DETERMINANTS OF TAX COMPLIANCE AND THEIR INFLUENCE ON THE LEVEL OF TAX COMPLIANCE IN THE REAL ESTATE SECTOR, ELDORET TOWN-KENYA ABSTRACT

e-issn: 4251-6154, p-issn: 3214-3547. Volume 12, Issue 1. Ver. I (Dec, 2016) pp 555-584 DETERMINANTS OF TAX COMPLIANCE AND THEIR INFLUENCE ON THE LEVEL OF TAX COMPLIANCE IN THE REAL ESTATE SECTOR, ELDORET TOWN-KENYA By: Mrs. Beatrice Jemaiyo Co: Author: Ms. Gillian Chepkemoi Mutai ABSTRACT The purpose of this study was to analyze determinants of tax compliance and their influence on the level of tax compliance in the real estate sector, Eldoret town-kenya. Real estate is one of Kenya s fastest growing sectors of the economy and the taxes collected in this sector are on the decline. The study specifically sought to determine the effects of tax compliance cost, tax knowledge, tax penalties, and tax audit on tax compliance in the sector. The study was guided by the theory of Planned Behaviour. Using ex-post facto research design, the study targeted a population of 605. A sample size of 68 respondents comprising of real estate investors, tax audit and tax compliance officers were drawn from the target population using snowball sampling and purposive sampling methods. Data was collected using a structured questionnaire. After coding, it was keyed into the computer and analyzed using chi-square. To establish reliability of research instrument, cronbach s alpha was used and a panel of experts was used to test validity. This study found that tax compliance cost, tax knowledge, tax penalties and tax audit had significant effect on level of tax compliance. High tax compliance costs were a contributing factor that reduced tax compliance among real estate investors. It is thus recommended that tax compliance cost should be as minimal as possible to encourage payment of income tax. There should be continual training of tax payers in the real estate sector in order ensure that they are aware and practice tax laws put in place. Tax penalties laws and tax audit should be implemented and take place to encourage payment of taxes by the real estate investors. The study recommends further research be done to determine the performance improvement in tax administration and tax affairs of Uasin Gishu County. Similar research to cover the whole country should also be carried out to enhance tax compliance in every region of this country. Key Words: Tax Audits, Tax Compliance, Tax Compliance costs, Tax knowledge, Tax Penalties

1.1 INTRODUCTION Background to the problem The slippery slope framework in four European countries (Austria, Hungary, Romania and Russia) differing in terms of cultural and economic settings of tax compliance integrates different determinants of tax compliance was studied by Kirchler, Hoelzl and Wahl, 2012. Tax compliance depended on the perceived trust in the authorities and perceived power of the authorities, but trust on the one hand fosters voluntary compliance whereas power on the other hand leads to enforced compliance. Despite the various tax reforms undertaken by Nigerian Government to increase tax revenue over the year, prior statistical evidence indicated that the contribution of income tax to the Government s total revenue remained consistently low and was relatively shrinking, Alabede, Zainol and Kamil, 2011. Raising more domestic revenue is a priority for most Sub-Saharan African countries (Drummond, Daal, Srivastava and Oliveira, 2012). Developing countries record relatively higher tax compliance levels (35%); African countries report less than 23%. Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), 2010 suggested that lack of appropriate tax policy; low compliance and poor tax administration are linked to high levels of tax evasion and avoidance reported in developing countries The motivations for tax evasion are complex and have challenged taxation authorities throughout the world. Various studies have been done to provide an in-depth understanding on the key motivators to tax evasion (Marti, 2010; Pope and Abdul-Jabbar, 2008; Ouma, Njeru, Kamau, Khainga and Kiriga, 2007 and Kirchler, 2007). However, taxpayer 556

knowledge, perceptions and the cost of compliance have not been studied. Kenya Revenue Authority (KRA), 2012 revealed that less than 40 per cent of the landlords and developers had complied with tax requirements, and government went in to reinforce the rental income tax provisions. Taxation on rental income by the Kenya Revenue Authority has been in existence since implementation of Income Tax Act of 1973. Revenues earned by the majority of world s government are received from taxes levied on incomes and wealth accumulation of individuals and corporations. The Kenyan government is not different, it relies on income tax for recurrent and development expenditure. Rules and regulations are put in place as when and how much to be paid. KRA has been given the mandate to assess and account for all taxes due to the government (KRA Act Cap 469) to ensure all are tax compliant. Tax compliance level which is an internal factor affecting tax revenue not only does it undermines tax compliance but also government revenue collections always fall behind targets. According to figures from KRA, it has not been able to realize the targeted rental income tax with only 3 billion shillings having been collected in the fiscal year 2013/2014 (KRA, 2014). Taxation provides an important avenue for financial independence of nations from external assistance (OECD, 2009). Similarly, tax compliance is also defined by several tax authorities as the ability and willingness of taxpayers to comply with tax laws, declare the correct income in each year and pay the right amount of taxes on time (Internal Revenues Services (IRS), 2009; Australian Tax Office (ATO), 2009; Inland Revenue Board (IRB), 2009). 557

Rental income has been subjected to taxation since the enactment of the Income Tax Act Chapter 470 of the Laws of Kenya in 1973.Contrary to the impression by sections of the media that rental income will be taxed at 30 percent; rent income is subject to corporate tax rate of 30 percent of taxable income. Meaning that property owners should first deduct all expenses that are wholly and exclusively incurred in the production of income that include repairs, maintenance, caretaker costs, land rates, insurance, land rent, agent fees, grounds men. In the Budget speech of 2012/2013, the Finance Minister instructed KRA to intensify revenue collection in this sector. There was therefore a need to assess the level of tax consciousness, review factors causing non-compliance and capture the expectations of the taxpaying public with a view to formulating strategies aimed at enhancing tax collection in this sector. It was against this background that this study was undertaken with the aim of analyzing determinants of tax compliance and their influence on the level of tax compliance in the real estate sector and recommend measures to be put in place by the government and KRA to enhance tax collection in this sector. Tax structure in Kenya is skewed heavily towards income taxes and Value Added Taxes (VAT) as the two largest source of total tax revenue. For example, for the period 2005/06-2011/12 income tax accounted for 36.3% of total government revenue (total taxes plus appropriation-in-aid) and VAT comes in second, averaging over 25% in the same period, Income tax is governed by the Income Tax Act, Cap 470 Laws of Kenya, which is the principal legislation with schedules and subsidiary legislations. The principle law of the Income Tax Act has 14 parts, 133 sections and 13 schedules. In fact, the administration of 558

various direct taxes, which have different rates, is undertaken by the Income Tax Department at KRA. Generally, income tax in Kenya is used for revenue mobilization and income redistribution purposes. Income tax is used to achieve equity objectives through rationalization of tax brackets and rates; in other words, tax brackets could be broadened or the number of brackets increased and the tax rates could be increased or reduced depending on the objective. The redistribution and equity purposes are more evident with personal income tax than with the other types of income tax. Evidently, the rationalization of tax brackets and rates is done so as to reduce tax burden on those with lower and fixed incomes and make the tax more equitable. Tax compliance costs result from different activities like the collection of receipts, tax accounting, the preparation of the tax return, and tax planning. From an economic perspective, especially the distinction between unavoidable compliance costs in the proper sense ( documentation requirements, filing of the tax return) and avoidable tax planning costs ( claiming a specific tax credit, consideration of taxes to optimize investment and financing decisions, use of complex tax shelter schemes) should be useful. According to Blaufus, Eichfelder, and Hundsdoerfer, 2014, about 2/3 of the burden of the German compliance time for the income tax is due to collecting receipts and related recordkeeping, while the preparation of the tax return requires about 1/3 of time effort. Findings by Vaillancourt, Roy César, and Barros, 2013 stated that tax appeals were carried out by 2.4% of individual tax filers in Canada with a higher likelihood for complex returns and high-income taxpayers. Using official IRS data and considering a wide definition of 559

post filing processes, Hodge and Guyton, 2014 identified about 11.4 million taxpayers were burdened by post-filing compliance activities in the U.S.A. (about 8.5 % of U.S.A. individual taxpayers if compared to Marcuss, 2013). Corresponding compliance costs amounted to 4.6 billion U.S.A $ or 8.4 % of the aggregate cost burden (including pre-filing and filing compliance costs estimated by Marcuss, 2013). Hodge and Guyton, 2014 found that post-filing compliance costs amount to 38.4 % of average costs for concerned individual taxpayers in the United States. Tax knowledge is the level of awareness or sensitivity of the taxpayers to tax legislation. Tax knowledge refers to the processes, by which taxpayers become aware of tax legislation and other tax-related information (Hasseldine, Holland and Rijt, 2009. The level of formal general education received by taxpayers is an important factor that contributes to the understanding of tax requirements, especially regarding registration and filling requirements. Generally, citizens have very limited knowledge on government true expenditures and the cost of public services provided by the government. High awareness by the society would encourage people to fulfill their obligations to register as taxpayer reporting and paying taxes properly are forms of national and civic responsibility. Most citizens do not have much understanding of what tax laws mean and why the tax system is structured and administered as it is. Braithwaite, 2007 states that tax knowledge reveal that there is a relationship with taxpayers ability to understand the laws and regulation of taxation and their ability to comply. Tax penalties define tax compliance more precisely as the legal conditions that preclude the imposition of tax penalties on a taxpayer define the standards of conduct that constitute 560

compliance with the taxpayer s obligations. The tax law establishes that a taxpayer who has not complied with her obligations has satisfied the legal conditions for imposition of a tax penalty. It necessarily follows that a taxpayer who has not satisfied the legal conditions for imposition of a tax penalty has complied with her tax obligations. Tax penalties mark off the boundaries of tax compliance. Tax penalties serve two functions. First, they serve the instrumental function of promoting tax compliance. This is widely recognized in the legal and economics literatures, although there is little consensus about how penalties promote compliance beyond the basic point that different penalty structures may affect compliance differently. Second, tax penalties serve the function of defining tax compliance. This definitional function has been generally ignored by the legal and economic literatures, but it is absolutely fundamental (Doran, 2009). Tax audit can be defined as an examination of an individual or organization s tax report by the relevant tax authorities in order to ascertain compliance with applicable tax laws and regulations of state. Further, tax audit is a process where the internal revenue service tries to confirm the numbers that you have put on your tax return (Kircher, 2008). Frank (2010) concludes that the designed tax authorities audit policy can have important effects on production decision by firms. The nature of such effects depends on whether firms compete or collude. Accordingly, an appropriate designed audit policy may not only achieve greater compliance and higher net revenue for given output and resources spend on audit but may also have other effects that would be normally considered desirable in a wider economic context. 561

Statement of the Problem Ideally, property tax is a levy charged by the municipal authorities for the upkeep of basic civic services in the city. In Kenya it is the owners of property who are liable for the payment of municipal taxes. Generally, the property tax is levied on the basis of rent at which the property might be let from year to year. If properties not rented, the rental value is to be estimated on the basis of letting rates in the locality (Income Tax Act, 2007). Today s real estate and construction companies must adopt new approaches to address regulatory requirements and financial risks while meeting the challenges of expanding globally and achieving sustainable growth. However, in Eldoret town, there is an overlap of tax base between service tax and VAT and the anomaly of cascading effect of numerous non-creditable taxes therefore clarity from the government on taxability is very important. To revive and spur demand in the real estate sector, it is imperative that the aforesaid measures are implemented by the government in the next budget of 2017/2018. An impetus to this sector would have a positive cascading impact on allied core sectors of the economy and employment generation. Kajilwa, 2015 stated that KRA had extended amnesty to individual landlords who had been the hardest lot to net, and was expected to boost compliance. They had been allowed to keep all rental income generated before January 2014 tax-free, with levies kicking in immediately after at a flat rate of 10 per cent of total income. But there was a catch to potential beneficiaries of the amnesty who were required to declare their rental income and file returns online before June 30, 2016. 562

A study conducted by Fakile, 2011 on analysis of tax morale and tax compliance in Nigeria found that there are a number of significant correlations between tax compliance and tax morale. However in yet another study done by Kanini, 2013 on the effect of tax reforms on financial performance of real estate firms in Kenya, it was found that tax reforms have a positive effect on the financial performance of the real estate firms in Kenya. However, those effects are rather weak. According to Nzioki and Osebe, 2014, tax knowledge and education had positive effect on level of tax compliance among real estate investors. Further, tax knowledge had significant impact on tax compliance even though the level of tax knowledge varied significantly among respondents (Palil, 2010). In contrast, a study by Richardson, 2008 in United Kingdom revealed that there is a negative association between education and compliance. Kleven, Knudsen, Kreiner, Pedersen and Saez, 2011 analyzed a tax audit experiment in Denmark. The findings indicated that the tax evasion rate is close to zero for income subject to third party reporting, but substantial for self- reported income. However, results showed no positive overall effect of close supervision on tax compliance (Gangl, Torgler, Kirchler, and Hoffman, 2014). The impact of tax compliance variables on tax compliance was inconsistent. It is therefore on this basis that the researcher was motivated to investigate the determinants of tax compliance and their influence on the level of tax compliance in the real estate sector, Eldoret town-kenya. 563

Research Questions i. Does tax compliance cost have any effect on the level of tax compliance? ii. iii. iv. To what extent does tax knowledge affect the level of tax compliance? What are the effects of tax penalties on the level of tax compliance? Do tax audit affect the level of tax compliance? Research Hypotheses The following hypotheses were tested: H1: There is an association between tax compliance cost and the level of tax compliance H2: There is an association between tax knowledge and the level of tax compliance H3: There is an association between tax penalties and the level of tax compliance H4: There is an association between tax audit and the level of tax compliance Theoretical Framework Theory of planned behavior Theory of Planned Behavior (TPB) of Icek Ajzek, 1988 is the notion of the behavioral intention: a person intention of performing a given behavior is the best predictor of whether or not the person will actually perform the behavior. TPB is a theory that predicts deliberate behavior, because behaviour can be deliberative and planned. Theory of planned behavior is an important theory which presents within the scope of the social psychology and tries to explain human behaviors. TPB is the successor of the Theory of Reasoned Action of Ajzen and Fishbein (1975, 1980). The succession was a result of the discovery that behaviour appeared not to be 100% 564

voluntary and under control, which resulted in addition of perceived behavioural control. With this addition, the theory was called the Theory of Planned Behaviour. According TPB, human behaviour is guided by three kinds of considerations: behavioural beliefs (beliefs about the likely consequences of the behaviour), normative beliefs (believes about the normative expectations of others) and control beliefs (beliefs about the presents of factors that may facilitate or impede the performance of behaviour). Behavioural beliefs produce favorable or unfavorable attitude towards the behaviour, normative beliefs result in perceived social pressure or subjective norm and control beliefs give rise to perceive behavioural control. Combination of these three leads to the formation of a behavioural intention-the more favorable they are, the stronger should be the person s intention to perform the behaviour in the question. TPB posits that individuals' intentions, together with their perceived control over the behavior determine whether or not they will actually engage in the behavior. It emphasizes that human behaviors are governed not only by personal attitudes, but also by social pressures and a sense of control. (Cooke and Sheeran, 2004). It has been observed that empirical studies carried out within the scope of the Theory of Planned Behavior mostly examine behaviors that individuals report and that the studies examining the behaviors that individuals perform is rather scarce in number (Chang, 1998; Allen, 2004). This is because of the fact that observing the individual behaviors is rather costly in terms of time and money (Erten, 2002). The aim of this study is also to analyze the behaviors reported by the taxpayers included in this study instead of observing the behaviors of the individuals regarding tax compliance, hence the relevance of this theory to the study. 565

Conceptual Framework Independent variables Dependent variable Determinants influencing tax compliance Level of tax compliance Tax compliance cost Administrative costs Travelling expenditure Tax knowledge Educational level Tax educational programmes Tax penalties Late filing of tax returns Not filing tax returns Level of tax compliance Level of rental income Amount of rental income collected Number of rental income filed Tax audit Under reporting income Over-claiming deductions Figure 1.8 Conceptual Framework Source: Researcher (2016) 566

2.0 RESEARCH DESIGN AND METHODOLOGY Research Design The researcher chose ex-post facto research design. Target Population The target population for this study was the real estate investors in Eldoret town as well as tax officers working in the Domestic Taxes Department of KRA in Eldoret. They comprised of five hundred (500) registered real estate investors in Eldoret town as determined by KRA records as at September, 2015 and 105 tax officers in KRA Eldoret Description of Research Instruments Standardized questionnaires for the real estate investors and tax officers were used as data collection instrument. Reliability of the test items in the questionnaire was tested by calculating a Cronbach s alpha, and a calculated value of alpha between 0.7 and 0.95 tells that the instrument used to measure variables of the study has fulfilled the reliability (Tavakol and Dennick, 2011). Aforementioned method was applied on the four variables indicating opinions and attitudes of respondents, and this coefficient was obtained as 0.857. Descriptions of the Sample and Sampling Procedures Non-probability sampling methods were applied in this study. The sampling techniques used were snowball sampling and purposive sampling methods. They were the most appropriate methods for studying a representative group with specific characteristics. 567

According to Roscoe, 1975 in ex-post facto research, samples of 30 or more are recommended therefore, fifty (50) real estate investors were sampled using snowball sampling technique. Moreover, Alreck and Settle, 1995 stated that it is seldom necessary to sample more than 10%. It was on this basis that a sample of twelve (12) compliance officers and six (6) the audit officers were sampled using purposive sampling technique. Description of Data Analysis Procedures Data collected was then reviewed, tabulated and finally analyzed. Data analysis was aimed at searching and identifying the determinants of tax compliance from the three groups: real estate investors, tax compliance officers and tax audit officers. Questionnaire responses were sorted, coded and input into the computer for analysis and production of tables, descriptive statistics which described distribution of responses and inferential statistics (chi-square) was used establish associations between variables. All the above statistical tests were analyzed using the Statistical Package for Social Sciences (SPSS), and the significant levels were measured at 95% confidence level with significant differences recorded at p < 0.05. 568

3.0 RESULTS H01: Tax compliance cost and the level of tax compliance are independent Table 1: Tax compliance cost chi-square tests Value df Asymp. Sig. (2-sided) Pearson Chi-Square 42.106 a 3.000 Likelihood Ratio 48.950 3.000 Linear-by-Linear 36.354 1.000 Association N of Valid Cases 68 Source: Research Data (2016) H01 states that tax compliance cost and the level of tax compliance are independent. The research findings were inconsistent with the null hypothesis hence rejected. A rejected null hypothesis reflected the fact that the chi-square test produced chi-square of 42.106 (p value <0.05) therefore the effect of tax compliance cost on tax compliance level was significant. High compliance cost has been found to diminish the competitiveness of the country in terms of taxation attractiveness thus tax authorities are interested in making the tax legislations simpler in order to avoid this situation. This finding was in agreement with Hijattulah and Pope, 2008 who argued that compliance costs include costs that were incurred by a company, but were beyond the control of its management hence tax compliance cost were likely to affect tax compliance in the real estate sector. Further, Hodge and Guyton, 2014 identified about 11.4 million taxpayers were burdened by postfiling compliance activities in the U.S.A. 569

Tax Knowledge H02: Tax knowledge and the level of tax compliance are independent Table 2: Tax knowledge chi-square tests Value Df Asymp. Sig. (2-sided) Pearson Chi-Square 34.509 a 4.000 Likelihood Ratio 42.099 4.000 Linear-by-Linear 12.367 1.000 Association N of Valid Cases 68 Source: Research Data (2016) As stated by H02 that tax knowledge and the level of tax compliance are independent, research findings were not in agreement with the null hypothesis hence it was rejected. A rejected null hypothesis reflected the fact that the chi-square test produced chi-square of 34.509 (p value <0.05) therefore the effect of tax knowledge on tax compliance level was significant. This was in agreement with Palil, 2010 whose results suggested that tax knowledge had a significant impact on tax compliance. 570

Tax Penalties H03: Tax penalties and the level of tax compliance are independent Table 3: Tax penalties chi-square tests Value Df Asymp. Sig. (2-sided) Pearson Chi-Square 18.203 a 2.000 Likelihood Ratio 24.763 2.000 Linear-by-Linear 14.733 1.000 Association N of Valid Cases 68 Source: Research Data (2016) H03 states that tax penalties and the level of tax compliance are independent. Research findings are not in agreement with the null hypothesis hence it was rejected. A rejected null hypothesis reflected the fact that the chi-square test produced chi-square of 18.203 (p value <0.05) therefore the effect of tax penalties on tax compliance level was significant. Higher penalties simply reduce the cases of tax evasion thus encouraging tax compliance. Higher tax penalties reduce cases of tax evasion thus improving tax compliance. Castro and Scartascini, 2013 indicated that the most effective message was one that stated the actual fines and potential legal consequences taxpayers may face in the case of noncompliance (tax compliance increased by more than 4 percentage points). 571

4.2.4 Tax Audit H04: Tax audit and the level of tax compliance are independent Table 4: Tax audit chi-square tests Chi-Square Tests Value Df Asymp. Sig. (2-sided) Pearson Chi-Square 68.000 a 4.000 Likelihood Ratio 78.597 4.000 Linear-by-Linear 27.694 1.000 Association N of Valid Cases 68 Source: Research Data (2016) H04 states that tax audit and the level of tax compliance are independent. Research findings showed inconsistency with the null hypothesis hence rejected. A rejected null hypothesis reflected the fact that the chi-square test produced chi-square of 68.000 (p value <0.05) therefore the effect of tax audit on tax compliance level was significant. Higher tax penalties reduce cases of tax evasion thus improving tax compliance. It was supported by Kleven et al., 2011 who analyzed a tax audit experiment in Denmark. The findings indicated that the tax evasion rate is close to zero for income subject to third party reporting. 572

Table 5: Hypothesis Testing Null Hypothesis Test statistic P< 0.05, Results Remarks H01: Tax compliance cost and tax compliance level are independent Chisquare statistic 0.000 Significant Null hypothesis was rejected and alternative hypothesis was accepted H02: Tax knowledge and tax compliance level are independent H03: Tax penalties and tax compliance level are independent H04: Tax audit and tax compliance level are independent Source: Researcher, 2016 Chisquare statistic Chisquare statistic Chisquare statistic 0.000 0.000 0.000 Significant Significant Significant Null hypothesis was rejected and alternative hypothesis was accepted Null hypothesis was rejected and alternative hypothesis was accepted Null hypothesis was rejected and alternative hypothesis was accepted 573

Interpretation of the Results The demographic findings revealed that majority of the respondents were male. This showed that a larger proportion of the individuals who had invested in the real estate sector were male and of older generation. In regards to the education, majority are literate many having degrees then followed by the diploma holders. Findings on the information about the real estate revealed that majority of the respondents have been in business for more than 5 years and earned an annual turnover of 5-10 million shillings. The study revealed that compliance level among the real estate investors was low. Therefore, investors in this sector should file their returns and pay taxes as it should be. A determination on the effect of tax characteristics on tax compliance level revealed that they had a significant association. Tax compliance cost was satisfactory on the cost of filing tax returns and on traveling expenditure when filing tax returns but high on the cost of hiring tax agent. On tax knowledge, majority of the respondents had used E-filing system for a longer period and had attended of tax seminars. A larger proportion of the respondents had been penalized because of late filing and not filing tax returns. Finally, in relation to the declaration of income, majority of the respondents did not report the correct income. Tax audit had been conducted on few real estate investors. More examination of organization s financial statement will improve tax compliance in the real estate as it will minimize under reporting income and over claiming deductions. This implied that each characteristic has to be enhanced in order to enhance tax compliance level. 574

4.0 Conclusions Based on the Findings The study findings provided evidence that tax knowledge had a significant effect on tax compliance. A study by Mohd, 2010 stated that tax knowledge is necessary to increase public awareness on taxation rules and the role of taxation in national development. Once individuals have the knowledge pertaining the importance of taxation, they will be influenced to comply without any enforcements or pressure on them. Tax knowledge plays a crucial role in enhancing tax compliance. Knowledge of applicable tax laws plays a crucial role in ensuring that tax returns are filed in time. Educated taxpayers were aware of non-compliance opportunities, but their potentially better understanding of the tax system and higher level of moral development promote a more favorable taxpayer attitude and greater compliance. Further, tax payers with higher education level will be more tax compliant compared with those who had a lower education level. The study results showed that tax penalties is a deterrence measure to ensure that tax evasion and under declaration is in controlled. Therefore, enforcement of tax penalties laws in place will enhance tax compliance. With regards to tax compliance cost, it had a significant effect on tax compliance. High tax compliance costs will deter the payments and filing of taxes hence leading to low rates of tax compliance. In relation with tax audit, the findings indicated that it had significant effect on tax compliance. Tax audit is a measure meant to deter tax non-compliant schemes and to boost income tax revenue therefore, it enhances tax compliance. Thus, taxpayers will report all income and claim the actual deductions to ascertain their tax liability 575

5.0 Recommendations based on the Findings and Conclusions The study revealed that compliance level among the real estate investors was low. Therefore, investors in this sector should file their returns and pay taxes as it should be. On the other hand, the government through KRA should come up with an effective and efficient tax administration system in order to improve tax compliance in this sector. Tax compliance cost has significant effect on tax compliance. A lower cost of compliance enhances tax compliance. KRA should come up with more tax centers to necessitate income tax filing. Moreover, tax systems put in place should be simple ensuring that payment of taxes is simple thus not attracting other costs associated with it. Tax knowledge has significant effect on tax compliance. Thus, there should be continual training of tax payers in the real estate sector in order ensure that they are aware and practice tax laws put in place. This way, they will be paying and filing their returns as required and on time. The study found out that tax penalties had significant impact on tax compliance. Tax authority should impose penalties spelled out in the act. This measure will enforce and enhance tax compliance thus ensuring non delay and late filing of taxes. This study recommends that the KRA body in charge of auditing should examine clients financial statements especially in the real estate sector. This will boost its return in this sector and that the investors will be more compliant because tax audit has a significant effect on tax compliance. 576

6.0 Recommendation for Further Research This study was carried out only in Eldoret town. Other researchers should replicate such a research to cover the whole country in order to enhance tax compliance in every region of this country. A study on the factors affecting the performance improvement in tax administration and tax affairs of Uasin Gishu County should also be carried out. Finally, there are other determinants of tax compliance that was not studied in this study such as confidence in the legal system (Adeniran, 2011) and perceived opportunity for tax evasion (Osebe, 2013) could also be explored in the future. 577

REFERENCES Adeniran, S. F. (2011). Analysis of Tax Morale and Tax Compliance in Nigeria. PhD thesis. Covenant University, Nigeria. Ajzen, I. (1988). Attitudes, personality, and behaviour. Milton-Keynes, England: Open University Press and Chicago, IL: Dorsey Press. Ajzen, I. (1991).The theory of planned behavior. Organizational Behavior and Human Decision Processes, 50, 179-211. Akers, R. L. (2000). Criminological Theories. Los Angeles: Roxbury Alabede, O. J., Zainol A.,and Kamil M. I. (2011). Determinants of Tax Compliance Behaviour: A Proposed Model for Nigeria. Inter. Res. J. Financ. Econ. 122. Ali, M., Fjeldstad, O. and Sjursen I. (2013). Factors Affecting Tax Compliant Attitude in Africa: Evidence from Kenya, Tanzania, Uganda and South Africa.Paper prepared for Centre for the Study of African Economies 2013 Conference, Oxford, 17 19 March. Allingham, M. G., and Sandmo, A. (1972) Income Tax Evasion: A Theoretical Analysis. Journal of Public Economics, 1, 323 338. Alm, J., McClelland, G. H., and Schulze, W. D. (1992) Why do People Pay Taxes? Journal of Public Economics, 48(1): 21 38. Alm, J., McClelland, G. H., and Schulze, W. D. (1999). Changing the Social Norm of Tax Compliance by Voting. Kyklos, 52, 141 171. Alm, J., Cherry, T., Jones, M., and McKee, M. (2010b). Taxpayer information assistance services and tax reporting behavior. Journal of Economic Psychology, 31(4), 577 586. Alm, J. (2012) Measuring, Explaining, and Controlling Tax Evasion: Lessons from Theory Experiments, and Field Studies. Tulane Economics Working Paper Series,Tulane University, WP1213. Alreck, P.L. and Settle, R.B. (1995). The Survey Research Handbook. (2nd edition), 578

Chicago: Irwin Andenaes, J. (1974). Punishment and deterrence. Ann Arbor: University of Michigan Press Australian Tax Office (2009). Retrieved 9 April 2016, from http://www.ato.gov.au/corporate/content.asp?doc=/content/00107941.htm Becker, G. S. (1968). Crime and Punishment: An Economic Approach. Journal of Political Economy, 76, 169 217. Black, K. (2010). Business Statistics: Contemporary Decision Making. (6 th edition), John Wiley & Sons. Blaufus, K., Eichfelder, S., and Hundsdoerfer, J. (2014). Income tax compliance costs of working individuals: Empirical evidence from Germany. Public Finance Review, 42, 800-829. Braithwaite, V. (2007). Taxation and Good Governance. University House Lecture and House Dinner Series, Australian National University, Canberra. Chattopadhyay, S. and Das-Gupta, A. (2002). The Compliance Cost of the Personal Income Tax and its Determinants. Report to the National Institute of Public Finance and Policy, New Delhi. Cohen, L., Manion, L., and Morrison, K. (2008). Research Methods in Education. London, UK. Cooke, R., and Sheeran, P. (2004). Moderation of cognition-intention and cognition- behaviour relations: A meta-analysis of properties of variables from the theory of planned behaviour. British Journal of Social Psychology, 43, 159-186. Devos, K. (2012). A Comparative Study of Compliant and Non-compliant Individual Taxpayers in Australia. Journal of Business and Policy Research, 7(2), July issue, 180 196. Doran, M. (2009).Tax Penalties and Tax Compliance. Harvard Journal on Legislation. 111-161. Drummond, P., Daa, W., Srivastava, N. and Luiz Edgard Oliveira, E. L. (2012) Mobilizing Revenue in Sub-Saharan Africa: Empirical Norms and Key Determinants. International Monetary Fund. Working paper No. 12/108 579

Eichfelder, S. and Kegels, C. (2014), Compliance costs caused by agency action? Empirical evidence and implications for tax compliance, Journal of Economicy Psychology, 40, 200-219. Engen, E, and Skinner, J. (1996). Taxation and Economic Growth. National Tax Journal, 49(4), 617 42 Fauziati P., Minovia A.F., Muslim R.Y. and Nasrah R. (2016).The Impact of Tax Knowledge on Tax Compliance Case Study in Kota Padang, Indonesia. Journal of Advanced Research in Business and Management Studies, 2(1), 22-30. Gay, L.R. and Diehl, P.L. (1992). Research Methods for Business and Management. New York: Macmillan. Githae, R. (June, 2013). Revenue Bill. Parliament speech. Nairobi, Kenya GIZ (2010). Addressing Tax Evasion and Avoidance in Developing Countries. Deutsche Gessellschaft fur Internationale Zusammenarbeit (GIZ) GmbH. Government of Kenya. Income Tax Act, Cap 470, Government of Kenya Habibi, S.,and Ghahremani, M., (2015). Investigate the Factors Affecting the Performance Improvement in Tax Administration and Tax Affairs of the South West Azerbaijan. India Journal of Fundamental and Applied Life Sciences. 5 (1), 5570-5578 Hasseldine, J., Holland, K. and Rijt, P.V. (2009). The Management of Tax Knowledge. The Association of Chartered Certified Accountants, ACCA, London. Helhel, Y. and Ahmed, Y. (2014). Factors Affecting Tax Attitudes and Tax Compliance: A Survey Study in Yemen. European Journal of Business and Management, 6(22). Hodge, R. and Guyton, J. (2014). The compliance costs of IRS post-filing processes. IRS Research Bulletin: Proceedings of the IRS Research Conference 2014. Homans, George (1961). Social Behavior: Its Elementary Forms. New York: Harcourt Brace Jovanovich. 13. Inland Revenue Board (IRB) Malaysia (2009). Retrieved 9 April 2016, from http://www.hasil.gov.my. 580

Internal Revenues Services (IRS) (2009). Update on Reducing the Federal Tax Gap and Improving Voluntary Compliance. Retrieved 9 April 2016, from http://www.irs.gov/pub/newsroom/tax_gap_report_-final_version.pdf Kajilwa G. (2015). Reprieve-for-landlords-as-kenya-revenue-authority-grants-waiver- of -tax -penalties-and-interests. East African Standard. Retrieved 7th August, 2015 from www.standardmedia.co.ke/business/article/2000172010 Kanini, K. G, (2013). The effect of tax reforms on financial performance of real estate firms in Kenya. Unpublished journal from university of Nairobi library, Nairobi Kenya. Kerlinger, F.N. (1973). Foundations of Behavioral Researcher. (2nd ed.). New York.Holt. Rinehard and Winstone inc. Kirchler, E. (2007). The Economic Psychology of Tax Behavior. Cambridge: Cambridge University Press. Kirchler, E., E. Hoelzl and I. Wahl (2012). Enforced versus voluntary tax compliance: The slipperyslope framework. Journal of Economic Psychology, 29, 210 225. Kleven, H. J., Knudsen, M. B., Kreiner, K. T., Pedersen, S., and Saez, E. (2010). Unwilling or unable to cheat? Evidence from a randomized tax audit experiment in Denmark. NBER Working Paper 15769. Cambridge, MA Kothari, C.R. (2004). Research Methodology. Methods and Techniques. (2nd Revised Edition). New Delhi. New angel International Publishers Kombo, D.K. and Tromp, D. L. A. (2006). Proposal and Thesis writing: An Introduction. Nairobi: Pauline s Publications Africa. Kuria, K., Ngumi, P., and Rugami J. (2013). Factors affecting rental income tax compliance among landlords in Kilifi municipality in Kenya. Prime Journal of Business Administration and Management (BAM), 3(5), 997-1008. KRA. The Income Tax Act. Reversed edition. Cap 470 (2012). Lars P. and Frey, B. S. (2006). Tax Compliance as a Result of Psychological Tax 581

Contract: The Role of Incentives and Responsive Regulation. Institute for Empirical Research in Economics University of Zurich. Working Paper No. 287. Lewin, C. (2005). Elementary Quantitative Methods. Education and Social Research Institute, Manchester Metropolitan University, United Kingdom. Loo, E.C. and Ho, J.K. (2005). Competency of Malaysian Salaried Individuals in Relation to Tax Compliance under Self-Assessment. Journal of Tax Research, 3, 45-62. Lumumba, O.M., Migwi, S.W. and Magutu, O. (2010). Taxpayers Attitudes and TaxCompliance Behavior in Kenya: How the Taxpayers Attitudes Influence Compliance Behavior among SMEs Business Income Earners. African Journal of Business &Management, 1, 112-122. Marcuss, R. (2013). Income taxes and compliance costs: How are they related? National Tax Journal, 66,833-854. Marti, L. O. (2010).Taxpayers Attitudes and Tax Compliance Behaviour in Kenya. African Journal of Business & Management (AJBUMA), 1, 11. Mastrianna, F. V. (2009). Basic Economics, Mason, Ohio: Thompson South- Western Mckerchar, M., and Evans, C. (2009). Sustaining Growth in Developing Economies through Improved Taxpayer s Compliance: Challenges for Policy Makers and Revenue Authorities. Social Science Research Journal. Mohd, R. (2013). Tax knowledge and tax compliance determinants in self- assessment system. PhD thesis. University of Birmingham. Nyakamba, D. M. (2013).The Effects of Tax Audit on Revenue Collection: Case of Kenya Revenue Authority. MBA thesis. University of Nairobi Nzioki, M. P. and Osebe, M. P. (2014).Analysis of Factors Affecting Tax Compliance in Real Estate Sector: A Case of Real Estate Owners in Nakuru Town, Kenya, Research Journal of Finance and Accounting.5, (11). OECD. (2009). Understanding and Influencing Taxpayers: Compliance Behaviour. OECD, Centre for Tax Policy and Administration: Paris. Retrieved 3rd September, 2015 from www.oecd.org/dataoecd/58/38/46274793.pdf 582

Oladipupo, A. and Obazee, U. (2016). Tax Knowledge, Penalties and Tax Compliance in Small and Medium Scale Enterprises in Nigeria. ibusiness, 8, 1-9 Osebe Rawlings Peter (2013). An analysis of factors affecting tax compliance in the real estate sector in Kenya: a case study of real estate owners in Nakuru town. MBA Research Project. Kabarak University. Ouma, S., Njeru, J., kamau, A., Khainga, D. and Kiriga,B. (2007). Estimating the size of the Underground economy in Kenya. Kenya Institute for Public Policy Research and Analysis (KIPPRA). Nairobi. Palil, M. R. (2010). Tax Knowledge and Tax Compliance Determinants in Self- assessment System in Malaysia. PhD thesis. University of Birmingham. Picur, D. R., and Riahi-Belkaoui, A. (2006). The Impact of Bureaucracy, Corruption and Tax Compliance, Review of Accounting and Finance, 5(2), 174 180. Pope, J., and Abdul Jabar, H. (2008). The effects of the self-assessment system on the tax compliance costs of small and medium enterprises in Malaysia. Australian Tax Forum, 23, 291-309. Public Finance Management (2012). Public Finance Management Act No. 241 of 2012, Kenya Law Reports Richardson, G. (2006). Determinants of Tax Evasion: A Cross Country Investigation. Journal of International Accounting, Auditing and Taxation, 15, 150-169. Roscoe, J.T. (1975). Fundamental Research Statistics for the Behavioural Sciences. (2 nd edition), New York: Holt Rinehart & Winston. Sabatelli, R. M., and Shehan, C. L. (1993). Exchange and resource theories. New York: Plenum Press, 338-411 Simiyu, D. (2010). Challenges Affecting Collection of Turnover Tax in Nairobi County, Kenya. MBA Research Project. Kenyatta University. Sivo, S. A., Saunders, C., Chang, Q., and Jiang, J., J. (2006). How Low Should You Go? Low Response Rates and the Validity of Inference in IS Questionnaire Research. Journal of the Association for Information Systems, 7 (6). 351-414. Sour, L. (2004). An Economic Model of Tax Compliance with Individual Morality and 583

Group Conformity. European Journal of Business and Management, 13, (1) 43-61 Tavakol, M. and Dennick R. (2011. Making sense of Cronbach s alpha, International Journal of Medical Education, 2, 53-55. Taylor, N. (2001). Understanding Taxpayer Attitudes through Understanding Taxpayer Identities. Centre of Tax System Integrity: The Australian National University, Canberra, Australia. Working Paper No 14. Torgler, B (2003). Beyond Punishment: A tax Compliance Experiment with Taxpayers in Costa Rica: Revista de Analisis Economico, 18(1), 27 56. Torgler, B (2003b). Tax Morale: Theory and Empirical Analysis of Tax Compliance. PhD. Thesis, University of Basel Torgler, B. and Schneider, F. (2005) Attitudes towards Paying Taxes in Austria: An Empirical Analysis. Empirica, 32(2): 231 246. Tyler, T. (1990). Why People Obey the Law: Procedural Justice, Legitimacy and Compliance. New Haven, Conn.: Yale University Press. Vaillancourt, F., Roy César, É. and Barros, M.S. (2013). The compliance and administrative costs of taxation in Canada, 2013, Calgary, The Fraser Institute. Walsh, K. (2012). Understanding Taxpayer Behaviour New Opportunities for Tax Administration. The Economic and Social Review, 43(3), 451 475. 584