DETERMINANTS OF RESIDENTIAL RENTAL INCOME TAX

COMPLIANCE BY PROPERTY OWNERS IN THIKA TOWN

BY

ADELAIDE WAIRIMU WAITHIRA

D61/74572/2014

A RESEARCH PROJECT SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF
THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION,
SCHOOL OF BUSINESS, UNIVERSITY OF NAIROBI

OCTOBER 2016
 DECLARATION

This is my own original work that has never been presented in any other University for an

award of any academic satisfaction.

Signature ____________________________ Date ___________________________

Adelaide Wairimu Waithira

D61/74572/2014

Supervisor’s Declaration

This research project has been submitted for examination with my approval as the
University supervisor.

Signature ______________________________ Date __________________________

Mr. Odipo Martin Khoya

Department of Finance and Accounting, University of Nairobi

ii
 ACKNOWLEDGEMENT
I acknowledge the almighty God for his provision and care throughout the duration of

this research project. I also express my sincere gratitude to my supervisor Mr.Odipo

Martin, for his guidance, valuable feedback and encouragement throughout the project.

Special gratitude to my family for their patience, encouragement and support. I would

also like to give my sincere gratitude to my mother for her moral and financial support

and to all the property owners who filled in the questionnaires, without which this

research would be incomplete.

iii
 DEDICATION
I dedicate this paper to the amazing people who believed in me and offered me support

through this journey; my mother Lucy Waithira, brother Anthony, husband Zachary,

lovely children Samara and Alvin, Nancy, Niece Lucy, Nephews Anselm, Ndung’u and

Njoroge.

iv
 TABLE OF CONTENTS

DECLARATION........................................................................................................................... ii

ACKNOWLEDGEMENT ........................................................................................................... iii

DEDICATION.............................................................................................................................. iv

LIST OF TABLES ..................................................................................................................... viii

LIST OF FIGURES ..................................................................................................................... ix

LIST OF ABBREVIATIONS ...................................................................................................... x

ABSTRACT .................................................................................................................................. xi

CHAPTER ONE: INTRODUCTION ......................................................................................... 1

1.1 Background of the Study ....................................................................................................... 1

1.1.1 Residential rental Income Tax Compliance .................................................................... 2

1.1.2 Determinants of Residential rental Income Tax Compliance ......................................... 2

1.1.3 Property Owners in Thika Town .................................................................................... 3

1.2 Research Problem .................................................................................................................. 4

1.3 Objective of the Study ........................................................................................................... 5

1.4 Value of the Study ................................................................................................................. 5

CHAPTER TWO: LITERATURE REVIEW ............................................................................ 7

2.1 Introduction ........................................................................................................................... 7

2.2 Theoretical Literature Review ............................................................................................... 7

2.2.1 The Allingham-Sandmo (AS) Theory ............................................................................ 7

2.2.2 Fiscal Exchange Theory ................................................................................................. 8

2.2.3 Social Influences Theory ................................................................................................ 9

v
 2.3 Empirical Literature Review ................................................................................................. 9

2.4 Conceptual Framework ....................................................................................................... 15

2.5 Summary of Literature Review ........................................................................................... 17

CHAPTER THREE: RESEARCH METHODOLOGY ......................................................... 18

3.1 Introduction ......................................................................................................................... 18

3.2 Research Design .................................................................................................................. 18

3.3 Population of the Study ....................................................................................................... 18

3.4 Sample Design ..................................................................................................................... 19

3.5 Data Collection .................................................................................................................... 19

3.6 Validity and Reliability ....................................................................................................... 19

3.7 Data Analysis ...................................................................................................................... 15

3.7.1 Analytical Model .......................................................................................................... 15

3.7.2 Test of Significance ...................................................................................................... 16

CHAPTER FOUR: DATA ANALYSIS, RESULTS AND INTERPRETATION ................ 17

4.1 Introduction ......................................................................................................................... 17

4.2 Response Rate ..................................................................................................................... 17

4.3 Data Reliability ................................................................................................................... 17

4.4 Descriptive Statistics ........................................................................................................... 18

4.5 Regression Analysis ............................................................................................................ 23

4.6 Interpretation of the Findings .............................................................................................. 25

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS .............. 27

5.1 Introduction ......................................................................................................................... 27

5.2 Summary ............................................................................................................................. 27

5.3 Conclusion ........................................................................................................................... 28

5.4 Recommendation for Policy ................................................................................................ 28

vi
 5.5 Limitations .......................................................................................................................... 29

5.6 Suggestion for Further Research ......................................................................................... 29

REFERENCES ............................................................................................................................ 38

APPENDICES ............................................................................................................................. 36

APPENDIX I: Questionnaire .................................................................................................... 36

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 LIST OF TABLES

Table 4.1 Data Reliability ............................................................................................................. 17

Table 4.2 Respondents Profile ...................................................................................................... 18

Table 4.3 Tax rate ......................................................................................................................... 19

Table 4.4 Attitude and Perceptions ............................................................................................... 25

Table 4.5 Income levels ................................................................................................................ 26

Table 4.6 Fines and Penalties........................................................................................................ 28

Table 4.7 Tax Knowledge ............................................................................................................. 29

Table 4.8 Model Summary............................................................................................................ 30

Table 4.9 ANOVA ........................................................................................................................ 31

Table 4.10 Regression Coefficients .............................................................................................. 25

viii
 LIST OF FIGURES

Figure 2.1 Conceptual Framework …………………………………………………...…16

ix
 LIST OF ABBREVIATIONS

ANOVA - Analysis of Variance

AS - Allingham-Sandmo Theory

KRA - Kenya Revenue Authority

OECD - Organization for Economic Co-operation and Development

SMEs - Small and medium Enterprises

SPSS 21 - Statistical Package for Social Sciences version 21

x
 ABSTRACT
Tax compliance has been a crucial subject to researchers in many countries around the
globe. In most third world countries house rental taxation has been classified as
economic. In Kenya, statistics indicate that less than half of property owners and
developers comply with rental income tax requirements. Thus, this study sought to
examine the determinants residential rental income tax compliance by property owners in
Thika town. The study employed a descriptive research design and collected data from a
sample of 58 property owners using questionnaires. The data collected was analyzed
using descriptive and inferential statistics with the help of Statistical Package for Social
Sciences version 21 for evaluation of relation between dependent and independent
variables. Multiple regression model was adopted. The findings of the study found a
significant positive relationship between tax rate, tax knowledge and residential rental
income tax compliance and an insignificant positive relationship between attitude and
perception and residential rental income tax compliance. The study also found an
insignificant negative effect between income levels, fines and penalties and residential
rental income tax compliance by property owners. The study concluded that tax rate, tax
knowledge, attitude and perception positively influence residential rental income tax
compliance while income levels, fines and penalties negatively influence residential
rental income tax compliance by property owners. It was recommended that KRA
develops training programs to create awareness on residential rental income tax
compliance by property owners and that the tax authority in Kenya (KRA) should
develop effective working policies to develop a positive relationship and trust with
taxpayers. It was recommended that further study be carried on the other factors that
affect compliance with residential rental income tax and study to cover other areas
besides Thika Town.

xi
 CHAPTER ONE: INTRODUCTION

1.1 Background of the Study

A residential property refers to a land that is predominated by houses, though it is not for

industrial and commercial use but rather for domestic use. Housing does vary

significantly. These may include single-family, multi-family and so on (Vadde, 2014).

Residential rental properties can be of various classes based on flats, stand-alone houses,

apartments and so on. The demand for housing depends on one’s ability and willingness

to pay the required fee in form of rent. Rental housing has really expanded and most

individuals or entities are investing in rental houses (Sani & Gbadegesin, 2015). Thus,

understanding the compliance of rental income taxation is highly important for the

government and for the reason that taxation of rental income influences the relationship

between house owners and house rentees (Berhane & Yesuf, 2013).

Tax compliance refers to an accurate reporting of income and expenses claims in

accordance with tax stipulated laws (Sapiei & Kasipillai, 2013). The main objective of

taxation is actually to raise income to enable the government to finance development

projects that are meant to improve the economy of a given country or the region. It’s

therefore important for the government to put in place a mechanism that will help in

ensuring that all citizens are tax compliant (Ayuba, Saad & Ariffin, 2016). Tax is the

main source of revenue for developing and developed countries (Vadde, 2014).

Tax compliance levels have steadily remained low, even after the use of sanctions like

penalties, Armed monitoring, routine audits, fines and so on, but no much improvement

in tax revenue collections (Karanja, 2015). An improvement in tax compliance results in

1
more tax revenue collection hence some improvements in economy since with more

revenue, the government can invest more in development projects (Tilahun & Yidersal,

2014).

In Kenya, it is a law that any income generated from any investment in the country is

subject to taxation (Karanja, 2014). However, the low tax revenue is more attributed to

lack of good mechanisms to enforce tax collection. The Kenyan government needs to

invest more on tax administration so as to ensure that no tax revenue is lost or

uncollected. As such, Kenya is also ranked among countries with low compliance as far

as tax revenue collection is concerned (Makori et al., 2013). Although there has been

significant growth in tax collection by over 300% ( 2003-2011), the contribution by

landlords has been very low despite all the efforts by government taxing all Kenyans to

support the development of the economy by paying their fair share of taxes (Karanja,

2014).

1.1.1 Residential Rental Income Tax Compliance

Residential rental income tax is the tax imposed on income from rent of residential

buildings. Since any income that is received from renting out a property is legally

chargeable to income tax, the owners of the property are required to declare this income

on their tax return. This income could be from renting out land or buildings (Berhane &

Yesuf, 2013).

The rental income tax rate of 10% tax on gross rent took effects on 1st January 2016 and

applies to rental income received from calendar month January 2016. Eligible persons are

required to file their tax return via iTax System (KRA, 2015). The 10% tax rate on gross

2
rental income is payable by a resident person whether individual or an entity and will

apply to rental income that has accrued in or is derived from Kenya for the use of

residential property where the rent income does not exceed KShs.10 million per annum

(The Finance Act, 2015).

The change is part of the KRA efforts to encourage property owners to be tax compliant.

The tax is simple to compute since it is based on a percentage of the gross rentals and is

lower than the standard rate of 30% to reflect the fact that the landlords do not receive a

deduction for the expenses incurred to generate the income (KPMG, 2015). Some of the

benefits of the residential rental income tax include simplified tax computation at 10%

flat rate on gross rent and not at 10% -30% rates. Landlords shall not be required to

produce records to account for expenses. In addition to simplifying the taxation of rental

income, the Finance Act also provides for an amnesty on taxes, penalties and interest on

rental income for the period prior to 2014 (KPMG, 2015).

1.1.2 Determinants of Residential Rental Income Tax Compliance

There is a growing body of research into taxpayer compliance behavior that is helping to

develop a better understanding of what motivates taxpayers to comply, or not, with

requirements of the tax system (Gayer & Mourre, 2012). According to Mwangi (2014)

one of the main tax evasion reason is the high personal income tax rates, which tend to

lead taxpayers to evade tax. It is generally believed that a high tax rate is the main cause

of tax evasion. Incentives to evade tax depend on the marginal rates of taxation because

these govern the gains from evasion as a sum of the tax evaded. High tax may be a

disincentive to work which can lead to low tax revenue collection (Kołodziej, 2011).

3
Attitude and perception towards tax and its general compliance levels has also been

identified as a major factor which influences compliance of tax (Mukabi, 2014). Attitude

may be positive or negative evaluation of an individual about someone or an object and

so forth. Attitude usually controls an individual’s action. Thus, a taxpayer with positive

attitude toward tax evasion is expected to be less compliant than a taxpayer with negative

attitude (Kirchler et al., 2008; Nicoleta, 2011).

Income levels are also deemed to influence tax compliance by various individuals and

entities. According to Kirchler et al. (2007), most taxpayers do want to lose their hard

earned cash by gambling with tax authorities. Nicoleta (2011) also posits that the

self‐employed people are more likely to avoid paying taxes as compared to employed

ones.

Fines and penalties are part of the coercive approach, which advocates hard actions

against tax non-compliance. Penalties and fines usually encourage tax compliance. The

only problem lies with detection of such individuals or entities that are likely to avoid

paying taxes (Mukabi, 2014). Thus, it’s crucial for the tax authority to have an effective

system that can help in detection of non-compliance and penalize or fine tax evaders.

Tax knowledge and education are also considered to be a vital part of attitudes towards

tax compliance. Kirchler et al. (2008) posits that knowledge of tax is crucial since when

an individual knows what is supposed to be done at anytime he/she will always comply.

Knowledge is power as they say. Poor knowledge on taxation can lead to a distrust and

negative attitude towards tax; while good tax knowledge, correlates with a positive

attitude towards tax (Hofmann, Hoelzl & Kirchler, 2008).

4
1.1.3 Property Owners in Thika Town

Thika is a market town in Kiambu County in Central Kenya. Thika town is one of leading

towns in Kenya as far as starting and registering a business is concerned with a

population of over 200,000 (Mosoti & Murabu, 2014). Thika town is known for light

industry like food and horticulture processing. The recent growth of the town has been

heightened by growth of service sector especially education and finance (Muchira, 2007).

Residential housing in Thika town comprise of wide variety of forms, from publicly

aided tenant purchase, mortgage houses and apartments to semi-urban houses. Some

residents of Thika own a quiet number of some rental houses or units and manage them

secretively (Mwangi, 1997). The level of rent charged on such units varies depending on

some facts like closeness to a tarmac road, a business centre, security, the size of the

house and so forth. Rents are usually collected by the owners or the agents appointed by

the owners (UN-HABITAT, 2006). Thus, residential rental houses in Thika town collect

rent income, which is subject to taxation.

1.2 Research Problem

Tax compliance has been a crucial subject to researchers in many countries around the

globe. In most third world countries house rental taxation has been classified as

economic. (Tilahun & Yidersal, 2014; Palil, 2010). Like the other tax systems, the system

of house rental taxation has been confronted with many challenges both on the side of the

tax payers and the officials (Berhane & Yesuf, 2013). In most third world countries house

rental taxation has been classified as economic transactions which a bit difficult to detect

given the large number of citizens involved (OECD, 2012).

5
In Kenya, taxation has been the main source of revenue to the government. The taxes are

used by the government to provide public goods and/or services to general public. Over

the past years, though revenue collections by the Kenya Revenue Authority have

increased, the revenues collected have not been sufficient to fund the budget proposals

resulting into budget deficits (Alegana, 2014). In addition, the rise in government

expenditure has forced the government to bring each and every sector into taxation

bracket so as to be able to fund such crucial goods and services to the public. Thus, there

is need to examine the factors influencing residential rental income tax compliance by

property owners in Thika town.

In addition, several studies have also been carried on tax compliance around the globe. A

study by Hargreaves (2008) explored the influence of tax system on New Zealand’s

housing market and revealed that owner-occupiers do not pay tax from a rental income.

Dube (2014) explored tax administration of informal sector in Zimbabwe and revealed

that a high rate of tax and sheer ignorance are the main tax compliance disincentive in

informal sector which leads to a low tax revenue collection. Palil (2010) also investigated

tax knowledge and tax compliance determinants in self-assessment system in Malaysia

and established that compliance of tax is influenced by probability of being audited,

penalties, personal financial constraints and referent groups. However, the above

international studies did not concentrate on residential rental income taxes.

In Kenya, a study by Osebe (2013) analyzed factors which affect tax compliance in

Kenyan real estate sector and established that compliance costs, knowledge of tax and

education, penalties and the perceived tax evasion opportunities influenced tax

compliance. Mwangi (2014) also investigated the factors which influence tax compliance

6
with a focus on SME’s which operates in Industrial area, Nairobi and revealed high tax

rates, lack of adequate information on tax matters and costs of tax compliance affected

tax compliance. However, many local studies on tax compliance focus more on tax

compliance by SMEs. In addition, few studies on rental income taxation in Kenya are

based on the old method of taxation where landlords where taxed at a rate of 30% on their

net rental income in comparison to the current 10% tax rate on gross income. Since the

residential rental income tax regime was introduced as an incentive to attract more people

into the tax net, the main drive or purpose of this study is to investigate various factors

which affect attainment of this objective. This research therefore seeks to determine; how

do various factors influence whether or not property owners in Thika town adopt and

comply with residential rental income tax?

1.3 Objective of the Study

To investigate determinants of residential rental income tax adoption by property owners

in Thika Town

1.4 Value of the Study

This study sought to establish factors that influence residential rental income tax

compliance by property owners in Thika town. Thus, the findings of this study will be of

help to property owners as it highlighted the various factors that influence their

compliance to rental income taxes. In addition, the study gives recommendations on how

tax compliance by property owners can be enhanced. The findings of this study will assist

various policy makers including the Kenya Revenue authority, the government of Kenya

and other line ministries in developing effective policies to enhance residential rental

7
income tax compliance by property owners and to reduce tax non-compliance to

acceptable levels.

8
 CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

Chapter two review available literature on tax compliance as investigated by various

scholars around the world. The chapter presents the theoretical literature review, the

empirical literature review and finally a summary of literature review.

2.2 Theoretical Literature Review

The study explored the Allingham-Sandmo (AS) Theory, the fiscal exchange theory and

the social influences theory to explain the concept of tax compliance and the various

motives behind tax non-compliance.

2.2.1 The Allingham-Sandmo (AS) Theory

The Allingham-Sandmo (AS) theory is also known as the economic deterrence theory

emanated from the seminal work of Allingham and Sandmo (1972). This theory affirms

trhat the behavior of a taxpayer is usually influenced by the factors which determine the

benefits and cost of tax evasion (Allingham & Sandmo, 1972).

The economic deterrence model in its basic form views the individual taxpayer as a

rational economic agent, who assesses the costs (determined by probability of detection

and penalties or a fine for the fraud) and benefits (determined by tax rate) of evading

taxes, and thus chooses not to pay, if the benefit of non-compliance outweighs the costs

(Walsh, 2012). The theory assumes taxpayer maximizes expected utilities of

noncompliance tax gamble. That is, balancing between tax cheating benefits against

9
detection and sanctions (Sandmo, 2005). The basic premise is that individual usually

takes part in activities which have the potential of maximizing their returns or rewards as

well as minimizing their costs, tax amnesty being one of those activities. If sanctions are

probable enough, and the costs severe enough to outweigh the rewards of an act, the act

will not be performed (Mengere, 2014).

This theory concludes that tax compliance depends more on tax audit and the penalties or

fines. This implies that, all taxpayers only pay their taxes because they fear being

sanctioned. Thus, an increase in sanctions or fines and penalties will increase tax revenue

(Awa & Ikpor, 2015). It is on the basis of this assumption that the model advocates

stricter audit and heavy penalties for offenders as a basis for reducing non-compliance

(Fjeldstad, Schulz-Herzenberg & Sjursen, 2012). The relevance of the AS model in

residential rental income tax compliance is that when there are low probability of audit

and penalties, tendency for evasion by property owners will be higher, while if there is a

high tendency for detection and penalties are severe, fewer property owners will evade

residential rental income tax.

2.2.2 Fiscal Exchange Theory

This theory is acclaimed to have evolved from the economic deterrence and social

psychology models. It is premised upon the existence of a social, relational or

psychological contract between the government and the taxpayers (McKerchar & Evans,

2009). This theory suggests that government expenditures are the main motivate of tax

compliance and the governments has the ability to ensure that its citizen comply by

offering more improved public goods and services with the little they collects in form of

10
tax (Ali, Fjeldstad & Sjursen, 2013). Another major proposition of this theory is that of

tax bargaining between taxpayers and the government, which is considered as

fundamental to building a relation of accountability and obligations between state and

society (Fjeldstad, et al., 2012).

This theory affirms that government expenditures serves as a motivating factor for

taxpayer compliance, especially when the taxpayers value the goods and services they

perceive to be receiving from the government (Bello & Danjuma, 2014). Thus, the

taxpayers will be more willing to comply when they are satisfied with provision of

services from government, even in the absence of detection and punishment. Conversely,

they are also likely to adjust their terms of trade, by reducing compliance when they are

dissatisfied with services provision from the government, or even when they dislike the

way their taxes are spent (Torgler, 2003). The relevance of this theory is that property

owners may be willing to pay residential rental income tax since they value public goods

and services being offered by their government and believe that the more they pay taxes,

they will be offered more improved and better goods and services. Conversely, the

property owners may not be willing to comply if they feel that they do not derive any

benefit from the taxes collected by the government or that there is wasteful spending and

looting in public coffers.

2.2.3 Social Influences Theory

This theory affirms that, tax compliance by citizens is specifically influenced by their

individual behavior and social norms. The theory assumes that individual behavior in

taxation is basically influenced by social interactions like other forms of behavior (Ali et

11
al., 2013). The theory follows that an individual is most likely to comply with tax

requirements if he believes members of his reference groups also comply, just as he is

also likely not to comply if he believes that members of his referent group do not comply

(Walsh, 2012).

The social influence theory presupposes that individual behavior in taxation is basically

influenced by social interactions like other forms of behavior (Bello & Danjuma, 2014).

The theory also presupposes that the fear of social stigmatization as one of the possible

deterrent factor to tax compliance (Kirchler, 2007), and that existence of the social norms

effect on compliance behavior. The relevance of this theory is that property owners are

likely to be influenced by social groups, family members, friends and other property

owners to comply on payment of residential rental income tax.

2.3 Empirical Literature Review

Maseko (2014) investigated the impact of personal tax knowledge and tax compliance

costs behavior of SMEs in Zimbabwe. The findings of the study revealed that unlike large

companies, SMEs face different business conditions which make them to endure high tax

compliance load.

Berhane and Yesuf (2013) assessed the challenges and opportunities of house rental

income business tax in Regional state of Tigray in Ethiopia. The study collected data via

a survey questionnaire. The study findings established that there exists inefficiency and

insufficient number of business house rent tax assessment and collection officers in the

regional state of Tigray. Moreover, the study found that most taxpayers lack sufficient

knowledge of tax assessment and collection procedures. Thus, most of business house

12
rent taxpayers do not know the existing applicable rules and regulations. Further, the

study found that due to negligence, delay in tax payment and evasion are taken by

taxpayers as solution to escape from payment of proper business house rental income

taxes.

Kasipillai & Jabbar (2006) assessed whether gender and ethnicity differences occur in

relation to tax compliance attitude and behavior. The results of t-test established that both

male and female had similar tax compliant attitude and for ethnicity, similar result were

also observed. In addition, regression results established that gender, education, and

individual tax return preparation were statistically significant as the main determinants of

non-compliant attitude.

Musau (2015) assessed factors influencing tax compliance among SMEs in Nairobi

County. The study picked a sample of 398 respondents and collected data using

questionnaires which was analyzed using the binary probit regression model. The study

findings revealed that when an individual perception about difficulties of evading taxes

increases, the high likelihood of being tax compliant among SMEs in Nairobi County.

The findings also revealed those individuals who are satisfied with what the government

is offering as public goods and service from taxes; have enough tax information; trust

government officials in handling their taxes; and have the perception that if tax filing

procedures are less complex, tax payers are likely to comply with tax payment.

Mukabi (2014) explored factors influencing turnover tax compliance in the Kenya

revenue authority domestic taxes department in Nairobi County. The study used a sample

of 56 respondents selected via stratified sampling and data collected using questionnaires.

13
The study findings revealed that the perceptions of taxpayers towards the tax system

greatly determine the level of compliance for turnover tax. The findings also found that

other factors like cost of compliance and complicated systems result into the low levels of

compliance. The study also established that increased tax knowledge had a significant

effect on perception of tax system.

Thananga, Wanyoike and Wagoki (2013) carried out a study on how landlords in Nakuru

Municipality responded to new taxation measures, and factors which influence

compliance. The study used a sample of 94 respondents and questionnaires for data

collection. The findings of the study revealed that compliance level to provisions of rental

income tax policy by landlords was very low and non-compliance was due to expenses

overstatement and deductions which would in turn reduce taxable pay.

Karanja (2014) examined factors affecting voluntarily tax compliance in Kenya by

landlords in Nairobi County. The study adopted a descriptive research design and a

sample of 45 respondents was selected and questionnaire used for data collection. The

findings of the study established that attitude and perception that politicians misuse taxes,

financial and family obligation had strong positive responses. The study findings also

revealed that social norms and respondent’s income levels strongly influenced tax non-

compliance level among the Kenyan taxpayers on rental income. The study concluded

that attitude factors, high tax rate, unfair tax system, social norms, gender and education

level factors are significant and play a great role towards the compliance or non-

compliance of Kenyan taxpayers.

14
2.4 Conceptual Framework

The study sought to investigate determinants of residential rental income tax adoption by

property owners in Thika Town. The independent variables will include the tax rate,

attitude and perceptions, income tax levels, fines, penalties, knowledge of tax and

education while dependent variable will be residential rental income tax compliance. The

economic deterrence theory explains that detection and penalties for fraud reduce the

likelihood to evade taxes while several scholars have indicated that income levels, tax

knowledge and attitude as key variables that influence tax compliance in several business

entities. Figure 2.1 shows the conceptual framework

15
Figure 2.1 Conceptual Framework
Tax Rate
 Level of tax rate
 Tax base

Attitude and perceptions

 Negative attitude
 Positive attitude

Income tax levels Residential rental income Tax

 Amount of income
compliance
 Taxpayer expenditure
 Monthly payment of tax
 Tax returns submission
 Compliance with due dates
Fines and penalties
 Fine and penalty amount
 Fines and penalty rate

Tax knowledge
 Tax returns knowledge
 Tax calculations
knowledge


Source: Researcher

16
2.5 Summary of Literature Review

This section has reviewed existing literature on tax compliance by various organizations.

In addition, several studies have also been explored. For instance, Vadde (2014) and

Berhane and Yesuf (2013) assessed the factors which influence attitudes of rental

taxpayers and compliance behavior with tax system. Mas’ud, Aliyu and Gambo (2014),

Nicoleta (2011) and Kasipillai and Jabbar (2006) also examined various factors that

influence tax compliance in the respective countries while Thananga, Wanyoike and

Wagoki (2013), Karanja (2014) and Kuria (2013) examined the factors affecting

voluntarily tax compliance by landlords in Kenya. Additionally, Maseko (2014), Musau

(2015), Mukabi (2014) and Makori et al (2013) assessed the various factors which

influence tax compliance by SMEs in various parts of Kenya. However, most of the

existing and reviewed studies have focused more on small and medium enterprises

compared to residential rental property owners. Moreover, taxation of rental properties in

Kenya is still a young concept since residential rental property owners did not have a

specific tax regime in the past years.

17
 CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction

Chapter four focuses on research design, population of the study, data collection, validity

and reliability and analysis of data.

3.2 Research Design

A research design refers to plan that guide a researcher on how to organize the research

activities (Bryman & Bell 2003). A research design presents a framework or arrangement

of action for a study. A descriptive research design was adopted which provides a

comprehensive picture of a circumstance or a situation. It is normally done in order to

determine and be in a position where one can describe features of a given variable of

interest for a certain situation was used in this study. Since this study sought to

investigate determinants of residential rental income tax compliance by property owners

in Thika Town, a descriptive design helped to present and to determine the status of the

phenomenon under investigation.

3.3 Population of the Study

Population is a set of people or items with similar features that a researcher intends to

study and to draw statistical inferences or conclusions (Gall et al., 2006). Therefore, the

study population involved the 193 property owners as indicated in the Kiambu County

Records (2015).

18
3.4 Sample Design

A sample design refers to a plan to be used in obtaining a sample from a population. It is

a technique or procedure which a researcher adopts when selecting sample items

(Kothari, 2004). A sample of 58 property owners was selected using simple random

sampling method.

3.5 Data Collection

This study integrated both the primary and the secondary sources of data. Primary data

was obtained through a questionnaire. The first section of the questionnaire gathered data

on the respondents’ background information while the other sections gathered data on the

study variables, which comprised of tax rate, attitude and perception, income levels, fines

and penalties, tax knowledge and how they affect residential rental income tax

compliance. In designing the questionnaires for the study, the questions were designed in

such a manner as to attract vital answers, which helped the researcher in analyzing the

situation at hand. The questionnaires were issued to the property owners through agents

or managers (caretakers) requested to pass them to the property owners of the sampled

residential rental houses and then picked after one week. Secondary data on the research

was obtained from KRA publications. The KRA publications provided information on the

number of property owners were on board the residential rental income tax regime.

3.6 Validity and Reliability

Reliability is about consistency and ability of a measure to obtain similar results at any

time a test is carried out while validity test is used in determination of a measurement if it

really reflects the concept under the study. To ensure validity of data collection

19
instrument, expert opinion was sought from the project supervisor and other scholars who

were familiar with the topic. To test reliability of research instrument the Cronbach Alpha

Coefficient was employed. The Cronbach alpha provides a coefficient of inter-item

correlations. The Cronbach alpha ranges between 0 and 1 and a value of 0.7 or more was

considered as an indication of reliability

3.7 Data Analysis

Collected data was analyzed using descriptive and inferential statistics with the help of

Statistical Package for Social Sciences version 21(SPSS 21). Descriptive statistics

involved the use of measures of central tendency, which included frequencies,

percentages, the mean and standard deviation while inferential statistics was used to draw

conclusions.

3.7.1 Analytical Model

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

variables, a multiple regression model was adopted. Regression analysis is a technique

used to estimate relationships between two or more variables. The multiple linear

regressions was as follows

Where

= Residential rental income tax compliance

= Tax rate

20
 = Attitude and perceptions

= Income levels

= Fines and penalties

= Tax knowledge

= Constant

= Regression Coefficients

= Error term

3.7.2 Test of Significance

To test the statistical significance, the F and t test was used. The F-Statistic was used to

determine significance of regression model, that is, to what extent the variation in

independent variable explains the changes in dependent variable. Analysis of Variance

(ANOVA) was also used to establish total variations within and between variables to

determine relation between variables. T- test was employed to test statistical significance

of regression coefficients at 95% confidence level.

21
 CHAPTER FOUR: DATA ANALYSIS, RESULTS AND

INTERPRETATION

4.1 Introduction

This chapter shows response rate, the results of data reliability, descriptive statistics of

the study variables, regression analysis and an interpretation of the study findings.

4.2 Response Rate

This study had selected a sample of 58 respondents and dropped 54 questionnaires to the

sampled property owners. 46 questionnaires were completely responded to which made a

response rate of 85.2%, which was considered sufficient.

4.3 Data Reliability

The Cronbach alpha coefficient was used to establish the reliability of the questionnaire.

Table 4.1 shows obtained results

Table 4.1 Data Reliability

Variable Cronbach’s alpha N of items

Tax rate .792 5

Attitude and perceptions .737 6

Income levels .744 6

Fines and penalties .747 4

Tax knowledge .814 6

Source: Research Findings

22
Table 4.1 shows that all the study variables yielded Cronbach alpha coefficients values of

more than 0.7, which is the recommended value. This indicates that the instrument was

reliable to obtain data on determinants of residential rental income tax compliance by

property owners.

4.4 Descriptive Statistics

This comprised of the results on the respondents profile and summary descriptive

statistics of the research variables.

4.4.1 Respondents Profile

Table 4.2 shows obtained results

Table 4.2 Respondents Profile

Frequency Percent

Gender Male 33 71.7

Female 13 28.3

Total 46 100.0

Years of property existence Below 2 years 8 17.4

3-5 years 21 45.7

6-8 years 5 10.9

9 years and above 12 26.1

Total 46 100.0

Source: Research Findings

23
Table 4.2 shows that 71.7% of respondents were male whereas 28.3% were female.

Results also show that on average most properties had been in existence for a period of

more than 3 years.

4.4.2 Tax Rate

This section evaluated several statements on tax rate to determine its effect on residential

rental income tax compliance by property owners. Table 4.3 shows obtained results

Table 4.3 Tax rate

Statement Mean Std.

Deviation
1. 10% residential rental income tax rate is fair to property 2.96 1.398
owners
2. Residential rental property owners are now willingly paying 2.78 1.348
tax due to the well-structured tax rate
3. The computation of tax on gross rental proceeds is simple for 3.04 1.282
property owners to apply
4. A 10% tax rate on gross receipts results in overall lower tax 2.74 1.182
burden than a 30% tax rate on net rental income
5. The lowered tax rate has influenced willingness of residential 2.67 1.248
rental property owners to be tax compliant
Source: Research Findings

Table 4.3 the highest mean value was 3.04 which corresponds to the scale value of 3 in

the questionnaire an indication that the respondents were indifferent on whether the

computation of tax on gross rental proceeds is simple for property owners to apply. The

other mean value correspond to the value 2 which indicates that the respondents agree

24
that 10% residential rental income tax rate is fair to property owners and residential rental

property owners are now willingly paying tax due to the well-structured tax rate. The

respondents also agreed that a 10% tax rate on gross receipts results in overall lower tax

burden than a 30% tax rate on net rental income and the lowered tax rate has influenced

willingness of residential rental property owners to be tax compliant. On average, the

results indicate that the tax rate influences residential rental income tax compliance by

property owners respectively.

4.4.3 Attitude and Perceptions

This section evaluated several statements on attitude and perceptions to determine its

effect on compliance by property owners. Table 4.4 shows obtained results

Table 4.4 Attitude and Perceptions

Mean Std.
Deviation
1. The relationship between a tax payer and the revenue authority 2.83 1.217
influences the willingness of tax payers to be compliant
2. Payment of taxes is perceived by property owners as 2.52 1.278
contribution to economic growth
3. Visible improvements in government spending encourages 2.85 1.366
property owners to be tax compliant
4. Property owners have a negative attitude towards tax evasion 2.43 1.259
5. Political goodwill and fair distribution of public resources 2.57 1.344
influences your perception towards tax compliance
6. The Kenya Revenue Authority(KRA) is perceived to be efficient 2.85 1.316
in tax administration thus likely to catch up with defaulters
Source: Research Findings

25
Table 4.3 shows that, highest mean value was 2.85, which corresponds to the scale value

of 2 hence an indication that the respondents agreed that visible improvements in

government spending encourages property owners to be tax compliant and KRA is

perceived to be efficient in tax administration thus likely to catch up with defaulters

respectively. The respondents also agreed that the relation between a taxpayer and

revenue authority influences willingness of taxpayers to be compliant and that political

goodwill and fair distribution of public resources influences the perception towards tax

compliance. Further, the respondents agreed that property owners perceive payment of

taxes as contribution to economic growth and that property owners have a negative

attitude towards tax evasion respectively.

4.4.4 Income levels

This part sought to evaluate several statements on income levels to determine its effect on

residential rental income tax compliance by property owners. Table 4.5 shows the results

obtained

Table 4.5 Income levels

Mean Std.
Deviation
1. Tax rate should vary with level of residential rental income 1.93 1.124
2. Low residential rental income earners should not be taxed 2.11 1.320
3. Tax on residential rental income is lower when based on 2.59 1.257
gross income instead of net income
4. The monthly payment of tax has an evenly distributed 2.39 1.064
impact on the cash flow of property owners

26
5. Property owners with low income levels are more likely to 2.57 1.500
be non-compliant
6. Residential rental income tax poses high administrative 2.39 1.453
cost to property owners as it is due monthly.
Source: Research Findings

Results on table 4.5 indicate that, highest mean values are 2.59 and 2.57 which

corresponds to the scale value of 2 which indicates that the respondents agreed that tax on

residential rental income is lower when based on gross income instead of net income and

that property owners with low income levels are more likely to be non-compliant. The

respondents also agreed that the monthly payment of tax has an evenly distributed impact

on the cash flow of property owners, residential rental income tax poses high

administrative cost to property owners as it is due monthly and low residential rental

income earners should not be taxed respectively. Additionally, the respondents strongly

agreed that the tax rate should vary with level of residential rental income.

4.4.5 Fines and Penalties

This section sought to evaluate several statements on fines and penalties to determine its

effect on residential rental income tax compliance by property owners. Table 4.6 shows

the results obtained.

27
Table 4.6 Fines and Penalties

Mean Std.
Deviation
1. Fines and penalties are very punitive to property owners 1.83 1.102
2. Fines and penalties discourage non-compliance with of 2.22 1.172
residential rental income tax obligations
3. Periodic waiver of fines and penalties could encourage tax 2.35 1.251
compliance
4. Property owners file nil or incorrect returns to avoid penalties 2.24 1.214
of non-compliance on the iTax system
Source: Research Findings

Results on table 4.6 shows that, highest mean values were 2.35, 2.24 and 2.22, which

correspond to the likert scale value of 2. This indicates that the respondents agree that

periodic waiver of fines and penalties could encourage tax compliance, property owners

file nil or incorrect returns to avoid penalties of non-compliance on the iTax system and

fines and penalties discourage non-compliance with of residential rental income tax

obligations. The lowest mean value was 1.83, which indicates that the respondents

strongly agreed that fines and penalties are very punitive to property owners.

4.4.6 Tax Knowledge

This section sought to evaluate several statements on tax knowledge to determine its

effect on residential rental income tax compliance by property owners.

28
Table 4.7 Tax Knowledge

Mean Std.
Deviation
1. Property owners have adequate knowledge on tax rate, basis of 3.20 1.344
taxation and compliance requirements under residential rental
income tax regime
2. Lack of proper records on expenses incurred greatly contributed 2.39 1.085
to non-compliance by property owners in the previous regime
3. Knowledge about tax laws plays a major role in determining 1.87 .909
property owners’ tax compliance
4. Effective tax education can change the attitude and perception of 2.11 1.080
property owner towards tax compliance
5. Majority of tax payers are familiar with the iTax system 3.28 1.259
6. KRA has created a lot of public awareness on residential rental 2.61 1.468
income tax
Source: Research Findings

As per the results on table 4.7 the highest mean values were 3.28 and 3.20 which

corresponds to the scale value of 3. The results indicate that the respondents were

indifferent on whether majority of tax payers are familiar with the iTax system and that

property owners have adequate knowledge on tax rate, basis of taxation and compliance

requirements under residential rental income tax regime. The results also established that

the respondents agreed that lack of proper records on expenses incurred greatly

contributed to non-compliance by property owners in the previous regime, KRA has

created a lot of public awareness on residential rental income tax and that effective tax

29
education can change the attitude and perception of property owner towards tax

compliance. The results also established that respondents strongly agreed that tax

knowledge on tax laws plays a crucial role in determination of property owners’ tax

compliance. Table 4.7 shows obtained results

4.5 Regression Analysis

4.5.1 Model Summary

Table 4.8 shows the model summary results

Table 4.8 Model Summary

Model R R Square Adjusted R Square Std. Error of the Estimate

1 .539a .291 .202 .71664

a. Predictors: (Constant), Tax knowledge, Tax rate, Fines and penalties, Attitude and

perceptions, Income levels

Source: Research Findings

Table 4.8 shows that R-Square value (coefficient of determination) is 0.291, which

indicates that the independent variables (Tax rate, attitude and perceptions, income levels,

fines and penalties and tax knowledge) explain 29.1% of the variation in the dependent

variable (Residential rental income tax compliance). This means that 70.9% of residential

rental income tax compliance is influenced by other factors apart from the considered

research variables.

30
4.5.2 Analysis of Variance

The results of the Analysis of variance are shown by table 4.9 below

Table 4.9 ANOVA

Model Sum of Squares Df Mean Square F Sig.

Regression 8.414 5 1.683 3.277 .014b

1 Residual 20.543 40 .514

Total 28.957 45

a. Dependent Variable: Residential rental income tax compliance

b. Predictors: (Constant), Tax knowledge, Tax rate, Fines and penalties, Attitude and

perceptions, Income levels

Source: Research Findings

ANOVA results on table 4.9 shows regression model is significant since the F statistics

value (3.277) is significant at 95% confidence level since the p-value (0.014<0.05). This

indicate a significant relation between independent research variables Tax rate, attitude

and perceptions, income levels, fines and penalties and tax knowledge) and residential

rental income tax compliance.

4.5.3 Regression Coefficients

Table 4.10 below shows the regression coefficients results

31
Table 4.10 Regression Coefficients

Model Unstandardized Standardized t Sig.

Coefficients Coefficients
B Std. Error Beta
(Constant) 1.490 .745 1.999 .052
Tax rate .347 .137 .345 2.537 .015
Attitude and perceptions .170 .184 .132 .920 .363
1
Income levels -.417 .254 -.260 -1.642 .109
Fines and penalties -.148 .184 -.121 -.804 .426
Tax knowledge .522 .211 .373 2.476 .018
a. Dependent Variable: Residential rental income tax compliance

Source: Research Findings

From results on table 4.10 the following regression equation was obtained

The regression coefficient results indicate a positive significant effect between tax rate,

tax knowledge and residential rental income tax compliance by property owners. Results

also indicates an insignificant positive relation between attitude and perception and

residential rental income tax compliance by property owners. The results further show

that there is an insignificant negative effect between income levels, fines and penalties

and residential rental income tax compliance by property owners.

32
4.6 Interpretation of the Findings

The study result found a significant positive relation between tax rate, knowledge of tax

and residential rental income tax compliance. This means that, tax rate has a direct effect

on residential rental income tax compliance. The findings also means tax knowledge has

a direct impact on residential rental income tax compliance hence an increase in

knowledge of tax and awareness increases the levels of residential rental income tax

compliance by property owners. Kołodziej (2011), support that a high tax rate could be

seen as an unfair treatment of taxpayers.

The results also found that attitude and perceptions positively influence residential rental

income tax compliance by property owners though the relationship is insignificant. This

indicates that there attitude and perceptions also have a direct impact on residential rental

income tax compliance by property owners. In similarity, Maseko (2014) established that

perceptions of SME operators about tax fairness, quality of tax service and government

expenditures greatly affect tax compliance decisions. Chepkurui et al (2014) also points

out that attitude and perceptions of taxpayer plays a vital role in compliance decisions.

Finally, the results have found that income levels, fines and penalties negatively influence

residential rental income tax compliance by property owners but the relationship is

insignificant. This indicates an inverse relationship between income levels, fines and

penalties and residential rental income tax compliance by property owners that indicates

that a decrease in income and fines and penalties reduces compliance with residential

rental income tax by property owners.

33
 CHAPTER FIVE: SUMMARY, CONCLUSION AND

RECOMMENDATIONS

5.1 Introduction

Chapter five outlines the summary of this research, conclusions and recommendations

based on research findings, limitations of the study and suggestion of areas which may

require further consideration as far as future research is concerned.

5.2 Summary

The findings on tax rate revealed that property owners were indifferent on whether the

computation of tax on gross rental proceeds was simple for property owners and that

property owners agreed that the 10% tax rate on gross receipts was fair compared to the

previous 30% rate. The findings on attitude and perceptions established that visible

improvements in government spending, political goodwill and fair distribution of public

resources encouraged tax compliance by property owners. The findings also established

that the relation between a taxpayer and revenue authority influences willingness of

taxpayers to be compliant and that property owners perceive payment of taxes as

contribution to economic growth.

The findings on income level found that the monthly payment of residential rental income

tax had an evenly distributed impact on the cash flow of property owners but the payment

pose a high administrative cost to property owners. The results on fines and penalties

established that periodic waiver of fines, penalties encouraged compliance and that

punitive fine and penalties discourage non-compliance with of residential rental income

34
tax obligations. The findings on tax knowledge and education revealed that property

owners were indifferent on whether majority of taxpayers are familiar with the iTax

system and that property owners have adequate knowledge on tax rate, basis of taxation

and compliance requirements under residential rental income tax regime. The results also

revealed that tax knowledge on tax laws plays a vital role in determination of property

owners’ tax compliance.

The results of regression analysis established that tax rate, attitude and perceptions,

income levels, fines and penalties and tax knowledge explained 29.1% of the variation

residential rental income tax compliance by property owners. The ANOVA results

established a significant relation between tax rate, attitude and perceptions, income

levels, fines and penalties and tax knowledge and residential rental income tax

compliance. The regression coefficient results established a positive significant relation

between tax rate, tax knowledge and residential rental income tax compliance and an

insignificant positive relationship between attitude and perception and residential rental

income tax compliance. The findings also established an insignificant negative

relationship between income levels, fines and penalties and residential rental income tax

compliance by property owners.

5.3 Conclusion

The study findings established that tax rate and tax knowledge significantly and

positively influences residential rental income tax compliance by property owners. Based

on this finding the study recommends that tax rate applicable on residential rental income

influences tax compliance by property owners and an increase in tax knowledge and

35
education enhances compliance by property owners. The study also found that attitude

and perceptions positively influences tax compliance thus the study concludes that

attitude and perceptions have a direct impact on residential rental income tax compliance

by property owners. The study found that income levels, fines and penalties negatively

influence tax compliance by property owners. The study thus concludes that high levels

of income encourage tax compliance but low-income levels encourage non-compliance of

residential rental income tax by property owners and punitive fines and penalties

encourage property owners to comply tax obligations.

5.4 Recommendation for Policy

The study found that tax knowledge significantly influences residential rental income tax

compliance by property owners. Based on study finding, this study recommends that

KRA should develop training programs to create awareness on residential rental income

tax compliance by property owners.

The study also found that attitude and perception towards the tax authority influences

compliance of residential rental income tax by property owners. The study therefore

recommends that the tax authority in Kenya (KRA) need to develop effective policies to

develop a positive relationship and trust with taxpayers since this would encourage tax

compliance.

The study further established that punitive fines and penalties encourage compliance with

residential rental income tax by property owners. The study therefore recommends that

the tax authority in Kenya (KRA) should revise its fines and penalties to make them more

severe to encourage tax compliance.

36
5.5 Limitations

The focus of this study was residential rental income tax compliance by property owners

hence the finding and conclusions are only applicable to residential rental income tax

compliance and not compliance with other taxes.

In addition, the study sought the views of property owners and examined the various

factors that influence tax compliance by the property owners thus the views of tax

authority in Kenya on non-compliance by property owners has not been incorporated.

5.6 Suggestion for Further Research

This study collected data from property owners to establish the various factors which

influence compliance with residential rental income tax. Thus, this study recommends a

similar study, which incorporates the views of the tax authority in Kenya to establish the

factors behind residential rental income tax non-compliance by property owners. The

study found that the considered research variables explain 29.1% of variation in

residential rental income tax compliance by property owners thus the study recommends

an additional study on the other factors that influence compliance of residential rental

income tax by property owners.

37
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 APPENDICES

APPENDIX I: Questionnaire

I am a student pursuing a Degree in Masters of Business Administration, University of

Nairobi and carrying out a research on the determinants of residential rental income
tax adoption by property owners in Thika Town. The research is purely academic in
nature and any information obtained will be kept confidential.

Your cooperation and support will be highly appreciated.

Section I: Background information

Please tick and fill where appropriate

1. Gender:

Male [ ] Female [ ]

2. Number of years property has existed

Below 2 years [ ] 3-5 years [ ] 6-8 years [ ] 9 years and above [

]

Section II
Part I: Tax rate

3. 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% residential rental income tax rate is fair to property owners

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2) Residential rental property owners are now willingly paying tax due
to the well-structured tax rate

3) The computation of tax on gross rental proceeds is simple for

property owners to apply

4) A 10% tax rate on gross receipts results in overall lower tax burden
than a 30% tax rate on net rental income

5) The lowered tax rate has influenced willingness of residential rental

property owners to be tax compliant

Part II: Attitude and perceptions

4. 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) The relationship between a tax payer and the revenue authority

influences the willingness of tax payers to be compliant

2) Payment of taxes is perceived by property owners as

contribution to economic growth

3) Visible improvements in government spending encourages

property owners to be tax compliant

4) Property owners have a negative attitude towards tax evasion

5) Political goodwill and fair distribution of public resources

influences your perception towards tax compliance

6) The Kenya Revenue Authority(KRA) is perceived to be efficient

in tax administration thus likely to catch up with defaulters

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Part III: Income levels

5. Based on the property income levels evaluates 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) Tax rate should vary with level of residential rental income

2) Low residential rental income earners should not be taxed

3) Tax on residential rental income is lower when based on gross

income instead of net income

4) The monthly payment of tax has an evenly distributed impact on

the cash flow of property owners

5) Property owners with low income levels are more likely to be

non-compliant

6) Residential rental income tax poses high administrative cost to

property owners as it is due monthly.

Part IV: Fines and Penalties

6. Evaluate the following statements and tick where appropriate under the choices below

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Where: 1 – Strongly Agree, 2 – Agree, 3 – Neutral, 4 - Disagree or 5 - Strongly
Disagree

Statement 1 2 3 4 5

1) Fines and penalties are very punitive to property owners

2) Fines and penalties discourage non-compliance with of

residential rental income tax obligations

3) Periodic waiver of fines and penalties could encourage tax

compliance

4) Property owners file nil or incorrect returns to avoid penalties of

non-compliance on the iTax system

Part V: Tax knowledge

7. Have you attended any formal training organized by KRA or other institution on
residential rental income tax?

Yes ( ) No ( )

8. Evaluate the following statements and tick where appropriate under the choices below

Where: 1 – Strongly Agree, 2 – Agree, 3 – Disagree and 4 - Strongly Disagree

Statement 1 2 3 4 5

1) Property owners have adequate knowledge on tax rate, basis

of taxation and compliance requirements under residential
rental income tax regime

2) Lack of proper records on expenses incurred greatly

contributed to non-compliance by property owners in the
previous regime

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 3) Knowledge about tax laws plays a major role in determining
property owners’ tax compliance

4) Effective tax education can change the attitude and perception

of property owner towards tax compliance

5) Majority of tax payers are familiar with the iTax system

6) KRA has created a lot of public awareness on residential

rental income tax

Part VI: Residential rental income tax compliance

9. Is your business registered for Residential rental income tax?

Yes [ ] No [ ]

10. 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) Residential rental property owners file tax returns every month
2) Residential rental property owners declare correct monthly rental
income
3) Residential rental property owners file tax returns only to avoid
penalties
4) KRA has offered an enabling environment for tax filing
5) Residential rental property owners file returns on time and as
required by law
6) Residential rental property owners enjoy paying taxes and are
always tax compliant

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11. Can you recommend ways of creating more awareness on residential rental income
tax?
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Thank you very much for your patience, cooperation and support in my
research.

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