EFFECTS OF THE ENFORCEMENT MEASURES ON COMPLIANCE OF RENTAL

INCOME TAX REVENUE IN BUSIA COUNTY A CASE STUDY OF AMAGORO SUB-

COUNTY

EDNAH MUSUNGU

A RESEARCH PROJECT SUBMITTED TO THE DEPARTMENT OF ECONOMICS,

FINANCE AND ACCOUNITNG IN IN THE SCHOOL OF BUSINESS IN PARTIAL
FULFILLMENT FOR THE AWARD OF THE POST GRADUATE DIPLOMA IN TAX
ADMINISTRATION OF THE JOMO KENYATTA UNIVERISITY OF AGRICULTURE
AND TECHNOLOGY.

2020

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 DECLARATION
I declare that the research project is my original work and it has not been presented for an award
of Post Graduate Diploma in any other university, college or institution

Signature: …………………………………… Date: ……………………………

EDNAH MUSUNGU

HDB336-C016/0431/2018

This research project is submitted for examination with my approval as the university supervisor

Signature: …………………………………… Date: ……………………………

DR. MICHAEL MUMA, PHD

Lecturer: Jomo Kenyatta University of Science and Technology - JKUAT

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 DEDICATION

This dedication goes to my mother, Catherine Alungat Musungu, and my dad, Jackson Musungu,

who inspired me greatly to complete this course, to my sisters and brothers for their great support

and encouragement.

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 ACKNOWLEDGEMENT

First of all, I want the Lord to thank God. My biggest thanks go to my supervisor Dr. Muma

Michael for his timely guidance, help and assistant that is very instrumental in completing this

venture. Ultimately, for their prayers, motivation and financial support, I thank my friends and

family. May the Almighty God bless all of them.

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 ABSTRACT

Tax authorities’ major challenge has always been persuading all the property owners to comply
with taxation regulations. The study was aimed at establishing effect of enforcement measures on
compliance of the rental income in Busia County, a case study of Amagoro Sub County. It was
specifically aimed to establish how penalties, distress action and agency notice affect residential
rental income tax compliance by property owners in Amagoro Sub county. The study was guided
by Economic utility, Theory of cost of service, and theory of tax evasion. The study used a
descriptive statistic in its methodology on property owners in Amagoro Sub County. A descriptive
survey research design was used to its methodical choice of samples. A sample of 133 landlords and or
owners of the rental houses was selected from a population of 200 possible rented property owners using
Yamane (1973) measurable recipe to choose a proper example from a limited populace. This recipe was
utilized to decide the agent test size from the landlords of the rented houses operating within Amagoro
Sub-County. The scientist gathered information by methods for poll. Findings of the study indicated that
the enforcement measure has significant effect on the income tax revenue in Amagoro Sub-County. They
included penalties, distress action and agency notice. The study concludes that agency notice have a
positive and significant relationship on compliance of rental income tax. The study also concludes that
distress action and penalties have a positive effect on compliance of rental income tax in Amagoro, Busia
County, Kenya. The investigation prescribes that the enforcement measures prescribed should be used to
enforce tax compliance in Amagoro region.

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 TABLE OF CONTENTS
DECLARATION ................................................................................................................... ii

DEDICATION ...................................................................................................................... iii

ACKNOWLEDGEMENT ................................................................................................... iv

LIST OF FIGURES............................................................................................................... x

LIST OF TABLES................................................................................................................ xi

1.1 BACKGROUND OF THE STUDY ............................................................................... 1

1.1.1 Global Perspective of the Enforcement Measures ......................................................... 3

1.1.2 Regional Perspective of the Enforcement Measures ...................................................... 4

1.1.3 Local Perspective of the Enforcement Measures ........................................................... 5

1.1.4 Amagoro Sub-County..................................................................................................... 6

1.2 Statement of the Problem .................................................................................................. 6

1.3 Objectives of the Study ..................................................................................................... 8

1.3.1 General Objective ........................................................................................................... 8

1.3.2 Specific Objectives ......................................................................................................... 8

1.4 Research Questions ........................................................................................................... 8

1.5 Justification of the Study ................................................................................................... 9

1.5.1 Management of KRA ..................................................................................................... 9

1.5.2 The Academicians and Scholars..................................................................................... 9

1.5.3 The Policy Makers.......................................................................................................... 9

1.6 Scope of the Study ........................................................................................................... 10

1.7 Limitations of the Study ................................................................................................. 10

CHAPTER TWO ................................................................................................................. 11

LITERATURE REVIEW ................................................................................................... 11

2.1 INTRODUCTION ........................................................................................................... 11

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2.2 Theoretical Framework ................................................................................................... 11

2.2.1 Economic Utility/ Deterrence Theory .......................................................................... 11

2.2.2 Theory of Cost of Service ............................................................................................ 13

2.2.3 Prospect Theory of Tax Evasion .................................................................................. 13

2.2.4 Conceptual Framework ................................................................................................ 14

2.3 Review of study variables ............................................................................................... 16

2.3.1 Penalties........................................................................................................................ 16

2.3.2 Distress Action ............................................................................................................. 17

2.3.3 Agency Notice .............................................................................................................. 18

2.3.4 Enforcement and Compliance ...................................................................................... 18

2.4 Empirical Review ............................................................................................................ 19

2.4.1 Penalties and Compliance ............................................................................................ 19

2.4.2 Distress actions and Tax compliance ........................................................................... 20

2.4.3 Agency Notice and Compliance ................................................................................... 21

2.6 Summary ......................................................................................................................... 22

2.7 Research Gaps ................................................................................................................. 23

CHAPTER THREE ............................................................................................................ 25

RESEARCH METHODOLOGY ....................................................................................... 25

3.1 Introduction ..................................................................................................................... 25

3.2 Research Design .............................................................................................................. 25

3.3 Target Population ............................................................................................................ 25

3.4 Sampling Frame of the Study .......................................................................................... 26

3.5 Sampling techniques and Sample Size ............................................................................ 27

3.6 Data Collection Procedures ............................................................................................. 29

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3.7 Data Collection Instruments ............................................................................................ 29

3.7.1 Reliability of data collection instruments ..................................................................... 30

3.7.2 Validity of data collection instruments ........................................................................ 30

3.8 Pilot Testing .................................................................................................................... 31

3.9 Data Analysis and Presentation ....................................................................................... 31

3.9.1 Analytical Model .......................................................................................................... 32

3.9.2 Measurement of the x variable ..................................................................................... 33

3.10 Test of Significance ....................................................................................................... 34

CHAPTER FOUR ............................................................................................................... 35

FINDINGS AND DISCUSSION ........................................................................................ 35

4.1 Introduction ..................................................................................................................... 35

4.2 Response Rate ................................................................................................................. 35

4.3 Data Validity ................................................................................................................... 36

4.4 General Information ........................................................................................................ 36

4.4.1 Number of Years in Existence...................................................................................... 37

4.4.2 Highest Level of Education .......................................................................................... 37

4.4.3 Number of Rental Houses ............................................................................................ 38

4.4.4 Monthly Rental Income ................................................................................................ 39

4.5 Descriptive Statistics ....................................................................................................... 39

4.5.1 Fines and Penalties ....................................................................................................... 40

4.5.2 Distress Action ............................................................................................................. 41

SUMMARY, CONCLUSION AND RECOMMENDATIONS ....................................... 51

5.1 Introduction ..................................................................................................................... 51

5.2 Summary of the Findings ................................................................................................ 51

viii
5.2.1 Distress Action and Compliance of the Rental Income tax revenue ............................ 51

5.2.2 Fines and Penalties and Compliance of rental Income Tax Revenue .......................... 52

5.2.3 Agency Notice and the Compliance of the Rental Income tax Revenue ..................... 52

5.3 Conclusion ....................................................................................................................... 53

5.3.2 Fines and penalties and Compliance of Rental Income Tax Revenue ......................... 53

5.3.3 Agency Notice and Compliance of Rental Income Tax Revenue ................................ 53

5.4 Recommendations of the Research ................................................................................. 53

5.4.1 Distress Action and Compliance of Rental Income Tax Revenue ............................... 53

5.4.2 Fines and Penalties and Compliance of Rental Income tax Revenue .......................... 54

5.4.3 Agency Action and Compliance of Rental Income tax revenues. ................................ 54

5.5 Areas for Further Studies ................................................................................................ 54

APPENDICES ..................................................................................................................... 55

APPENDIX I: ...................................................................................................................... 55

APPENDIX II ...................................................................................................................... 56

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 LIST OF FIGURES

Figure 2.1: Conceptual Framework………………………………………………………….15

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 LIST OF TABLES
Table 3.1 Population Distribution

Table 3.2 Sample Size Distribution

Table 4.1 Response Rate

Table 4.2 Reliability Results

Table 4.3 Number of years in existence

Table 4.5 Level of Education

Table 4.6 Number of Rental Houses

Table 4.7 Expected Monthly income

Table 4.6 To what extent does Fines and Penalties affect the compliance
of rental income tax.

Table 4.9 To what extent that Distress Action affect the compliance of
rental income tax

Table 4.10 To what extent does agency notice affect the compliance of
rental income tax

Table 4.11 Trends of the aspects of the financial performance

Table 4.12 Correlation Results

Table 4.13 Model Summary

Table 4.14: ANOVA

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 LIST OF ABBREVIATIONS AND ACRONYMS

ANOVA Analysis of Variance

CBK Central Bank of Kenya

GDP Gross Domestic Product

IRS Internal Revenue

KRA Kenya Revenue Authority

KIPPRA Kenya Institute of Public Policy Research and Analysis

MST Medium and Small Taxpayers

MTO Medium Taxpayers’ Office

PAYE Pay As You Earn

SME Small and Medium Enterprises

VAT Value Added Tax

WHT With Holding Tax

xii
 CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Rental income has always been subject to tax and how the Kenya Revenue Authority (KRA) can

raise it effectively has been (and continues to be) a challenge (KRA, 2003). Rental income is any

money received from another's permission to use land owned or entitled to. Originates from

renting a home, apartments, offices, space in an office building, or other real property or

moveable. Rental income earned may be a person's core business, or may be incidental to their

core business. Section 3(2)(a)(iii) of the Income Tax Act (ITA) provides that income from a right

to use or occupy land given to another person constitutes income taxable. However, the Finance

Act 2015 introduced residential rental income tax with effect from 1 January 2016; Section 6 of

the ITA — residential rental income tax is payable by any resident from income earned in or

obtained from Kenya for the use or occupation of residential property that does not exceed KShs.

10 million per annum of profits (KRA, 2003). This tax is a final monthly tax payable, although

taxpayers who wish to remain under the previous rental income tax scheme can elect to do so by

writing to the commissionerThe tax rate on gross rentals paid is a flat rate of 10 per cent

(KIPPRA, 2004).

As a means of funding its development goals, most developed countries depend heavily on taxes.

A critical factor for the functioning of every state is the ability to collect tax revenues, called

"fiscal power" (Nyaga, 2014). A pillar of state creation and sustainability is being able to tax

people, and raise income effectively. Secondly, improved fiscal flexibility means greater state

access to capital required to provide public goods and services. Developing countries are only

able to collect a limited share of taxes, according to Ricciuti and Sen (2019).
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They usually obtain from 10 to 20 per cent of GDP (Ricciuti, 2019). This is twice the average in

high-income nations, at 40 per cent. Those low levels are the result of several issues. Firstly, the

informal economy 's big scale. Second, a lack of tax collection expenditure where most

developed countries rely on sales taxes, which are easier to administer than personal taxes, which

require lower revenues. The degree to which compliance with the legal obligations that it

imposes greatly affects every tax system 's revenue yield, productivity and fairness. Non-

compliance reduces revenue, distorts competitiveness (making the non-compliant an advantage),

and sacrifices equity (both horizontally — between taxpayers alike, but varying in degree of

compliance — and theoretically vertically — to the point that their duties are more widely

avoided by the better off (Tashi & Shome, 1993). These communicate with each other.

Governments that are anxious for revenue may focus their efforts on more compliant taxpayers,

exacerbating the distortions. And a perception of unfair treatment will place broader willingness

to comply in jeopardy.

After the financial crisis, tax, a key concern in developed countries, has become a greater priority

in many advanced and emerging economies to improve compliance. Improving enforcement has

long been a key development objective, both to boost revenue and to create powerful, reliable

public institutions as necessary (Webley, 2002). Compliance has often declined sharply in

countries most severely affected by the crisis, revealing deeper weaknesses in revenue

administrations; and its improvement has attracted attention as a potentially more equitable,

efficient and politically appealing alternative to policy measures as a means of meeting

intensified revenue needs (KRA, 2003). The Kenya Revenue Authority (KRA) has set out on a

compliance drive to get landlords to pay tax on rental income.

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With a revenue collection target of Sh1.4 trillion for the 2016/2017 financial year, KRA is

implementing various policies stipulated in the finance act 2016 to seal tax loopholes. One area

the taxman has struggled with is tax collection from rental income, with landlords failing to

comply.

1.1.1 Global Perspective of the Enforcement Measures

According to Jarrod (2012), Australia's rent tax rate begins at 32.5%. Unlike Australian resident

taxpayers who are able to earn a set amount of tax-free income, a foreign resident is taxed from

the first dollar earned. The tax rate on the first $87,000 you earn remains at 32.5 percent, and

then rises to 37 percent (tax rates for 2016-17). Of course, Australia, as per Furceri and Karras

(2010), with its abundant natural resources and several strong economic oligopoly sectors that

earn large-scale location-specific rents, is really a country that needs to protect its source-based

revenue tax. But that has remained tough.

As of 1 January 2015, Russia introduced new rules requiring, among other things, Russian tax

residents to report and pay tax on non-distributed profits from controlled foreign firms. (KPMG-

Journal International, 2019). In general, however, Russia has not yet adopted fiscal laws on an

economic employer approach. Federal, regional, and local taxes are included in Russian tax

system. Individuals, like legal entities including scientific-technical organisations, are subject to

taxes. The draft Tax Code explicitly classifies the following as taxable: any research-technical

work, facilities in the science sector and any fees earned as compensation for the use or awarding

of authorship rights to any scientific project or as reward for knowledge relating to scientific

experience.

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A new and significant provision introduced in the draft code provides an organization with the

ability to obtain an expenditure tax credit for conducting scientific-technical research. In

addition, income taxes in Canada average far exceed property taxes. Property taxes form a fairly

small portion of most Canadian families' tax bills. On average, in 1998, homeowners paid 2.9%

of their family income for property taxes, compared to 21.3% in income taxes. Canada

(Statistics, 2000). Although property taxes are generally manageable for most families, in

property taxes about 1 in 15 paid 10 per cent or more of their income.

1.1.2 Regional Perspective of the Enforcement Measures

However, in Egypt, landlord-tenant law is neutral (Haig R, 1921). The law 's structure is pro-

landlord when it comes to new contracts but legal delays work against the landlord. Real estate

tax for commercial units is levied on all built real estate units across the country with annual

rental value exceeding EGP 1,200 and EGP 24,000 for residential units. The tax rate represents

10 per cent of the taxable real estate 's annual rental value. Nevertheless, the prevalence of

poverty in developing countries such as Ethiopia requires improvising internal revenue

generating projects to reduce dependence on foreign aid and borrowing in particular by tax

administration (Amon and Antony, 2013). Teshalle (2014 ) did research on the business rental

income challenges and opportunities in EthiopiaIn Ethiopia, a person who derives income from

casual rental property not related to business activities taxable under Article 17 shall pay tax on

annual gross income at a rate of 15% (15 per cent). That tax is a final tax rather than a net

income tax. (Official No. 361/2003). Its tax to GDP ratio in Nigeria is among the lowest in the world

(Institute of Development Studies, 2019). It is well below the sub-Saharan African average of 20 percent

at less than 6 percent, and the 15 percent considered necessary to finance adequate public services.

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Nigeria has long relied on oil revenues, but the need to diversify government budget sources and create a

more sustainable revenue base for inclusive growth is now widely recognizedStringent research that can

inform both tax policy and practice is key to raising increased tax revenue in an equitable manner and

without impeding economic growth. In September 2017 the Nigerian Tax Research Network was

launched for this reason.

1.1.3 Local Perspective of the Enforcement Measures

Work has been done in respect of compliance of property owners in Kenya with tax authorities.

More focus has, though, been on Kenya's major cities. Lucinde (2017), conducted a study on the

residential income compliance rates in Nairobi , Kenya. Nevertheless, she recommended that all

property owners in Nairobi be given tax compliance training. Additionally, Linda and Miles

researched another secondary city, Kisumu, in 2019. It focused on factors shaping the low level

of property tax collection and the main variables are the spatial scale of property tax collection

and fund utilization; limited resources and collection capacity; and tax administrators' own

perception of the legitimacy of property taxation while the independent variables used are tax

enforcements used by the tax administrator. The findings confirm that local tax administrators

are not merely recipients of tax policy, but are active agents in shaping how policies operate in

practice. Overall, improving property taxation requires action to address alignment, capacity and

legitimacy. However, rather than attempting a top-down reform, this research suggests that

building on the perceptions and practices of tax administrators will provide a more effective way

of increasing property taxes in the smaller urban centers of Africa.

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1.1.4 Amagoro Sub-County

Amagoro is a town in Busia County, in the former Western Province of Kenya. It is situated

approximately 7 kilometers from the border of Uganda. It is the former capital town of the

defunct Teso District. Predominant ethnic group: Teso, a Kenyan minority, also found in

Uganda. Amagoro is a border town and the main economic activities is the transport sector and

import and export sectors, which has experienced a huge growth, and most of drivers of the

transport sector prefer to live at Amagoro, thus there has been an increase in demand for

residential housing, business premises and hospitality facilities

1.2 Statement of the Problem

Studies done in Australia shows that due to high tax rates of 32.5% on residential income, many

tax payers have opted a way of avoiding taxes through submitting high tax expenses thus

reducing the revenue generated through taxes(Jarod, 2012). High taxes have been brought by the

different levels of taxes and thus complicated systems of taxes. (Taylor, 2000). In addition, tax

issues have increased in Russia, such that the taxes on the property have been abolished from

corporate property tax from the year 2019 according to KPMG Report (2019); however, the

value of qualification and the refund remains a challenge. Furthermore, according to the

proclamation of March 4th 1975, the Ethiopian government declared that all rural lands are “the

common property of the Ethiopian People” and that, henceforth, no person or business

organization or any other organization may hold rural lands in private ownership. This has been a

challenge, since no taxes can be declared in the rural residential areas (Teshalle, 2014). Locally,

in Kenya, research has been concentrated in the urban areas in Kenya (Linda, 2019). However,

less effort has been done on the rural parts of Kenya, especially in Amagoro, Busia Country.

6
This, however, has major residential investments, since it is a border county. The government

has in the past couple of years had an uphill task enforcing and collecting tax on rental income,

especially in the rural areas.

It's important to remember that this isn't a new thing. Rental income has always been subject to

tax and the challenge has been (and continues to be) how the Kenya Revenue Authority (KRA)

can effectively collect it (KIPPR, 2014). Recent failure by the Government through the Kenya

Revenue Authority (KRA) to meet its annual revenue targets has necessitated the need to look

for avenues that will lead to an increase in revenue generated through taxation. In addition, it is

envisaged that the new government structure of the delegated system will increase government

expenditure. This calls for policy makers to look for ways to help the government raise more

revenue (KRA, 2003). In spite of the measures taken by KRA to improve its revenue collection,

such as the implementation of reforms and modernisation programmes, the Authority has fallen

short of its revenue targets. Tax compliance is a major challenge for many tax authorities. It is

not an easy task to persuade taxpayers to comply with tax requirements, even though tax

legislation is not always accurate in some respects. Taxpayers are inherently prepared to reduce

their tax liability either through tax evasion or tax evasion. This may lead to an incorrect filling

of their tax returns and a loss of government revenue (Naibei, 2012). Tax compliance is unduly

burdensome due to an unduly complex regulatory system and the enforcement of tax regimes.

More research has been done on the residential income in the urban areas, and very few research

has been done in the rural areas, especially in Amagoro. Therefore, this calls for a study to

determine the effects of enforcement measures on compliance of rental income in Busia County.

7
1.3 Objective of the Study

The study will be guided by the general and specific objectives.

1.3.1 General Objective

The general objective of the study will be to determine the effect of the enforcement measures of

agency notice, penalties and distress actions on tax compliance of rental income in Amagoro,

Busia County.

1.3.2 Specific Objectives

The study will be guided by the following specific objectives:

1. To determine the effect of the agency notice on the compliance of the rental income tax

in Amagoro sub-county.

2. To determine the effect of the penalties on the compliance of the rental income earned in

Amagoro Sub County.

3. To determine the effect of the distress action on the compliance of the rental income tax

in Amagoro Sub County.

1.4 Research Questions

1. What is the extent of the agency notice on the compliance of the rental income tax in

Amagoro Sub County?

8
 2. To what extent does penalties affect the compliance in rental income tax in Amagoro Sub

County?

3. To what extent does distress action affect the compliance in rental income tax in

Amagoro Sub County?

1.5 Significance of the Study

The study will be beneficial to the following:

1.5.1 Management of KRA

The management of the Kenya Revenue Authority will find this study useful as a reference point
to assist in decision-making on tax revenue determinants, particularly in untapped rural areas.

1.5.2 The Academicians and Scholars

The aim of the study was also to help academics, in particular students in the tax administration

and accounting profession, to gain more knowledge and thus form a guide for further discussions

or studies on the same subject.

1.5.3 The Policy Makers

The study also acts as an input in persuading policy makers to review their enforcement actions
to increase income from rental income in rural areas of Kenya, particularly in Amagoro, Busia
County. Society and the government in general will benefit from this because, once there is an
increase in the tax base, it will lead to less dependence on donor funds, grants and loans to
finance its budget.

1.5.4 The landlords

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The study will benefit landlords, as it will help them to be aware of the tax paid to the

government, their role in tax administration and the ease of paying rental income.

1.6 Scope of the Study

The general objective of the study was be to determine the effect of the enforcement measures of

the notices, penalties and distress measures on the tax compliance of rental income in the

Amagoro area. The independent variables of the study was be enforcement measures for

compliance with rental income in the rural area of Kenya. The study was carried on in Amagoro

Sub-County of Busia County, Western region in the republic of Kenya. Therefore, the study will

take a geographical scope.

1.7 Limitations of the Study

The sample size of 150, which included 109 duly completed questionnaires, was limited to the

accuracy and representativeness of the findings of the study. The census would have been the

best option and would have provided the most representative. However, the census would not

have been technically and economically efficient on the basis of time and funds available.

10
 CHAPTER TWO

LITERATURE REVIEW

2.1 INTRODUCTION

This chapter will present a review of the literature that is consistent with the topic of the study,

which is the effect of the enforcement on compliance of the rental income in Amagoro. The

study will focus on various theories underlining the study includes deterrence theory, theory of

cost of service theory, and prospect theory of tax evasion. Furthermore, the study determine the

conceptual framework, reviewing the study variables, review of the empirical studies, critique of

the study research gaps and finally the summary of the literature review.

2.2 Theoretical Framework

The theoretical structure should provide an overview of theories and principles related to the

theme of the study (Journal of International Social Science, 2010), which are the effects of

regulation on rental income compliance in Amagoro Sub County. The main theories to be

reviewed will be the theory of benefit, cost of service theory, ability to pay theory and the theory

of diffusion.

2.2.1 Economic Utility/ Deterrence Theory

The contemporary recovery of the criminal financial enquiry began in 1968 with Becker 's

exemplary article on crime and discipline. While Becker referenced tax avoidance as a usage

territory for his general model, Allingham and Sandmo (1972) provided the analysis.

11
For the most part, this methodology treats non-compliance as a discerning individual choice,

depending on identification probabilities, conviction, and punishment levels. According to

Allingham and Sandmo(1972), tax compliance is a normal expanding utility (EU) option where

the taxpayer considers the tax rate, the likelihood of review and the penalty in deciding the

declared income. The actual wage of the taxpayer is exogenously paid and known to the

individual, but not to the Internal Revenue Service-IRS.A constant proportional tax is added to

precise wages, the measure of which the individual chooses. With some exogenous and

reasonable likelihood, the individual is examined to pay a penalty corresponding to the measure

of undeclared income, at a rate higher than the relative tax rate, in the event that the person is

found to be underreporting income. The citizen selects a degree of the revealed income to

maximize their normal net wealth utility. Ideal tax avoidance relies upon the opportunity of

getting captured and punished, the size of the punishment for avoidance and the person's level of

hazard avoidance. Yitzhaki (1974) called attention to that if the penalty (and any related non-

monetary expenses) for found avoidance is corresponding to the assessment downplayed rather

than, then the duty rate has no impact on the details of the duty evasion gamble. As the rate rises,

the expense of a recognized modest representation of the truth of assessments ascends in the

precise extent to the reward from an effective modest representation of the truth of charges, so

the reward-to-chance proportion is unchanged. In this circumstance, a higher duty rate has just a

pay impact and, for instance, if a citizen's degree of (outright) hazard avoidance increments as

after-charge salary falls, a higher expense rate will diminish tax avoidance. This hypothesis joins

enforcement measures in deciding tax compliance levels. This investigation gets intensely from

the A-S model in that it tries to build up the relationship of tax enforcement measures have on

rental income compliance.

12
The hypothesis weighs a taxpayer gauges the expense of being found evading tax versus the

advantage of going unnoticed. On the off chance that the expense of being gotten is high, at that

point it will be valuable for the citizen to simply agree to the tax law and this will positively

affect tax income.

2.2.2 Theory of Cost of Service

This hypothesis or theory suggests that the Government should impose the taxes as indicated by

the expense of administration rendered by it. The Government renders certain services to citizens

and the expense of such administrations ought to be by and large met by the residents. The tax,

an individual should bear, must be equivalent to the expense of advantage be gets. However,

there are criticisms of Cost of Service Theory or Taxation many economists- firstly, according to

Paul (2012), discovering all out expense of administrations rendered by the Government is

extremely troublesome and consequently, the topic of distribution of all expense among citizens

isn't so natural to explain. Furthermore on the off chance that we assume that the all-out expense

of administrations can be resolved, the following trouble is the way to separate the expense of

the administrations among people. Thirdly, Smith (2015) criticized that if this hypothesis is

followed in the cutting edge or modern welfare express, the less fortunate should cover

progressively regulatory expenses since they receive more advantages. Subsequently, it is

inverse to the rule of equity.

2.2.3 Prospect Theory of Tax Evasion

This theory portrays the manner in which individuals pick between probabilistic choices that

include risk.

13
Under the prospect theory, the transporters of utility are gains and losses comparative with some

reference point (Dhami &al-Nowaihi, 2006). A significant utilization of prospect hypothesis is to

the equity premium riddle in finance which is comparative in soul to the tax avoidance puzzle in

that both can be detailed as far as a portfolio decision issue. Alm,Jackson and McKee(1992),

propose that one pozssible clarification for why individuals pay taxes may possibly be founded

on non-direct change of probabilities to overweigh the likelihood of an tax audit, which

accommodates a conspicuous obstruction to tax avoidance activity.Restricted prospect theory has

been utilized in "advance tax payments" trying to hinder tax avoidance. Where advance tax

installments surpasses actual tax liability, in which case the citizen effectively reports income,

the citizen gets a discount, an addition. In this way, the taxpayer's utility capacity is curved to

gains. Then again, if the advance payment were lower than the actual tax liabilities, the citizen's

utility capacity would be raised for losses and may be all the more ready to take a bet of avoiding

taxes (Yaniv, 1999; Elffers and Hessing, 1997)

2.2.4 Conceptual Framework

Majiwa (2016) observed that tax compliance, being the dependent variable is influenced by the

following independent variables namely:-audit rates, penalties and criminal sanctions. These

variables are interrelated and therefore should not be considered in isolation if compliance

objectives are to be met. However, it should be noted that the variables have varying degree in

importance in enforcing compliance of payments of taxes and it is strongly felt that enforcing of

tax compliance will be highly determined by the communication from the tax administrators. The

standard communication from the tax administration to taxpayers consists of the request to file a

tax return and the request to pay taxes. Follow-up correspondence takes place in the event of

14
taxpayers being either late in filing their tax return or being late in paying their tax dues.

Furthermore, imposing of the penalties, agency notice and the distress actions 2will improve on

compliance.

Agency Notice

 Use of reminders
 Issuance of agency
notice.

Tax compliance in the

Penalties rental income

 Amount of penalties and  Monthly tax payment

fines  Tax Return
 Penalties and fines rate submissions

Distress action

 Auction of properties of
tax payers defaulters.
 Recovery of tax due

Independent Variable Dependent Variable

Figure 2.1: Conceptual Framework

15
2.3 Review of study variables

In order to enforce compliance of the rental income in the rural parts of the country, with a focus

on the border region of Kenya and Uganda, the independent variable identified was the

enforcement of compliance of residential income while the dependent variables are the penalties,

sanctions, and audit review of the rental owners.

2.3.1 Penalties

As per Thagana, Wanyoike and Wagoki (2016), penalty is surveyed when you don't document

your final tax return on schedule. The penalty depends on the time from the due date (such as

June 30 for individual annual returns and April 20 for residential income tax) to the date the

return is documented. A one-per-cent penalty is assessed for each month of late return. The most

extreme penalty is 25 % of the total amount due. Interest is, however, calculated on the amount

of back taxes you owe. Interest is calculated on a daily basis for as long as you have a balance

due. As you can see, it's pretty easy to understand the difference between tax penalties and

interest. Penalties shall be assessed for failure to file a return or failure to pay on time. Interest is

charged on late or unpaid taxes in a manner similar to the failure to pay penalty. Consequently,

non-compliance with the tax regulation is clearly punishable by law. These are measures that

have been put in place as a way of ensuring that all citizens are actively involved in the

collection of taxes. Laws are put in place to keep things streamlined and, therefore, each landlord

must comply with them.

16
The rental income tax rate 2018 in Kenya, being at only 10% is relatively on the median of the

scale in comparison to the likes of Corte d’voire at 20% and with Namibia who pay nothing at

all. So the actual penalty for failure to pay the rental income tax in Kenya is as follows, failure to

file your rental tax returns by the 20th day of the month leads to a penalty of 20,000 per month

and a charge of 20% on the defaulted tax. It would be wise to be keen on your taxes as this

would definitely be a costly mistake.

2.3.2 Distress Action

According to Nyaoke (2007), distrait action is a form of debt recovery by auctioning the debtors'

assets that have failed to pay the amount due. Finance Bill (2015 ) has given KRA a mandate to

seize the defaulters properties. The distress acts were also applied in tax administration and used

by different revenues authorities in the last one decade to collect and recover tax debts from tax

defaulters (Mutua,2012). KRA will use the money from the sale of the property to clear the

unpaid tax. The remaining amount, if any, will be returned to the defaulter, the Finance Bill. For

example, in Kenya where there is reasonable grounds for believing that tax is due and payable

but the person will pay by default and all other soft avenues will be exhausted; the Kenya

Revenue Authority can, instead of using court cases, recover it by distress. In simple societies

where the level of willing conformity is high, normative sanctions tend to be informal in nature,

material in application and limited in use. In complex societies where the degree of willing

conformity is lower, normative sanctions are more likely to be formal in nature, procedural in

application and frequent in use (Michalowski 1985). In most cases, borrowers used this form of

debt recovery to recover their debts resulting either from loans or from the sale of goods and

services, but the debtors did not pay the amount due.

17
This would encourage tax evasion and or declaring expenses that is not allowable. Thus this calls

for a consistent review of the expenses allowed by the landlords and land owners in order to

encourage compliance.

2.3.3 Agency Notice

According to African economic outlook (2005), using reminders and sending an agency notice

has had a positive effect on debt recovery policy by helping African banks raise debt. However,

residential income is subjected to allowable deductions. Agency alert has proven a good tool for

gently persuading and pressuring debtors to pay off their debts (African economic outlook,

2005). The usage of reminders and the issuance of an organization according to African

economic outlook (2005) the notification has had a positive effect on the debt recovery plan by

assisting in debt collection in banks of African origin. Agency alert has proven a good tool for

gently persuading and pressuring debtors to pay off their debts (African economic outlook,

2005). This is because some customers genuinely cannot remember when their debts are due,

therefore reminders such as email, short text (SMS) or a telephone call enable the debtor to

remember and honor their obligation to do so pay / settle their debts

2.3.4 Tax Compliance

Although Kenya's real estate sector has continued to grow, KRA 's revenue was not equal to that

growth; as a result, in July 2012, the KRA launched an aggressive tax compliance campaign to

increase revenue – block management.

18
However, in a bid to have more taxpayers declare residential rental income, the Finance Act

2015 introduced special provisions relating to taxation of residential rental income. Before the

amnesty (January 1, 2016), landlords were unwilling to declare rental income tax – legacy

liabilities following years of failure to comply. KRA revealed in 2012 that fewer than 40 per cent

of landlords and developers had met tax requirements. Additionally, it is not optimal for KRA to

be able to effectively identify and capture all the landlords in the tax net. Cash transaction - rent

paid in cash further frustrates the enforcement of the tax. The KRA obtained information from

utility providers about the landlords and asked tenants to register their landlords. This perceived

lack of trust demonstrates the difficulties with rental income tax implementation and collection.

According to a Griffith University (2008) research report, the adoption of enforcement over the

facilitation model as a compliance engine has many significant drawbacks, the key one being the

danger of weakening the relationship between tax authorities and taxpayers. In the long run, the

confidence between the two parties dissipates, and their relationship gradually borders on that of

adversaries.

2.4 Empirical Review

2.4.1 Penalties and Tax Compliance

Tax penalties determine the standards of behavior that satisfy them. A taxpayer's policy

obligations; they differentiate compliant taxpayers from non-compliant taxpayers. The research

will focus particularly on the impact of penalties and sanctions as a key determinant of taxpayer

behavior. The relation between the attitudes of taxpayers towards sanctions and their subsequent

attitude towards evasion / non-compliant conduct is one that has been subject to considerable

research in the past (Grasmick & Scott, 1982; Hasseldine & Kaplan, 1992).

19
It is important to research penalties since it is also one of the factors that are under the control of

tax authorities. Some researchers have found that taxpayers are more sensitive to the penalty

magnitude than to the likelihood of detection when the probability is very low ( i.e., 4 percent or

less) (Jackson & Jones, 1985). This may have implications for countries that have shifted to an

atmosphere of self-assessment. A specific study found that a significant relationship existed

between the severity of criminal sanctions and compliance by one group of self-employed

taxpayers-high-income individuals (Witte & Woodbury, 2017).

2.4.2 Distress actions and Tax compliance

Deterrence factors, such as the likelihood of being audited and detected by tax authorities, have

been found to reduce taxpayer incompliance (Allingham & Sandmo, 1972; Doran, 2009). For

example, the Nigeria Personal Income Tax Act (PITA) 2011 as amended reinforces issues such

as record keeping, self-assessment and provides fines of N50,000 and N500,000 for individuals

and companies, respectively, for violating the provisions of the Act (Oluchi, 2012). Distress

action is necessary if the taxpayer has the option of leaving the country or if the taxpayer is about

to sell the land. Consequently, the auctioning of the properties is important because it assists the

government in collecting the appropriate tax revenue necessary for the budget, in maintaining

economic and financial order and stability, in ensuring that taxpayers submit satisfactory returns,

in organizing the degree of tax avoidance and tax evasion, in ensuring strict compliance by

taxpayers with tax laws, and in improving the of voluntary compliance by tax payers and to

ensure that the amount due is collected and remitted to government.

20
According to Badara (2012), distress actions include auctioning of defaulting properties to

maintain a strong mechanism for dealing with tax avoidance techniques available to different

organizations but susceptible to tax abuse, bringing defaulting taxpayers into the net of tax

authorities, proving the completeness , accuracy and timely filing of tax returns submitted by the

tax authorities.

2.4.3 Agency Notice and Tax Compliance

Doran (2009 ) claimed that for two reasons the notice from the Agency remains relevant. First,

the standard model assumes that some taxpayers will not comply with tax obligations, and those

taxpayers must be deterred by the threat of reminders, and second, taxpayers who have complied

must be assured that non-compliant taxpayers are identified and notified. Also, a Sherman study

(1993) on the defiance, deterrence and irrelevance; Criminal sanction theory analyzed that

growing evidence shows a great diversity in the effects of criminal punishment. Sherman found

that in order to acknowledge the shame, which conditions deterrence, procedural justice of the

tax defaulting and reminding is essential.

2.5 Critique of Existing Literature Relevant to the study

As indicated by Flynn (2003) on his investigative income loss due to non-compliance by

individual taxpayers, for self-claimed business, it was estimated to be around $95.30 billion

worldwide for evaluation year 2000. Kenya in the aftermath of perceiving a high level of self-

employed non-compliance. Kenya Revenue Authority used a few different methods of tax

collection, such as portion-by-portion self-assessment block management and assessment

installment.

21
A successful income tax collection requirement strategy is important along these lines, although

existing tax assessment studies have focused specifically on the supervision of small taxpayers

(issues of tax planning and the open view of tax avoidance (Song et al. 2015). Tax compliance is

an overall burden in many countries, and the household income is used to fund sporadic

consumption. In Kenya, as an authority ordered to enhance tax enforcement, KRA has imposed

penalties such as electronic reporting, audits, compliance reviews, arrangements and inquiries.

Informant prizes were also presented and helped to improve tax compliance with the

authorizations. Tax compliance in sub-Saharan Africa's rental income is below 18 per cent while

it is 20 per cent worldwide (KRA, 2013). Kenya is one of the low-income countries, but

compliance with taxes is weak, as is the strong responsibility to justify innovative and effective

tax management. KRA train new enrolled taxpayers month by month to boost tax compliance. In

the past review, therefore, the increased taxpayer education and partner sharpening has not been

demonstrated for better tax enforcement (KRA, 2011). Current literature from experts in the

empirical survey and section two literature works have shown that further research has been

necessary since analysts generally managed to comply with rental income from the tax

authority's point of view for the majority of policies developed. This has now proven that there is

a void that causes further non-compliance. By identifying factors influencing the collection of

rental income tax by KRA in Amagoro, this research will be able to ensure more value.

2.6 Summary

The study will focus on the effect of enforcement measures used to ensure compliance of the

rental income in the Amagoro sub county.

22
Due to time and financial constraints, it will focus on the Western region, Amagoro, of Busia

County for the period of the last 5 years. In the theoretical framework, major theories discussed

were the Economic deterrent theory, theory of cost of service and prospect theory of tax evasion.

In addition, major the variables which comprises of the study is discussed, and it includes; the

audit rates, penalties and criminal sanctions. Further, the empirical studies shows that there is a

positive relationship between the the study variables and the with the compliance of rental

income taxes. Furthermore, the variables were reviewed independently, and their relationship

with the independent variable, that is the tax compliance.

2.7 Research Gaps

There has been ongoing debate among individuals who advocate policy solutions focused on

deterrence designed to pick up enforcement from culprits and individuals who are increasingly

interested in promoting critical control and cooperation. A research conducted by Sanders,

Reckers and Iyer (2008) to look at the relationship between transparency and tax enforcement

penalties supported the hypothesis that the relationship is positive. Doran (2009 ) argued that tax

penalties often encourage taxpayers to comply with tax laws, especially where they are more

costly than enforcement. Crane and Nourzad (1986), on the other hand , found that there is a

negative relationship between sanctions and tax compliance. Additionally, a study was

conducted to enforce tax compliance: to punish or persuade? By Kristina (2008), in which she

argued that enforcement is a punitive compliance strategy.

This research was conducted in Australia. Locally, Ndumia (2013) researched the effect of

enforcement measures on value-added tax revenue for companies in Kenya's large corporate

taxpayer category and used criminal sanctions, penalties, and audit rates variables.
23
However, he recommended further research in other sectors like residential, MTO, and MST. By

focusing on recent research work, it is evident that only a few studies have been done to report

the impact of enforcement measures on rental pay compliance in Amagoro, Busia County. The

researcher will also decide on the components which influence Kenya Revenue Authority's

collection of rental income tax laws.

24
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction
This part depicts the examination plan and technique engaged with the investigation. It covers a

description of the study design, target population, sample design and size, data collection

instruments and procedure, data analysis and presentation.

3.2 Research Design

A research design is a systematic plan to study a scientific problem (Cooper & Schindler, 2014).

According to Collins and Hussye (2015), there are very many ways of classifying research

design and these includes descriptive, correlational, semi-experimental, review, and meta-

analytic research design. A descriptive correlational approach was adopted in the study to cover

a wide range of variables and their interrelations to show the extent to which conditions in a

situation are connected (Tavakoli, 2015). The design was chosen because of its methodical

approach to the choice of samples and its ability in obtaining information from a sample of 92

small audit firms on the effect of growth on the financial performance of small audit firms in

Nairobi. In addition, the descriptive approach will enable the researcher to report things the way

they are (Muteti, 2005).

3.3 Target Population

Population is defined as the total number of persons inhabiting a country, city or any area which

have common characteristics that the researcher wishes to use to make some inferences (Cooper

& Schindler, 2014).

25
The target population in this study consisted of the owners, and landowners of the reantal houses

in Amagoro Sub county, Busia County, Kenya. According to Kenya Power directory as at 17 th

July 2019, the registered the registered rental houses in Amagoro, comprises of 200 rental houses

that are divided into 5 major villlages namely; Aleles, Chelelemuk,,Chamasiri,, Okuleu and

Awata divisions. (See Appendix v). The study will be carried out among the 50 taxpayers who

are compliant tax payers in Amagoro, and the other 100 who are not aware of not tax compliant

in Amagoro area. The information about tax compliance will be found from the KRA database.

A study could be designed in this way as a descriptive, causal-comparative, or correlational

study. The method of analysis most of which captured the aims of this study was correlation, and

therefore the design of the study was appropriately named a design for correlation. The study

was able to establish the relation between the variables in the study in this manner. This was

therefore the appropriate research design in this study.

3.4 Sampling Frame of the Study

According to Thorn hill et al, (2003), the sampling frame for any probability sampling is a whole

list of entire cases in population from which sample is derived. There will be a need to carry out

sampling during the study due to the large size of the target population. Financial, logistic and

time constraints will not have the researcher to study the whole research population and thus

there will be need to study a representative sample size of the population by use of simple

random sampling design. The sample frame will be landlords and agents in Amagoro.

26
3.5 Sampling techniques and Sample Size

A sampling technique is the name or other identifier of the particular method by which the

sample entities were chosen and the sample size is a term used for defining the number of

subjects included in a sample size in market research. By sample size, we understand a group of

subjects that are chosen from the general population and are considered a representative for that

specific study of the actual population. According to the Kenya Power company directory as at

17th July 2019, there are more than 500 residential houses in the border town of Western region.

Out of the 500 houses, about 100 are located in Amagoro area. Therefore, the population of

residential houses is considered large and for the purpose of determining the sample, the study

will use Stratified sampling by grouping the population into ten group compliant residential

houses. The study was done in Amagoro Sub County, which comprises of 5 major villages

namely; Aleles, Chelemuk, Chemasiri, Okuleu and Awata and these divisions acted as the

sampling strata for the interviewees. The study ensured that the sample represented the

characteristics of the entire population and it was economical. Therefore, the study used stratified

sampling procedure by classifying the individuals from the populace into fundamentally

unrelated and all in all thorough group and it gives the most agent test of the populace (Hunt &

Tyrell, 2001). For this study, N population is 200. Therefore there is need to divide the targeted

population to divisions in which the small audit firms are located; that is

27
Table 3.1 Population Distribution

Administrative Division Target population Percentage of the total

Aleles 95 47.5%

Chelelemuk 30 15%

Okuleu 10 5%

Awata 65 32.5%

From the stratum, which was divided into regions that the houses were located, stratified

sampling will be used to determine the targeted population.

Statistically, in order for generalization to take place, a sample of at least 30 must exist (Cooper

& Schindler, 2003). For this study, N, the targeted Population is 200. The researcher adopted

Yamane (1973) statistical formula to select an appropriate sample from a finite population.

This formula was used to determine the representative sample size from the owners of the rental

houses in Amagoro Subcounty as follows:

N=N/(1+Ne2)

Where;

n=required sample size

N=size of the population

E=alpha level, that is, allowable error e = 0.05 at 95% confidence interval

n=200/[1+200(0.05*0.05)]=133.33

The study utilized a sample of 133 owners, rental houses located in various villages in Amagoro

Sub County. This was proportionately allocated based on the population size of each strata as

shown in Table 3.2.

28
Table 3.2: Sample Size Distribution

Administrative Population % Sample Size Sample Size Number of

Division/ Sub- Respondents

County

Aleles 95 47.5% 63 53

Chelelemuk 30 15% 20 16

Okuleu 10 5% 7 4

Awata 65 32.5% 43 34

Total 200 100 133 106

3.6 Data Collection Procedures

Permission was sought after from the KESRA research department to collect the both the

primary and secondary data through the introduction letter and I used the drop and pick method

to collect the data.

3.7 Data Collection Instrument

In reference to Cooper and Schindler (2014), data collection tool is the gathering of data for the

analysis purpose so as to make inferences from the data. This study used the primary sources of

data collection. The researcher used a semi structured questionnaire as a data collection tool. The

target population was briefed about the purpose of the study so that they would confidently give

information. After that the questionnaires were given to the respondents to fill in at their

convenient time and these questionnaires were collected upon appointment with the respondents.

29
The first section of the questionnaire would collect data on the background information of the

respondents, while the other sections collected data on the variables of the sample, which

included notification of organization, distress action and penalties, tax awareness, and how they

impact compliance with rental income tax. Secondary data were obtained from KRA

publications on the research. The KRA publications provided information about the number of

property owners on board the rental income tax system.

3.7.1 Reliability of data collection instruments

The instruments of the study are said to be reliable when they give consistent findings in every

successive attempt. The split half technique was used to verify instruments reliability, whereby

the extent to which all parts of the test contribute equally to what is being measured, were tested.

This helped in measuring internal consistency, which was determined by the people’s responses.

The researcher used the delayed response technique, whereby the instruments were given to the

respondent and after fortnight the researcher gave another one to the same respondent (Ely et al.,

2001). The researcher then compares the consistency in the responses. In case the same

respondents gave consistent response then the instrument was considered as being reliable.

3.7.2 Validity of data collection instruments

According to Mugenda & Mugenda (2008) validity test is used in determination of a

measurement if it really reflects the concept under the study. The study instruments are said to be

valid when they measure what they are specifically designed and put in place to measure. To

determine validity of the instrument, the study engaged the supervisor in review of the items on

the study instruments.

30
At the end of this review, the items that were identified as being invalid were completely

removed from the instruments. This was geared to ensuring that only valid items are left and

used in the study.

3.8 Pilot Testing

Cooper and Schindler (2011), state that a good measuring instrument needs to be pre-tested for

efficiency. Pretesting is carried out by the researcher to spot the weak point in the design, the

data collecting instruments and procedure applied in carrying out the study.

Mugenda and Mugenda (2003) further state that pre- testing tools assist the researcher to

examine the competence of the instrument that was carried out in the research. According to

(Cooper & Schindler, 2011), a pre-test should range from 1% to 10% depending on the sample

size. A pilot study was carried out using a sample of 16 respondents with 2 respondents per

administration block to test reliability and validity of the questionnaire. The sample consisted of

owners, land lords and landladies of the rental houses in Amagoro Sub County from different

villages or regions. This was done to determine the validity of the instruments and establish

whether the instrument was reliable. The researcher amended the questionnaire based on the pilot

study results to ensure its effectiveness. Respondents who took part in pilot testing were not

included in the final sample size of the study.

3.9 Data Analysis and Presentation

Data analysis is a process of inspecting, cleansing, transforming and modeling data with the goal

of discovering useful information, informing conclusions and supporting decision-making(Gong,

2015).

31
According to Gong (2015), data are usually collected in a raw format and thus the inherent

information is difficult to understand. Therefore, raw data need to be summarized, processed,

and analyzed. Therefore, data was sought from the field, cleaning was done to edit

inconsistencies and incomplete responses of the quantitative data. This was followed by the

coding process where responses were entered into SPSS. The analysis on the findings was

carried out with aid of means, standard deviations and regression.

3.9.1 Analytical Model

In evaluation of relation between variables, that is dependent variables and independent

variables, a multiple regression model will be adopted. Regression analysis is a technique used to

estimate relationships between two or more variables. The rental income in the linear regression

equation is the Y of the equation, i.e the dependent variable while audit rate, penalties and

criminal sanctions are the independent variable. Other variables that have been identified to have

an effect on the rental income tax revenue are the tax knowledge, the tax base are control

variables that are not included in the equation. The multiple linear regressions is as follows

Y=β0+β1x1+β2x2+β3x3+β4x4 +έ

Where

Y = Rental income revenue which is the dependent variable. It is a propotion of the contribution

of Rental income tax revenue to the GDP.

β0 = is a constant or the y intercept

X1 = denotes the agency notice

X2 = represents penalties imposed on non-compliant firms

32
X3 = denotes Distress Actions

X4 represents the contribution of the residential income from Amagoro

Β0 = Constant

β1-β2 = Regression Coefficients

έ= Error term

The audit rate is represented by X1 which is an independent variable that will be measured as; the

amount if rental income tax revenue collected from the KRA office in Busia subject to audit in

the residential income category per year divided by the total rental tax income revenue collected.

Penalties imposed are independent variables on the non-compliant tax payer and are denoted by

X2. It will be measured by the rental revenue from civil penalties divided by the total rental

income revenue from Amagoro (Witte&Woodbury,1988).

3.9.2 Measurement of the study variables

Residential Income tax compliance level will be measured by recruitment of new taxpayers, to

widen the tax base and also an increase in the revenue collected over time. In order to test tax

compliance, the respondents will be asked if they observe tax compliance procedures and

whether they have failed to pay taxes or penalties owed to the government during the last few

years. Enforcement measures where the tax enforcement measures are the administrative

measures taken by the Revenue authority to those taxpayers who fail to perform their tax

liability. This will be measured by a rank variable based on individuals’ responses to the question

used which stated, “Based on your experience, on how easy or difficult is it to avoid paying the

income or property taxes that you owe to the government.

33
Moreover, in order to measure tax compliance via audit rates, the following items will be

measured on a scale of 1= strongly disagree to 5= strongly agree. A measure of how high or low

the tax rate affects the level of compliance was conducted. This will aim at finding out whether

government interventions on the tax rates affect the property owner’s compliance level.

3.10 Test of Significance

The F and t tests will be used to test the statistical significance. The F-Statistics will be used to

determine the meaning of the regression model, i.e. the extent to which the variation in the

independent variable explains the changes in dependent variable. Variance Analysis (ANOVA)

will also be used to determine total variations within and between variables to determine the

relationship between variables' testing will be used to test the statistical significance of the 95

percent confidence level regression coefficients.

34
 CHAPTER FOUR

FINDINGS AND DISCUSSION

4.1 Introduction

This chapter is sent out to establish the findings of analysis on the data that was gathered from

the field. The analysis of data was done by SPSS software using descriptive and inferential

statistics. The findings are as indicated in subsequent sections.

4.2 Response Rate

The study distributed 133 questionnaires to land lords and land ladies of the rental houses in

Amagoro Sub-County. From these questionnaires, 106 of them were completely filed up and

returned to the researcher. This represented a response rate of 79.7%. Consider Table 4.1.

Table 4.1: Response Rate

Frequency Percentage

Response 106 79.7

Non Response 27 20.3

Total 133 100

The findings in Table 4.1 are consistent with Mugenda and Mugenda (2003) who argued that

response rate of 70% and above is excellent for presentation and analysis of the findings.

35
4.3 Data Validity

The instruments of the study were piloted so as to establish the validity and reliability of the data

collection instruments. For validity, the study engaged the supervisor who reviewed the

questionnaire to ensure that valid items have been included. At the end of this review, all invalid

items of the questionnaires were completely expunged from the questionnaires. For reliability,

the study used Cronbach Alpha coefficient that was computed on the basis of the instruments

collected from the pilot study. The findings are as presented in Table 4.2.

Table 4.2: Reliability Results

Variable No. of Items Cronbach Alpha(α) Remarks

Fines and Penalties 4 0.726 Reliable instrument

Agency Notice 5 0.726 Reliable instrument

Distress Action 4 0.789 Reliable instrument

As shown in Table 4.2, all the variables of the study had Cronbach Alpha coefficients above the

value of 0.7; this shows that the instruments of the study were reliable.

4.4 General Information

The study sought to gather the general information of the respondents and the studied that

included their nature of the number of years the property has existed, gender, the level of

education and if the income from the property has been registered as the rental income tax.

36
4.4.1 Number of Years in Existence

In this part, the research sleeked to establish the number of years the property has existed. This

was important so as to establish the compliance of the rental income tax.

Table 4.4: Number of Years in Existence

No. in Years Frequency Percentage

Below 5 Year 19 17.43

5-10 Years 55 50.46

Over 10 Years 35 3.21

The study findings show that majority of the property has been has been in existence as rental

property for a period of between 5 to 10 Years (50.46%), while 17.43% of the properties has

been in existence for more a period of less than 5 years while 3.21% has been in operation for a

period of over 10 years.

4.4.2 Highest Level of Education

The respondents were asked to indicate the level of education that they have. This is important

since it will enable them to fully understand concerns about the rental income tax, enforcement

measures and compliance. The findings are presented in Table 4.5

Table 4.5 Level of Education

Level of Education Respondents Percentage

College Level 59 54.12

Graduate Level 45 41.28

High School and Primary 5 4.60

Total 109 100

37
On respective levels of education of the respondents, it was shown that most of the respondents

54.12% had college diplomas, 41.28% had undergraduate degrees, and 4.60% had primary

certificate. Therefore, this shows that the respondents of the study were learned and thus could

read and interpret the research questions as sought by the study. This finding is also supported by

the fact that most land owners are educated and knowledgeable.

4.4.3 Number of Rental Houses

The respondents were asked to indicate how many rental houses they own.This is important

since it will help in identifying the level of income expected from the rental income thus the tax

to be charged on the rental income.

Table 4.6 Number of Houses

Number of Rental houses Respondents Percentage

Below 2 17 15.60

2-5 Houses 20 18.34

6-10 Houses 38 38.86

Above 10 houses 34 27.20

Total 109 100

On the respective number of rental houses owned, it was shown that a majority of the

respondents 38.86%, own 6-10 rental houses, 18.34% own 2-5 houses, 18.34% own 2-5 rental

houses while 27.20% own above 10 rental houses. This finding is supported by the fact that

Amagoro is not developed, despite being a border town.

38
4.4.4 Monthly Rental Income

The respondents were asked to indicate the monthly rental income earned from the rental

income. This will be useful in forecasting of the rental income expected from among the 5

divisions in Amagoro area, Busia County.

Table 4.7 Expected Monthly Income

Rental Income Respondents Percentage

Below Kes.100,000 64 58.71

Kes. 100,000-200,000 31 28.44

Above Kes. 200,000 14 12.85

Total 109 100

On the respective expected net monthly income, a majority of the respondents, 58.71% earn a

monthly rental income of below Kes. 100,000, 28.44% earn a net monthly rental income of

between Kes. 100,000 to 200,000 and 12.85% earn a net monthly rental income of above

Kes.200,000. Therefore, this indicates that a majority of the rental houses are rented out way

below the market rates, since Amagoro is located in the rural parts of Kenya.

4.5 Descriptive Statistics

The study sought to determine the effect of the enforcement measures on compliance of rental

income revenue in Amagoro, Busia County, Kenya.. This section provides the findings of the

analysis of the variables based on descriptive statistics including means and standard deviations.

39
4.5.1 Fines and Penalties

The first objective of the study was to determine the effects of Fines and penalties on the

compliance of rental income in Amagoro, Busia County, Kenya. The findings of descriptive

statistics are reported in Table 4.7

Table 4.8 To what extent does Fines and Penalties affect the compliance of rental income

tax in Amagor, Busia County, Kenya

Statement Mean Std.Deviation

Fines and fines for land 4.5046 .57129

owners are punitive
Fines and penalties prevent 4.4587 1.01409
non-compliance with
household income tax
obligations
Periodic waiver of penalties 4.1835 .92461
and fines could promote tax
compliance
Property owners file 4.2569 .98511
inaccurate or nil returns to
avoid penalties for non-
compliance with iTax system

From the findings in Table 4.8, majority of the respondents agreed that enforcement measure of

penalties being punitive, it discourages noncompliance, periodic waiver which encourages

compliance and owners filling nil or incorrect returns to avoid penalties has a major impact on

the compliance of rental income tax in Amagoro, Busia County, Kenya.

40
This is because most of the values of means on the statements presented are all below 3.5 with

values of standard deviation being less than 1. However, the penalties does not discourage

noncompliance of filing and rental income tax. Some of the items of effects of penalties on rental

income tax compliance that respondents highly agreed on included the fact that it is punitive to

land owners (M=4.5), periodic waiver increases compliance (M=4.1), and Owners fill incorrect

returns in order to avoid penalties (M=4.2) that will have an effect on the compliance of rental

income tax in Amagoro, Kenya.

4.5.2 Distress Action

The second objective of the study was to determine the effects of distress action on compliance

of rental income tax in Amagoro, Kenya. The findings of descriptive statistics are reported in

Table 4.9: To what extent that Distress Action affect the compliance of Rental income tax

in Amagoro, Kenya

Statement Mean Std. Deviation

10% residential rental income tax rate fair to 4.4587 .75194
property owners
Did distress action improved tax compliance in 4.4037 .74684
the respective division
Distress action is punitive to land owners 4.55505 .96692
Use of security or immovable property improves 4.5229 .92892
compliance
Are you aware of the distress action as the 4.1973 .91142
enforcement measures in tax compliance

41
From the findings in Table 4.9, majority of the respondents agreed that enforcement measure of

distress action as being fair, whether it increases compliance, is punitive, and whether the land

owners are aware that it can be used as an enforcement tool to encourage compliance has a major

impact on the compliance of rental income tax in Amagoro, Busia County, Kenya. This is

because most of the values of means on the statements presented are all above 3.5 with values of

standard deviation being less than 1. Some of the items of effects of penalties on rental income

tax compliance that respondents highly agreed on included the fact that it is punitive to land

owners (M=4.5), It increases compliance (M=4.4), and owners are aware that it can be used as

the enforcement measures (M=4.5) that will have an effect on the compliance of rental income

tax in Amagoro, Kenya. That implies an increase in penal sanctions and strict implementation of

criminal sanctions leads to a rise in overall debt revenues although this might affect voluntary tax

compliance

4.5.3 Agency Notice

The findings on the agency notice as the variable of the study are shown in the table 4.10

Statement Mean Std. Deviation

Must KRA send you a reminder in order to comply to file rental 4.4490 .68430
income tax
Property owners have a negative attitude towards KRA texts or 4.2381 .82207
email
KRA is perceived to be efficient in tax administration through 4.5238 .67574
agency notice
KRA has increased a lot of awareness of compliance through 4.3001 .78175
agency notice
Knowledge about the tax laws through agency notice has 4.3810 .82207
improved rental income tax in Amagoro Sub-County
42
The findings in Table 4.10 indicated that generally, the agency notice or reminder about

noncompliance or tax defaults has an effect on the rental income tax revenue in Busia County,

Amagoro Sub-County. Majority of the respondents agreed that increasing the number of times of

sending a reminder on the tax paid, changing the attitude towards the KRA texts or email as the

reminders, KRA is perceived to be efficient in tax administration through agency notice, agency

notice has increased awareness about tax compliance and knowledge about tax laws through

agency notice has improved rental income tax in Amagoro Sub-County will have a major effect

on the compliance of rental income tax. This is because most of the values of means on the

statements presented are all above 3.5 with values of the standard deviation being less than 1.

The study found that positive relationships exist between using the agency notice as compliance

mechanism and raising debt revenues. The effect is moderate and sizeable. The compliance

theory provides that as the detection of defaulting increase, there is an increase in the level of

compliance. Some of the agency notice, as the enforcement measures that is respondents highly

agree on are Increasing number of reminders (M=4.4) , agency notice has created awareness of

compliance (M=4.3), agency notice has improved knowledge on tax laws (M=4.3) and KRA has

been perceived to be efficient through agency notice (M=4.5) that will have an effect on the

compliance of rental income tax in Busia County, Amagoro Sub-County.

43
4.5.4 Residential Income Tax Compliance

The respondents were referenced to show the the compliance patterns throughout the previous 4

years and demonstrate on the off chance that it has improved or diminished in those years.

Table 4.1: Residential Income tax compliance

Statement Mean Std. Deviation

Inhabitants of rental properties file tax returns each month 4.3469 .67897

Housing rental property owners report monthly rental income right 3.1973 1.08942

Housing land owners file tax returns primarily to stop fines 3.6667 .72465

KRA has introduced an enabling tax filing environment 3.77007 .77293

Residential rental property owners file returns when notified by an 3.6939 .77293
agency

Residential property owners are always tax-compliant and enjoy 3.9252 .79457
paying taxes

The findings in Table 4.11 indicated that generally, the residential property owners in Busia

County, Amagoro Sub-County try their best to ensure that they comply to ensure that they are

tax compliant.. Majority of the respondents agreed that they file tax returns every month, , agree

that that KRA are offering enabling environment for tax filing through the agency notice and that

they file tax returns only to avoid penalties. This is because most of the values of means on the

statements presented are all above 3.5 with values of the standard deviation being less than 1.

However, the rental property owners declare incorrect monthly rental income to avoid paying a

higher tax. There was an improvement in the number of filing of the tax returns by the property

44
owners (M=4.3), the residential rental property owners declare correct monthly rental income

(M=3.7), residential rental property owners file tax returns only to avoid penalties (M=3.8), KRA

has offered an enabling environment for tax filing (M=3.7) and residential rental property owners

enjoy paying taxes and are always tax compliant (M=3.9).

4.6 Correlation Analysis

Spearman’s correlation is a non-parametric test that is undertaken to show the level of

association between the ward variable also, the autonomous factors. The Spearman correlation

ranges from 0 to 1, with values being either positively correlated or negatively correlated that

show the different type of association between the variables. Values of 1 or from 0.8 indicates

very strong correlation while very weak correlation is indicated by values of 0 or from 0 to 0.2.

Table 4.5 indicates the Spearman’s correlation values for the variables. The findings are

presented in Table 4.12.

45
Table 4.12 Correlation Results

Rental Distress Fines Agency Notice

Income tax Action and
revenue Penalties
audit firms
Rental Person 1 .066 -.116 .034
Income tax Correlation .427 .164 .680
revenue
Sig (2-tailed) 147 147 147 147
Distress Person .066 1 -.056 .083
Action Correlation .427 .498 .315
Sig (2-tailed) 147 147 147 147
Fines and Person -.116 -.056 1 .142
Penalties Correlation .164 .498 .086
Sig (2-tailed) 147 147 147 147
Agency Person .034 .083 142 1
Notice Correlation .680 .315 .086

Sig (2-tailed) 147 147 147 147

From the findings in Table 4.12, the spearman’s correlation indicates that the correlation of the

independent variables and dependent variable is strong as they are over 0.2. Thus, Distress

Action, Fines and Penalties, and Agency Notice have a positive relationship with the compliance

of rental income tax in Amagoro Sub-County, Busia County, Kenya. The table above shows the

connection grid between the components and compliance of rental income tax.

46
4.7 Regression Analysis
The regression model summary indicates the level in which we may rely on the regression model

to predict future changes in the dependent variable in this case the economic growth.

The discoveries are as presented in resulting areas.

4.7.1 Model Summary

The Model Rundown of the examination is as shown in Table 4.13.

Table 4.13: Model Summary

Adjusted R Std. Error of

Model R R Square Square the Estimate

1 .117a .014 .011 .37858

a. Predictors: (Constant),

b. Distress Action,

c. Fines_and_Penalties,

d. Agency_Notice,

The findings in Table 4.13 shows that the coefficient of determination R square is 0.014; this

implies that 14.% change in compliance of rental income tax is explained in distress action, fines

and penalties and agency notice of the enforcement measures in of compliance of rental income

tax in Amagoro Sub-County, Busia County, Kenya.

4.5.2 Analysis of Variance

The examination did an Analysis of Variance at 5% level of noteworthiness and the revelations

are as announced in Table 4.14.

47
Table 4.14: ANOVAb

Sum of

Model Squares df Mean Square F Sig.

1 Regression 3.566 4 .892 6.221 .000a

Residual 258.120 1801 .143

Total 261.686 1805

a. Predictors: (Constant), Distress_Action, Fines_and_Penalties,Agency_Notice

b. Dependent Variable: Compliance_of_Rental_Income_Tax_Revenue

An Analysis of Variance (ANOVA) was carried out at 95% interval confidence. The findings

indicated the level of significance is .000; this signifies that the general regression model of the

study was significant.

4.5.3 Regression Coefficients

The findings on regression significant and the significance are shown in Table 4.15.

48
Table 4.15: Regression Coefficients

Coefficientsa

Unstandardized Standardized Collinearity

Coefficients Coefficients Statistics

Toleranc
Model B Std. Error Beta t Sig. e VIF

1(Constant) 3.726 .264 14.125 .000

Distress_Action .175 .050 .087 3.539 .000 .903 1.10

8

Fines_and_Penalties .061 .018 -.082 -3.307 .001 .894 1.11

9

Agency_Notice .032 .032 .024 1.014 .011 .943 1.06

1

a. Dependent Variable: Compliance of Rental Income Tax Revenue

Table 4.15 shows the beta coefficients and the p-values. From the findings, the following

equation is formulated:

Y=3.726 +.175 X1+0.61 X2+.0.32 X3+0.32X4+e

Y= Compliance of Rental Income Tax Revenue

X1=Distress Action

X2=Fines and Penalties

X3 =Agency Notice

e = error term

49
Thus, at 5% level of significance, the study established that Distress Action (p<0.05) listed, when

adopted, has a significant effect on the Compliance of Rental Income tax revenue in Busia

County, Amagoro Subcounty., Kenya.

The finding is in line with Kiame (2019) who analyzed the influence of enforcement measures

on tax debt revenue realization on Large Tax Payers in Kenya. It was shown that the when KRA

implements the enforcement measures, it is able to achieve compliance of the Large Taxpayers

in Kenya. Fines and penalties (p<0.05) has significant effect on compliance of rental income tax

revenue. Agency notice (p<0.05) has significant effect on compliance of the rental income tax

revenue in Busia County, Amagoro Sub-County, Kenya. The findings agree with Ojwaka (2018)

who did a study on effect of enforcement measures on the compliance on the Small and Medium

Traders in Nairobi, Kenya.

50
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Introduction
This section discusses the main findings of the study based on the essential information that was

gathered from the field. Conclusions are therefore made that arise from the findings; it also

highlights the policy implications and suggestions of the examination. The constraints are then

highlighted and areas for further research are identified.

5.2 Summary of the Findings

This section will summarize the discoveries of the investigation dependent on explicit targets.

5.2.1 Distress Action and Tax Compliance of the Rental Income tax revenue

The principal goal of the examination was to survey the impact of the distress Action on the

compliance of the rental income tax revenue in Amagoro Sub-County, Busia County, Kenya..

From the findings of descriptive analysis, dominant part of the respondents concurred that the

following enforcement measures have an effect on the compliance of Rental Income tax revenue

in Amagoro Sub-County, Busia County, Kenya. Some of the items of distress actions that

respondents highly agreed on included the monthly income tax rate is fair to property owners,

use of the distress action improves compliance, distress actions is punitive to property owners

and respondents are now willing to pay taxes due to well structures tax rate. The findings of

correlation analysis showed that the distress actions have a positive relationship with complained

of the rental income tax revenue in Amagoro Sub-County, Busia County, Kenya. Regression

results indicated that the suggested distress action significantly affect compliance of the rental

income tax revenue in Amagoro, Busia County, Kenya.

51
5.2.2 Fines and Penalties and Tax Compliance of rental Income Tax Revenue

The subsequent variable was intrigued at deciding the impacts of the Fines and Penalties on the

compliance of the rental income tax revenue in Amagoro Sub-County, Busia County, Kenya.

From the findings of descriptive statistics, most of the respondents agreed that fines and

penalties discourage noncompliance of rental income tax revenue, periodic waiver of the fines

and penalties could encourage tax compliance and property owners file nil or incorrect returns to

avoid penalties of non-compliance. Correlational results indicated that the above suggestions

have a positive relationship with compliance of the rental income tax revenue in Amagoro Sub-

County, Busia County, Kenya. From regression analysis, enforcement measures through fines

and penalties has a critical impact on the compliance of rental income tax in Amagoro Sub-

County, Busia County, Kenya.

5.2.3 Agency Notice and the Tax Compliance of the Rental Income tax Revenue

The investigation also tried to build up the influence of Agency notice as an enforcement

measures on the compliance of the rental income tax revenue in Amagoro, Sub-County, Busia

County, Kenya. It was shown that generally, agency notice strategy of enforcing of the

compliance of the rental income tax revenue in Amagoro Sub-County, Busia County, Kenya has

an effect on the compliance of the compliance of rental income tax revenue in Amagoro Sub

County. The discoveries of correlation investigation suggested that market developments

strategies suggested have a positive relationship with the financial performance of the small audit

firms. Regression analysis showed that market developments strategies suggested have

significant effect on financial performance of small audit firms.

52
5.3 Conclusion

5.3.1 Distress Action and Tax Compliance of Rental Income Tax Revenue

Distress actions have a positive association with the compliance of the rental income tax revenue

in Amagoro Sub County, Busia County, Kenya. In this manner, the distress action will improve

revenue collection through rental income tax revenue.

5.3.2 Fines and penalties and Tax Compliance of Rental Income Tax Revenue

Fines and penalties have a positive association with the compliance of rental income tax revenue.

In this manner, suggestions with respect to the fines and penalties have an effect on compliance

of rental income tax revenue in Amagoro Sub-County, Kenya, thus an increase in revenue

collected.

5.3.3 Agency Notice and Tax Compliance of Rental Income Tax Revenue

Agency notice have a positive association with the compliance of rental income tax revenue. In

this manner, suggestions with respect to the agency notice has an effect on compliance of rental

income tax revenue in Amagoro Sub-County, Kenya, thus an increase in revenue collected.

5.4 Recommendations of the Research

5.4.1 Distress Action and Tax Compliance of Rental Income Tax Revenue

The study established that distress action is one of the major enforcement measures that will help

in compliance of rental income tax revenue in Amagoro Sub County, Busia County, Kenya. This

will help in widening the tax base in that area, which is normally considered as the rural part of

Kenya.

53
5.4.2 Fines and Penalties and Tax Compliance of Rental Income tax Revenue

The study established that penalties and fines discourages noncompliance of tax defaulters in

Amagoro Sub County, Busia County, Kenya. The penalties and fines causes fear to tax

defaulters, as they view it as a punitive action to the tax payers, therefore, they ensure that they

pay tax to avoid the penalties and fines.

5.4.3 Agency Action and Tax Compliance of Rental Income tax revenues.

KRA needs to improve their service delivery, and invest more in trainings to the rural tax payers

on innovations, since technology keeps on changing through emails and SMS, using the agency

notice and this will therefore improve the compliance of the rental tax revenue in the rural areas

in Kenya. From the study results, the use agency notice had the highest coefficient indicating that

it was the most effective enforcement strategy, governments could increase their revenue from

tax debt by increasing the usage and issuance of agency notices as soft enforcement measures

while promoting enhanced tax compliance.

5.5 Areas for Further Studies

The latest inquiry was carried out in Sub-County Amagoro. Future investigations among

different provinces and other rural parts of Kenya are thus prescribed. From the findings, the R

square estimate was 0.014; which indicates that 14 percent improvement in enforcement

measures affects rental income tax revenue compliance in Amagoro Sub-County , Kenya. The

investigation prescribes that other than the above enforcement measures on the rental income,

other key zones worth investigating that increases the tax base includes small scale traders,

SMEs and companies located in the rural parts of Kenya.

54
 APPENDICES

APPENDIX I:

LETTER OF INTRODUCTION

Dear Respondent,

My name is Ednah Musungu, a bona fide student in the Post Graduate Diploma in Tax
Administration program in Kenya School of Revenue Administration. I will be conducting a
research on the Effect Enforcement Measures on Compliance of Rental Income Tax
Revenue in Busia County. A case study of Amagoro sub-county. You have been identified as
one of the respondents because of the expertise you present. In this regard, I kindly request that
you spend some of your valuable time (10-15 minutes) to complete this questionnaire to the best
of your knowledge. The response of the questions therein and all the information provided will
be used purely for academic research. Your responses will be treated with the confidentiality it
deserves.

I request that you do NOT write your names on the questionnaire to maintain anonymity. Thank
you in advance for agreeing to contribute in a constructive way to our community. Attached is a
copy of Jomo Kenyatta University of Agriculture and Technology-JKUAT's introduction letter
certifying that I am a student in the aforementioned programme. In case you want a copy of this
report kindly reach me via my contacts below. Thank you.

Yours Sincerely,
Ednah Musungu

Phone-072047657

55
 APPENDIX II

QUESTIONAIRE

Questionnaire

I am a student pursuing a Postgraduate Diploma in Tax Administration from Jomo Kenyatta

University of Agriculture and Technology and conducting research on the Effects of Rental
Income Compliance Measures in Busia County. The work is strictly scientific in nature, and any
knowledge that is collected will be kept secret. They would greatly appreciate your help and
support.

Section I: Background information

1. Please tick and fill where appropriate

Gender:

Male [ ] Female [ ]

2. Number of years property has existed

Below 1 years [ ] 2-5 years [ ] 6-8 years [ ] 9 years and above [ ]

3. Number of Rental Houses owned per Landlord or Individual

(a)Below 2 [ ]

(b) 2-5 Houses [ ]

(c)6-10 Houses [ ]

(d)Above 10 Houses [ ]

56
4. Highest level of education

a) College level

b) Graduate level

c) Post graduate level

5. Monthly Rental Income

(a) Below Kes. 50,000

(b)Between Kes.50,000-100,000

(c) Above Kes. 100,000

Section II

Part I: Distress Action

6. Evaluate the following statements and tick where appropriate under the choices below

Where: 1 –Strongly Agree, 2 –Agree, 3 –Neutral, 4 -Disagree or 5-Strongly Disagree

Statement 1 2 3 4 5
1) 10 per cent fair rental income tax for property owners
2) Residential property owners now pay tax willingly because of the well-
structured tax rate
3) A tax rate of 10% on taxable income results in a lower total tax burden than a
tax rate of 30 percent on net rental income
4) The use of anxiety interventions punishes landowners
5) Distress measures improve compliance by landlords with the rental income tax

Part II Fines and Penalties

7. Evaluate the following statements and tick where appropriate under the choices below
57
Where: 1 –Strongly Agree, 2 –Agree, 3 –Neutral, 4 -Disagree or 5 -Strongly Disagree

Statement 1 2 3 4 5
1) The fines and the penalties for property owners are very punitive
2) Fines and penalties deter non-compliance with household income tax
obligations
3) Periodic waiver of fines and sanctions could foster tax compliance
4) Land owners file null or incorrect returns to escape penalties for failure to
comply with the iTax program

Part III Agency Notice

8. Have you ever been given a notice or reminder about the non-compliance or tax defaults?

Yes ( ) No ( )

9. Evaluate the following statements and tick where appropriate under the choices below

Where: 1 - Strongly Agree, 2- Agree, 3 Neutral, 4 - Disagree and 4 - Strongly Disagree

Statement 1 2 3 4 5
1) How many times KRA has sent you a reminder of tax payable
2) Property owners are adversely affected by KRA texts or emails
3) KRA is seen as effective in the tax administration and agency notification
4) KRA increased a great deal of awareness of compliance by means of an
agency notice.
5) Knowledge of tax legislation has improved rental income tax in Amagoro
Sub-County by means of an agency notice

Part IV Residential rental income tax compliance

10. Is your business registered for Residential rental income tax?

Yes ( ) No ( )

11. Evaluate the following statements and tick under the choices below if applicable

Where: 1 - Strongly Agree, 2- Agree, 3 Neutral, 4 - Disagree and 4 - Strongly Disagree

58
Statement 1 2 3 4 5
1) Housing property owners file tax returns every month
2)The rental property owners report monthly rental income right
3) The rental property owners only file tax returns to avoid penalties
4) The KRA has provided an enabling tax filing environment
5) Residential rental property owners file returns when alerted via the notice
from the Agency
6) Rental property owners are always tax-compliant and enjoy paying taxes

Thank you very much for your patience, cooperation and support in my research.

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Naibei, I. K.,Momanyi, G. & Oginda, M. N.(2012). Relationship between Incomesize, Inspection

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Roberto Ricciuti, (2003). Public Sector Statistics, 2001-2002. Catalogue no. 68-213-XIE.
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Slack, N. Enid. (2000.) Understanding the evolution of property tax policy. A paper presented at
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62
 APPENDIX III

WORK PLAN
Activities 10th 24th 28Sep-5th 1st-30th 1st -26th 26th -28th 16th
June
Sep 2019 Sep 2019 Oct 2019 January February February 2020
2020 2020 2020

Proposal
Writing

Defend
Proposal

Literature
Review

Data
Collection

Field work

Data
Analysis

63
Final
Presentation

APPENDIX IV

BUDGET

64
 ITEM DESCRIPTION COST

Typing and Printing 2,500

Photocopying and Spiral 3,000

binding

Stationary 2,000

Traveling 10,000

Miscellaneous 2,000

Internet Surfing 3,000

Hard cover binding 1,500

TOTAL 36,000

65