Tax System Automation and Value Added Tax Compliance; The Moderating Role of Obligation Cost

Aims: Actual revenues and expected revenue always differ, resulting in a shortfall in revenue collection. It is for this reason that the research sought to determine the moderating role of obligation cost on the relationship between Tax system automation and VAT compliance.

Study Design/Methodology: The study moderated tax obligation cost on the relationship between; tax invoice management system, VAT automated assessment, online filing procedure, digital payments, and VAT compliance using SMEs in Nairobi, Kenya. The research was underpinned by the ability to pay theory, the unified theory of acceptance, and the innovation diffusion theory. An explanatory design using a questionnaire was adopted to collect data from a sample size of 326 respondents. Hypotheses were tested using Hierarchical regression analysis.

Findings: It was evident that the Tax Invoice Management system, VAT automated assessment, Online filing procedure, and Digital payments have a significant effect on VAT compliance. Further, tax obligation costs negatively impact VAT compliance, while also moderating the direct effect relationships.

Practical Implications: Tax agencies should therefore encourage automation of their processes through digital tax payment, enhanced online filing procedures, and investing in VAT assessment systems, while ensuring reduced tax obligation costs, in their quest to increase VAT compliance.