiency of internet usage had an impact on the tax compliance levels due to a mean
of 4.12 and a standard deviation of 1.00. In the context of the basic computer trouble shooting, the respondents
on average tended to agree that it impacted on tax compliance due to a mean of 3.51 and a standard deviation of
1.03. Similarly, the understanding of itax site navigation as impacting on the tax compliance levels had a
majority of the respondents on average agreeing to the same due to a mean of 4.49 and a standard deviation of
0.68. On the other hand, in relations to the ability to use self-help menus of itax platform the respondents on
average agreed that it had an impact on the tax compliance due to a mean of 3.73 and a standard deviation of
0.99. Finally, in relations to the ability to determine successful application had the respondents on average
tending to agree due to a mean of 4.32 and a standard deviation of 0.86.
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Security Concerns
The results for the security concerns were presented in Table 3;
Table 3; Frequency Distribution of Security Concerns
A majority of 39.6% of the respondents strongly agreed that they were uncomfortable revealing
business information to cyber attendants for assistance in tax filing. This can be attributed to the fact the
information that would normally presented gives an overview of the financial performance of their businesses.
On the other hand, a majority of 44% of the respondents agreed that information revealed to third parties during
tax returns may place their businesses at security risk. This was attributed to the fact that the information
presented discussed on the financial performance of their businesses which could be revealed by third parties to
criminals. It was only a small percentage of 15.4% of the respondents who were uncertain on the given issue.
Similarly, a majority of 52.7% of the respondents feared that the information presented to third parties during
online tax filing may be revealed to their competitors. This is because handling of the data by third parties such
as cyber attendants may be handled professionally. This is revealed by a majority of 37.4% of the respondents
who felt that their data will not be handled professionally by cyber attendants. On the other hand, a majority of
44% of the respondents agreed that information given to third parties may place them at security risk. This is
due to the fact that their information may find its way to criminals.
Table 4; Means and Standard Deviation of Security Concerns
N
Min
Max
Mean
Std.Dev.
10)
Uncomfortable revealing business information to cyber attendants for
assistance in tax filing
91
1
5
4.07
0.90
11)
Information revealed to third parties e.g. cyber attendants during tax
returns may place my business at security risk
91
1
5
3.69
1.01
12)
Information revealed to third parties e.g. cyber attendants during tax
returns may get to my competitors
91
1
5
4.34
0.81
13)
Information revealed to third parties e.g. cyber attendants during tax
returns may place my personal security at risk
91
1
5
3.81
0.96
14)
Information revealed to third parties e.g. cyber attendants may not be
handled professionally
91
1
5
3.54
1.04
Valid N (listwise)
91
The means and standard deviations of security concerns were examined. In this context, the
respondents on average agreed that they were uncomfortable revealing business information to cyber attendants
for assistance in tax filing as indicated through a mean of 4.07 and a standard deviation of 0.90. The information
revealed to third parties during tax returns placing the business at a security risk had the respondents on average
tending to agree due to a mean of 3.69 and a standard deviation of 1.01. The respondents on average tended to
agree that the information revealed to third parties during tax returns may get to the competitors due to a mean
of 4.34 and a standard deviation of 0.81. The information being revealed to third parties e.g. cyber attendants
during tax returns leading to personal security of the SME owners had a mean of 3.81 and a standard deviation
of 0.96. This implied that on average the respondents tended to agree with the statement. Finally, in relations to
the information revealed to third parties not being handled professionally, the respondents on average tended to
agree due to a mean of 3.54 and a standard deviation of 1.04.
Online Tax Returns System Stability
The frequency distribution of online tax returns system stability was examined using Table 5.
Table 5; Frequency Distribution of Online Tax Returns System Stability
The following online tax returns system stability concerns have played a
significant role in tax compliance amongst SMEs;
SA
Freq.
(%)
A
Freq.
(%)
U
Freq.
(%)
D
Freq.
(%)
SD
Freq.
(%)
15)
System hang-ups leads to delay in submission
47
(51.6)
33
(36.3)
10
(11.0)
1
(1.1)
0
(0.0)
16)
System hang ups leads to unwillingness to file returns
26
39
17
9
0
Influence of Online Tax Filing on Tax Compliance among Small and Medium Enterprises in Nakuru...
DOI: 10.9790/487X-1810028292 www.iosrjournals.org 89 | Page
(28.6)
(42.9)
(18.7)
(9.9)
(0.0)
17)
System hang ups leads to inability to file without assistance
42
(46.2)
27
(29.7)
13
(14.3)
9
(9.9)
0
(0.0)
18)
System hang ups leads to incurrence of costs to pay third parties to file on my
behalf
22
(24.2)
38
(41.8)
14
(15.4)
14
(15.4)
3
(3.3)
19)
System hang ups leads to compromise of information submitted
20
(22.0)
37
(40.7)
16
(17.6)
18
(19.8)
0
(0.0)
A majority respondents of 51.6% strongly agreed that the system hang ups led to delay in submission
of tax returns submission. This is attributable to the fact that such delays leads to taxpayers postponing on the
scheduled times to do their tax returns. On the other hand, a majority of 42.9% of the respondents indicated that
the system hang ups lead to unwillingness to file returns. This is due to the frustration experienced when there
are incidences of system challenges. This contrasted to a small percentage of 9.9% of the respondents who
disagreed that system hang ups lead to unwillingness to file returns. A majority of 46.2% of the respondents
strongly agreed that system hang ups led to inability to file returns without assistance from third parties. This is
in view of the time expenditure making SMEs to outsource the services to specialized cyber cafes. This
contrasted to a small percentage of 9.9% who disagreed that the system hang ups led to seeking of assistance
from third parties. In relations to system hang ups leading to incurrence of costs to pay third parties to file on
their behalf, a majority of the respondents that is 41.8% of the respondents agreed to the statement. Most of the
third party assistance is sought from the cyber attendants who operate on commercial basis. This is contrasted to
only 3.3% of the respondents who strongly disagreed. Finally, a majority of 40.7% of the respondents agreed
that the system hang ups led to compromise of information submitted. This can be attributed to passing of the
information to the third parties to assist in filing of returns.
Table 6; Means and Standard Deviation of Online Tax Returns System Stability
N
Min
Max
Mean
Std. Dev.
15)
System hang-ups leads to delay in submission
91
1
5
4.38
0.72
16)
System hang ups leads to unwillingness to file returns
91
1
5
3.90
0.93
17)
System hang ups leads to inability to file without assistance
91
1
5
4.12
0.99
18)
System hang ups leads to incurrence of costs to pay third parties to file
on my behalf
91
1
5
3.68
1.10
19)
System hang ups leads to compromise of information submitted
91
1
5
3.64
1.03
Valid N (listwise)
91
The means and standard deviations of challenges of the online tax returns stability were also examined.
The respondents on average tended to agree that the system hang ups lead to delay in submission of tax returns
due to a mean of 4.38 and a standard deviation of 0.72. Similarly, the respondents on average tended to agree
that the system hang ups led to unwillingness to file returns due to a mean of 3.90 and a standard deviation of
0.93. In relations to the system hang ups leading to inability to file returns without assistance had the
respondents on average tending to agree due to a mean of 4.12 and a standard deviation of 0.99. Similarly, the
system hang ups leading to incurrence of costs to pay third parties to file on the SMEs behalf had the
respondents on average agreeing to the statement due to a mean of 3.68 and a standard deviation of 1.10.
Finally, the system hang ups leading to compromise of information submitted had the respondents on average
agreeing to the statement due to a mean of 3.64 and a standard deviation of 1.03.
Tax Compliance Levels
The frequencies of the tax compliance levels were examined using Table 7.
Table 7; Frequency Distribution of Tax Compliance Levels
Diverse challenges in online tax returns have affected
the following dimensions of tax compliance levels;
SA
Freq. (%)
A
Freq. (%)
U
Freq. (%)
D
Freq. (%)
SD
Freq. (%)
20)
Timeliness of tax returns filing
41 (45.1)
28 (30.8)
16 (17.6)
6 (6.6)
0 (0.0)
21)
Accuracy of the filed information
40 (44.0)
29 (31.9)
14 (15.4)
8 (8.8)
0 (0.0)
22)
Timely payment of tax due
30 (33.0)
34 (37.4)
14 (15.4)
13(14.3)
0 (0.0)
23)
Little costs in tax returns
21 (23.1)
33 (36.3)
19 (20.9)
18 (19.8)
0 (0.0)
24)
Voluntary compliance with tax aspects
45 (49.5)
31 (34.1)
11 (12.1)
4 (4.4)
0 (0.0)
A majority of the respondents that is 45.1% strongly agreed that the timeliness of tax returns filing was
affected by the diverse challenges of online tax returns compared with 6.6% who disagreed. Similarly, a
majority of 44% of the respondents strongly agreed that the accuracy of the filed information was affected by
the diverse challenges in online tax returns compared to only 8.8% of the respondents who disagreed. In
relations to the diverse challenges of tax returns affecting the timely payments of tax due, a majority of 37.4% of
the respondents agreed that the timeliness of tax payments was affected. Finally, the diverse challenges of online
Influence of Online Tax Filing on Tax Compliance among Small and Medium Enterprises in Nakuru...
DOI: 10.9790/487X-1810028292 www.iosrjournals.org 90 | Page
tax returns affected the voluntary compliance with tax aspects as indicated by 49.5% of the respondents who
strongly agreed.
Table 8; Means and Standard Deviation of Tax Compliance Levels
N
Min
Max
Mean
Std.Dev.
20)
Timeliness of tax returns filing
91
1
5
4.14
0.93
21)
Accuracy of the filed information
91
1
5
4.10
0.97
22)
Timely payment of tax due
91
1
5
3.89
1.02
23)
Low costs in tax returns
91
1
5
3.62
1.05
24)
Voluntary compliance with tax aspects
91
1
5
4.28
0.84
Valid N (listwise)
91
The means and standard deviations of the tax compliance levels were examined. The challenges of
online tax returns affecting the timeliness of tax returns filing had a mean of 4.14 and standard deviation of 0.93.
This implied that on average the respondents tended to agree that timeliness of tax returns filing was affected.
Similarly, the respondents on average tended to agree that the accuracy of the filed information was affected by
the challenges of online tax returns due to a mean of 4.10 and standard deviation of 0.97. The timely payment of
the tax due had the respondents on average tending to agree that it was affected by the challenges of the online
tax returns due to a mean of 3.89 and a standard deviation of 1.02. The aspects of low costs in tax returns had
the respondents on average agreeing to the same due to a mean of 3.62 and a standard deviation of 1.05. Finally,
the respondents on average tended to agree that the voluntary compliance with tax aspects was affected by the
online tax returns challenges due to a mean of 4.28 and a standard deviation of 0.84.
Multiple Linear Regression of Dependent Variables
The multiple linear regressions was used to examine the cumulative effect of computer literacy,
perceived security risks, and online tax returns systems stability on tax compliance of SMEs within Nakuru
town. The multiple correlation coefficient (R) was positive and of a value of 0.954 indicating that there was a
strong and positive correlation between the three independent variable cumulatively and the dependent variable.
On the other hand, the coefficient of determination (R Square) indicates the variance on tax compliance
attributed to the three independent variables is 91.1%.
Table 9; Model Summary
Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
1
.954a
.911
.908
.21492
a. Predictors: (Constant), Stability, Computer Literacy , Security
The one way ANOVA was used to give an indication on whether the linear regression model was a good fit for
data or the three independent variables were good predictors of the dependent variable. In this context since F
(3, 87) = 296.244, P< 0.05 then the model was considered a good fit for the data.
Table 10; ANOVA of the Independent Variables
Model
Sum of Squares
df
Mean Square
F
Sig.
1
Regression
41.050
3
13.683
296.244
.000b
Residual
4.019
87
.046
Total
45.069
90
a. Dependent Variable: Tax Compliance
b. Predictors: (Constant), Stability, Computer Literacy levels, Security
The unstandardized coefficients of the model were examined with a view of giving the effect of computer
literacy, security perceptions, and online returns system stability on the tax compliance levels at an independent
level. The three independent variables had positive effect on the dependent variable as indicated by their
coefficients in the below linear regression equation;
Tax Compliance Levels = -0.122 + 0.874(x1) + 0.143 (x2) +0.118 (x3) where
x1 = Computer Literacy
x2 = Security Concerns
x3 =Online Tax Returns System Stability
The coefficient of intercept -0.122 indicates that the tax compliance levels would decline by 0.122 if
the computer literacy, security concerns, and online tax returns system stability were at zero. The beta
coefficient of computer literacy is 0.874 indicating that a unit increase in computer literacy would lead to a
0.874 increase in tax compliance. Similarly, the beta coefficient of security is 0.143 implying that a unit increase
in security would lead to a 0.143 increase in tax compliance levels. Finally, a unit increase in online tax returns
Influence of Online Tax Filing on Tax Compliance among Small and Medium Enterprises in Nakuru...
DOI: 10.9790/487X-1810028292 www.iosrjournals.org 91 | Page
systems stability would lead to a 0.118 increase in tax compliance levels. However, the examination of the p
value implies that it was only computer literacy that had significant effect on the tax compliance with the other
variables kept constant since its p < 0.005.
Table 11; Coefficients
Model
Unstandardized Coefficients
Standardized Coefficients
t
Sig.
B
Std. Error
Beta
1
(Constant)
-.122
.149
-.818
.415
Computer Literacy
0.874
.095
.926
10.580
.000
Security
.143
.122
.128
1.174
.244
Stability
.118
.108
.101
1.091
.278
a. Dependent Variable: Tax Compliance
The research hypothesis testing was undertaken through the use of the t test through the examination
the p value of the multiple linear regression table. In the context of where the p value is less than 0.05
significance level then the null hypothesis was rejected. The following hypotheses were tested;
H01: There is no significant relationship between computer literacy levels and tax compliance among
small and medium enterprises in Nakuru, Kenya
The p value for computer literacy levels was 0.000 and therefore the null hypothesis (H01) was rejected since p
value < 0.05. The study therefore found that there was a significant relationship between computer literacy
levels and tax compliance amongst SMEs in Nakuru, Kenya.
H02: There is no significant relationship between perceived security risks concerns and tax compliance
among small and medium enterprises in Nakuru, Kenya
The p value of perceived security risks was 0.244 and therefore the null hypothesis (H02) was accepted since p
value > 0.05. The study therefore found that there was no significant relationship between perceived security
risks and tax compliance amongst SMEs in Nakuru, Kenya.
H03: There is no significant relationship between online tax system stability and tax compliance among
small and medium enterprises in Nakuru, Kenya
The p value of perceived security risks was 0.278 and therefore the null hypothesis (H03) was accepted
since p value > 0.05. The study therefore found that there was no significant relationship between online tax
system stability and tax compliance amongst SMEs in Nakuru, Kenya.
VII. Recommendations
The study concluded that that computer literacy levels have significant influence on tax compliance
levels amongst the SMEs within Nakuru. In the context of security, the study concluded that security risks
concerns did not have significant influence on tax compliance levels amongst the SMEs within Nakuru Town. In
the context, the study concluded that online tax returns system stability did not have significant influence on tax
compliance levels amongst the SMEs within Nakuru Town. The study recommends that computer literacy levels
should be emphasized by KRA in order to improve on tax compliance levels. This was due to high level of
significance between computer literacy levels and tax compliance levels. The study recommends further
examination on the factors that affect tax compliance levels. The study found that the computer literacy levels
significantly affected the tax compliance levels and as such the study recommends a further examination on how
KRA can deal with the issue with a view of improving tax compliance.
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