THE DETERMINANTS OF CAPITAL GAINS TAX COMPLIANCE AMONG

LANDLORDS IN NAKURU TOWN, KENYA

LESUPEER MPUKIYAN PETER

A RESEARCH PROPOSAL SUBMITTED IN PARTIAL FULFILMENT OF THE

REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER IN TAX AND
CUSTOM ADMINISTRATION IN THE SCHOOL OF BUSINESS AND ECONOMICS
OF MOI UNIVERSITY
2023
DECLARATION

This proposal is my original work and has not been presented for a Degree in any other University.

Signature: ___________________________ Date: ___________________________

LESUPEER MPUKIYAN PETER

KESRA/105/0033/2021

This research proposal has been submitted for examination with my approval as a University
Supervisor.

Signature: ___________________________ Date: _________________

DR.BRUCE OGAGA
KENYA SCHOOL OF REVENUE ADMINISTRATION (KESRA)
DEDICATION

My family has supported me throughout my studies, providing me with the energy and support I
needed while creating an environment conducive to learning and exploration. It would have been
impossible for me to succeed without them.
Table of Contents
DECLARATION.............................................................................................................................2
DEDICATION.................................................................................................................................3
Introduction......................................................................................................................................5
Background..................................................................................................................................5
Capital Gains Tax Overview.......................................................................................................5
Overview of the imposition and collection of taxes in Kenya.....................................................6
Problem Statement.......................................................................................................................8
Research Objectives.....................................................................................................................8
General Objective....................................................................................................................8
Specific Objectives..................................................................................................................9
Research Questions......................................................................................................................9
Justification of the study..............................................................................................................9
Literature review............................................................................................................................10
Introduction to tax compliance..................................................................................................10
Theoretical framework on tax compliance................................................................................12
Determinants of tax compliance behavior.................................................................................13
Capital Gains Tax compliance in Kenya...................................................................................15
Empirical studies on factors influencing tax compliance among landlords..............................17
Importance of tax education, perception, technology, and deterrence measures in promoting
tax compliance behavior............................................................................................................19
Tax education.........................................................................................................................20
Perception..............................................................................................................................20
Technology............................................................................................................................20
Deterrence measure...............................................................................................................20
Gaps in the literature on Capital Gains Tax compliance among landlords in Nakuru town,
Kenya.........................................................................................................................................21
Summary of literature review....................................................................................................22
Methodology..................................................................................................................................22
Research Design:.......................................................................................................................22
Sampling:...................................................................................................................................23
Data Collection:.........................................................................................................................24
Data Analysis:............................................................................................................................25
Ethical Considerations:..............................................................................................................25
Limitations:................................................................................................................................26
Reference List................................................................................................................................27
ABSTRACT

This study aims to investigate the determinants of capital gains tax compliance among landlords
in Nakuru town, Kenya. Capital gains tax is a significant source of revenue for the Kenyan
government, yet compliance among landlords remains low. This study will use a mixed-methods
approach to examine the factors influencing capital gains tax compliance among landlords in
Nakuru town. The quantitative component will involve a survey of 200 landlords in Nakuru
town, and data will be analyzed using descriptive and inferential statistics to identify patterns and
trends in the data. The qualitative component will involve in-depth interviews with 20 landlords
and will be analyzed using thematic analysis to identify common themes and patterns in the data.
The study will be conducted following ethical guidelines for research involving human subjects.
Informed consent will be obtained from all participants, and their privacy and confidentiality will
be ensured. The institutional review board (IRB) will also review and approve the study before
data collection begins. The results of this study will provide valuable insights into the factors that
influence capital gains tax compliance among landlords in Nakuru town. This information can be
used to develop policies and programs to improve compliance rates and increase revenue for the
Kenyan government.
Keywords: capital gains tax, compliance, landlords, Nakuru town, Kenya.
Introduction

Background
This section aims to (1) introduce the reader to the research issue and (2) set the stage for
the rest of the paper. The proposed study will examine "The Factors of Capital Gains Tax
Compliance among Landlords in Nakuru Town, Kenya," hence the introduction will have several
functions. It will begin with a brief introduction to the CGT, explaining what it is and why it was
created, before moving on to its use in Kenya. Second, the report will outline the study's
justification and significance within the framework of the Kenyan tax system. At last, it will lay
forth the theoretical foundations upon which the research is built and the hypotheses it will test.
Kenya's tax structure badly needed an update in 2015, and the reinstatement of the
Capital Gains Tax (CGT) was just that. In the event of a gain in value for an asset, whether
through sale or exchange, the owner must pay the Capital Gains Tax (CGT). The CGT was
reinstated to increase the size of the tax base, improve tax fairness, and generate revenue to help
close the national budget deficit (Githinji & Waweru, 2018; Ongore, 2020). Several taxpayers
have failed to comply with the tax rules and regulations controlling the CGT, raising concerns
about taxpayers' compliance behavior. As a result of taxpayers' refusal to pay their fair share, the
government has lost a substantial amount of money. The tax policy has been less successful than
anticipated in generating the desired results. As a result, the proposed study's introduction would
discuss why studying landlords' CGT compliance behavior in Nakuru town, Kenya, is important
and what factors could influence such conduct.
Capital Gains Tax Overview
Capital gains tax income is the tax levied on the deemed value or the income from
property (Abbott, 2008). Capital gains tend to differ from one given country to the other. This
difference can be broadly classified in terms of the development of a particular country, such that
in developing countries, capital gains are mainly from the sale or exchange of real estate, while
in developed countries, the capital gains are mainly from the sale of securities.
The proponents of capital gains tax depend on the definition of income developed by
economists Haig (1921) and Simons (1938). The duo defined income as all consumption during
a year plus the change in net worth. However, some economists argue that since the property's
increase in value is income from those assets and is subject to income tax, taxation of the
increase will lead to double taxation. On the contrary, Capital profits are economic revenue that
resembles ordinary income and represents full accretion of neat wealth; therefore, the taxpayers
should bear similar tax burdens regardless of the form of wealth creation. Internationally, capital
gains are perceived to arise from the wealthy since the profits are mainly from shares and the
sale of properties. (Ogaga, 2022)
The preponderance of capital gains from real estate in developing countries can be
attributed to the concentration of wealth held in real estate, the dominance in the corporate sector
of foreign corporations whose shares are owned by nonresidents taxed abroad, and the
widespread use of bearer shares, which limits the effectiveness of taxation of capital gains from
shares. This can be viewed as the ad valorem tax on the property's value.
Overview of the imposition and collection of taxes in Kenya
Income tax, value-added tax, excise duty, customs duty, and other taxes and levies all
figure into Kenya's tax system. Taxes are a key source of revenue for the Kenyan government,
which uses the money to improve the country's social and economic conditions through
infrastructure building, schooling, and healthcare. The Kenya Revenue Authority (KRA), a
quasi-independent organization under the National Treasury, is responsible for implementing and
collecting taxes in Kenya. The KRA's duties include enforcing tax laws, collecting tax money,
and encouraging taxpayer compliance with the law (Republic of Kenya, 2019).
The KRA follows the rules and regulations set out by the Income Tax Act, the Value
Added Tax Act, the Excise Duty Act, and the Customs and Excise Act. Individual and corporate
income, as well as capital gains, are subject to taxes under the provisions of the Income Tax Act.
To broaden the tax base, advance tax justice, and increase government income, Kenya reinstated
the Capital Gains Tax in 2015 under the Finance Act. Companies are subject to a 5% tax on any
profits from the sale of tangible or intangible assets, including real estate, buildings, privately
traded shares, and intellectual property (KRA, 2022).
The KRA has been using several methods, including the dissemination of information,
the imposition of penalties, and the use of technological tools, to increase taxpayer compliance
with tax laws. Technology, like the iTax system, has increased the KRA's ability to monitor and
enforce tax rules while making compliance with tax laws easier and more effective for taxpayers.
Likewise, programs have been designed to educate taxpayers on their rights and responsibilities
under the law and the tax laws and regulations under which they operate. Lastly, the KRA has
established many disincentive measures, including audits, investigations, and fines, to reduce the
likelihood of taxpaying individuals and businesses failing to comply (KRA, 2022).
The imposition and collection of taxes in Kenya are important policy weapons for
accomplishing social and economic goals, and the KRA plays an important role in ensuring
compliance among taxpayers. Capital Gains Tax was reinstated in 2015, a major step towards
increasing revenue production and fostering tax justice. Compliance among taxpayers is crucial
to increasing tax income and accomplishing social and economic goals.
Academics, politicians, and tax agencies worldwide also show a growing interest in
studying tax compliance behavior. Knowledge, attitudes, perceptions, and actions of taxpayers
towards tax rules and regulations are only a few of the many facets that make up the phenomena
known as "tax compliance." Many demographic, economic, social, and institutional elements are
among those recognized by researchers as influences on taxpayer behavior (Cuccia & Guccio,
2017; Ho et al., 2018).
Many factors may affect taxpayer behavior in the context of Capital Gains Tax
compliance among landlords in Nakuru Town. One such aspect that might affect taxpayers'
familiarity with and compliance with tax rules is tax education. According to studies, knowledge
and education are important in fostering tax compliance (Myles & Naylor, 2017; Torgler et al.,
2017). Moreover, a taxpayer's compliance behavior might be influenced by their opinion of the
tax system's justice and equality (James & Alley, 2001; Kirchler et al., 2011). Taxpayers may be
less likely to follow the law if they view the tax system as unfair or onerous.
Measures used to discourage non-compliance by taxpayers are another tool used by tax
authorities to ensure compliance. According to economic deterrence theory, taxpayers'
compliance with tax laws can be influenced by the likelihood of being caught and punished for
not doing so (Braithwaite, 2017; Kirchler & Wahl, 2010). Penalties, fines, and other forms of
enforcement have been found to have a considerable effect on taxpayer compliance behavior
(Fjeldstad & Schulz-Herzenberg, 2017; Kleven et al., 2011). The use of digital tools and
platforms can streamline tax compliance procedures and boost compliance rates, suggesting that
technology may play a role in encouraging taxpayers to act in a way that is consistent with tax
laws (Alm et al., 2018; Mascagni et al., 2017).
In conclusion, no one universal factor determines whether or not an individual will act
following tax laws. Taxpayer compliance behavior may be influenced by several factors,
including taxpayer education, the impression of justice and equality, deterrent measures, and
technology, in the context of Capital Gains Tax compliance among landlords in Nakuru Town.
Tax authorities can improve their efforts to increase taxpayer compliance with the law by
considering the abovementioned reasons.

Problem Statement
Many countries consider taxpayers' compliance with the law an important study area.
Taxation and collection are two primary ways the Kenyan government pursues its social and
economic objectives. The Finance Act of 2014 reinstated the CGT in Kenya to broaden the tax
base, foster tax justice, and raise revenue to close the country's budget deficit. CGT compliance
among Nakuru town's landlords is still poor despite these measures. The poor compliance rate
might result from several causes, including a lack of tax education, a bad taxpayer impression of
capital gains, a lack of technology, and insufficient deterrent measures. This research aims to
better understand what influences taxpayers to comply with CGT laws by examining the factors
affecting Nakuru town landlords.
Several research studies have examined what motivates taxpayers to report their income
and pay taxes. Tax knowledge, perceived justice, and faith in government were revealed to be
major drivers of tax compliance behavior among Malaysian taxpayers in a study conducted by
Chong and Abedin (2017). Elangkovan and Haniffa (2018) also found that taxpayers' faith in the
government, understanding of penalties, and tax literacy had a major role in determining whether
or not Malaysians complied with their tax obligations. Yet, there is no literature on what
motivates landlords in Kenya to pay their fair share of taxes, especially capital gains tax. As
such, this study tries to address this vacuum by analyzing the drivers of CGT compliance among
landlords in Nakuru town.
Research Objectives
General Objective
The general objective of this study is to determine the factors that affect capital gains tax
compliance among landlords in Nakuru County, Kenya.
Specific Objectives.
i. To determine the effect of taxpayer education on capital gains tax compliance among
landlords in Nakuru County, Kenya.
 ii. To determine the effect of technology on capital gains tax compliance among landlords in
Nakuru County, Kenya.
iii. To determine the effect of tax perception on capital gains tax compliance among
landlords in Nakuru County, Kenya.
iv. To determine the effect of deterrence measures on capital gain tax compliance among
landlords in Nakuru County, Kenya.
Research Questions
The following research questions have been prepared based on the context and issue statement:
i. How well informed are Nakuru, Kenya, landlords about the capital gains tax?
ii. How do property owners feel about paying capital gains tax, and how does that feeling
affect their compliance?
iii. Is there a correlation between landlords' technology use and willingness to pay capital
gains tax?
iv. How do disincentive measures affect property owners' compliance with the capital gains
tax?
v. Besides tax literacy, public opinion, technological advancements, and penalties, what
additional variables affect landlords' willingness to pay the capital gains tax?

These study questions aim to learn what factors influence property owners in Nakuru town,
Kenya, to pay their capital gains taxes. Insight into the elements that affect tax compliance
behavior will be gained with their help as they direct the data collecting and analysis process.

Justification of the study

The government's ability to collect taxes and achieve its social and economic goals can be
significantly hindered by taxpayers' non-compliance behavior. According to recent studies, poor
tax compliance can lead to revenue loss, which can affect the government's ability to provide
public goods and services to the public (Kleven, Knudsen, Kreiner, Pedersen, & Saez, 2019). In
addition, low compliance rates can damage the public's trust in the government and the tax
system, leading to negative societal outcomes such as decreased civic engagement and reduced
cooperation (Frey & Torgler, 2018).
In Kenya, the ability of the government to fund public goods and services is at risk if
landlords in Nakuru town fail to comply with the Capital Gains Tax. The lack of compliance
among landlords may also erode people's faith in the government and the tax system, ultimately
affecting the government's ability to achieve its social and economic objectives. Therefore,
studying the factors influencing compliance behavior among landlords in Nakuru town is crucial
to improving strategies for increasing compliance behavior, which would boost tax revenue and
restore citizens' trust in the government (Odhiambo & Kinyua, 2021).
In light of the above, it is imperative to investigate the determinants of Capital Gains Tax
compliance among landlords in Nakuru town, Kenya. Specifically, the study explores the effects
of tax education, taxpayers' perception of Capital Gains Tax, technology, and deterrence
measures on compliance behavior. Understanding the factors that affect taxpayers' compliance
behavior towards the Capital Gains Tax can help policymakers design and implement effective
strategies to promote tax compliance among landlords in Nakuru town. Furthermore, the study's
findings can inform the development of policies and practices that foster a culture of tax
compliance, contributing to the government's ability to fund public goods and services
effectively (Odhiambo & Kinyua, 2021).

Literature review

Introduction to tax compliance

Tax compliance is essential to any economic system because it maintains the
government's ability to collect income to provide public goods and services. Taxpayers'
compliance with tax rules and regulations is described as their "willingness to do so willingly"
(Fjeldstad & Mustapha, 2019). Taxpayer education, the perceived fairness of the tax system,
deterrent measures, and the use of technology can all play a role in increasing compliance with
tax legislation. Still, these elements have varying effects on various types of taxpayers (Kleven et
al., 2019). Research has demonstrated that non-compliance with tax laws can have serious
repercussions for governments, including lost income and poor social outcomes, including lower
rates of civic involvement and lessened collaboration (Frey & Torgler, 2018).
Taxpayer education is a major contributor to honest tax filing. Taxpayer education
programs aim to increase voluntary compliance with tax laws by providing taxpayers with the
information they need to comprehend the tax system and their responsibilities. Taxpayer
education initiatives have been demonstrated to improve tax compliance (Koos & Mason, 2019).
For example, oats and Houston (2018) showed that higher levels of taxpayer education led to
higher compliance among UK small firms. The significance of paying taxes for public goods and
services and the repercussions of non-compliance may be conveyed through taxpayer education
initiatives.
Another crucial aspect that affects tax compliance is how equitable the tax system is seen
to be. Taxpayers are more inclined to participate willingly if they believe the tax system treats
them fairly and justly. Yet, disobedience is often the result of a person's impression of unfairness
(Fjeldstad & Mustapha, 2019). For instance, Torgler and Schneider's (2009) study of self-
employed people in Germany revealed that low tax morale and non-compliance directly resulted
from the system's perceived injustice. Additionally, corruption, tax evasion by prominent
persons, and efficient tax administration can all impact how just the system is seen to be.
The use of fines, audits, and other enforcement steps to deter tax evasion are also
important elements in promoting taxpayer compliance. The impact of deterrent measures on tax
compliance behavior has been mixed (Fjeldstad & Mustapha, 2019). For instance, tax evasion
and faith in the tax system may grow if penalties for not complying with the law are too severe
(Frey & Torgler, 2018). As an added downside, audits and enforcement measures can be time-
consuming and expensive for tax administrations without guaranteeing higher compliance rates.
Thus, balancing punitive measures and other tactics, such as taxpayer education and tax system
fairness, is important.
Another way technology might affect people's propensity to pay their fair share of taxes
is by facilitating easier access to tax information. Taxpayers and tax authorities can both benefit
from technological aids that make it simpler to comply with their respective duties. Taxpayer
compliance expenses can be lowered and tax procedures streamlined with online filing and
payment systems, for instance (Kleven et al., 2019). In addition, data analytics and AI can help
tax administrations better detect and prevent non-compliance behavior (Fjeldstad & Mustapha,
2019). Yet, there are drawbacks to implementing technology in tax administration, including the
requirement for costly expenditures in infrastructure and the possibility of data breaches.
Taxpayer education, the perception of the tax system's fairness, deterrent measures, and
the application of technology are all important variables in ensuring tax compliance, which is a
complicated issue dependent on these and other factors. Consequences for governments and
society can be positive or negative, depending on how much these variables encourage or
discourage compliant conduct. Thus, it is critical for governments and tax authorities to devise
efficient methods of encouraging people to pay their fair share of taxes. Taxpayers' compliance
behavior can be influenced by several variables, such as their views and attitudes towards the tax
system, their familiarity with tax law and regulation, their sense of whether or not the tax system
is fair, and the effectiveness of tax administration.
Theoretical framework on tax compliance
Many theoretical models have examined the multifaceted issue of tax compliance
behavior. Deterrence theory is a popular theoretical framework. According to this theory,
taxpayers abide by the law because they fear being caught and punished if they don't. Audits,
sanctions, and enforcement actions are all examples of deterrent tactics that Alm, McClelland,
and Schulze (1992) say can decrease the likelihood of non-compliance by raising the perceived
cost. The deterrence model has been criticized for its reductionist approach to tax compliance
and for failing to account for the importance of taxpayers' social and psychological contexts
(Kirchler, Hoelzl, & Wahl, 2008).
The fairness model is an alternative theoretical framework for explaining tax compliance
behavior. According to this concept, taxpayers' compliance levels are affected by their views on
the tax system's justice and equality. Belief in the fairness and justice of the tax system makes
taxpayers more inclined to comply with tax rules, as Kirchler, Hoelzl, and Wahl (2008) state.
The distribution of tax burdens, the allocation of tax revenues, and the effectiveness of tax
administration are all potential drivers of a sense of justice. Tax administrations should consider
taxpayers' sense of justice when crafting tax policies since studies have found that this affects
taxpayers' propensity to comply (Frey & Torgler, 2018).
The trust model and the social norms model are two other theoretical frameworks that
have been used to study tax compliance. According to the trust model, taxpayers' compliance
behavior can be affected by their level of trust in the tax administration and other government
organizations. Things like openness, responsibility, and helpfulness on the part of the tax
administration may go a long way toward establishing credibility (Frey & Torgler, 2018). To
paraphrase the social norms model: Taxpayers' compliance behavior may be impacted by social
norms and values that encourage civic duty and collaboration. Education, culture, and social
networks may all have a role in shaping social norms, as stated by Kirchler, Hoelzl, and Wahl
(2008).
Given the research issues, the deterrence model may be the best applicable theoretical
framework for this study. According to this theory, people abide by tax regulations because they
fear being caught and punished. The deterrence model is more interested in the answers to
questions two and four. The deterrence model's focus on the perceived danger of punishment is
relevant to the second question, which inquires how property owners' sentiments about paying
taxes impact their compliance. Similarly, the fourth inquiry seeks to apply deterrence theory by
investigating the impact of disincentive measures on compliance.
However, the fairness model, which indicates that taxpayers' compliance behavior is
impacted by their opinions of the fairness and justice of the tax system, may be more relevant to
question i. However, the question's focus on whether taxpayers know the potential consequence
of non-compliance suggests that it is tied to deterrence. The third question appears to be
connected to the trust model and inquires whether or not there is a connection between the tech
adoption rates of landlords and their tax compliance rates. According to this paradigm, tax
compliance increases when citizens believe their tax dollars will be put to good use. The subject,
however, also raises issues about the deployment of technology, an essential element of the
deterrent framework.
The scope of question v is wide enough to include several possible theoretical
approaches. Beyond tax knowledge, public sentiment, technical developments, and fines, it
probes for other factors influencing landlords' desire to pay taxes. This inquiry may be connected
to the deterrence model, the fairness model, the trust model, or the social norms model,
depending on the particular factors under consideration.
In a nutshell, tax compliance behavior is a multifaceted phenomenon that has been
studied via a variety of theoretical lenses. Common theories include deterrence, fairness, trust,
and social standards. Deterrence measures, perceived justice, trust, and social norms are only a
few of the aspects these models highlight as crucial to ensuring tax compliance. The issues
mentioned above should be considered by tax administrations when formulating tax policies and
methods to encourage taxpayer compliance.
Determinants of tax compliance behavior
The research on tax compliance behavior is wide and complicated. It means complying
with the tax code's requirements, such as disclosing all income subject to taxation and paying the
appropriate amount of tax. Individual and environmental variables have both been found as
important in explaining why some people are more likely to pay their taxes than others. Here,
we'll look at a few of the most influential factors influencing whether people pay their fair share
of taxes.
A person's propensity to follow the law regarding paying taxes can be affected by their
personality, socioeconomic status, local institutions' strength, and cultural traditions. Using a
variety of theoretical lenses, several researchers have examined the factors that influence tax
compliance behavior. The deterrence model is widely utilized since it proposes that people obey
tax regulations because they fear being caught and punished if they don't (Alm et al., 1992).
Nevertheless, new research has shown the shortcomings of this paradigm and has stressed the
need to look at additional factors that influence compliance behavior.
Several studies have revealed that age, gender, and level of education are significant
predictors of taxpayer compliance. According to the research (Kirchler & Niemirowski, 2016),
younger taxpayers are less obedient than older taxpayers, and female taxpayers are more
compliant than male taxpayers (Luttmer & Singhal, 2014). Tax compliance behavior can also
benefit from education, as this has been shown (Schneider & Ceriani, 2017). The correlation
between schooling and obedience may, however, be conditional on factors including the nature
and level of instruction received and the larger social and economic setting.
Tax compliance and socioeconomic characteristics, including income, wealth, and social
standards, correlate. According to the research, higher socioeconomic status is correlated with
more compliant actions (Blaufus et al., 2017). Norms of society that reward responsible
citizenship and faith in government can inspire obedience (Kirchler et al., 2018). Yet, corruption
and political instability may also negatively affect societal norms, eroding faith in institutions
and decreasing compliance behavior (Baskaran et al., 2016).
Tax complexity, administrative quality, and tax morale are all examples of institutional
characteristics that might influence taxpayer behavior. Complex tax systems have been proven to
increase the cost of compliance and provide chances for non-compliance, which can negatively
affect compliance behavior (Torgler et al., 2016). A decrease in the cost and uncertainty of
compliance can be facilitated by improvements in administrative quality, such as the efficiency
and responsiveness of tax authorities, which encourages compliance behavior (Braithwaite,
2017). By instilling in taxpayers a feeling of social duty and faith in the tax system, tax morale
can increase the likelihood that they will comply with the law (Torgler, 2017).
 Schmölders, Hundsdoerfer, and Pfaff (2018) researched the impact of fairness and trust
on tax compliance behavior among German freelancers. The research concluded that tax
compliance behavior was significantly predicted by both fairness and trust. More specifically,
people who trusted the tax administration and thought the system was equitable were likelier to
file their taxes on time. Furthermore, the study discovered that confidence in the tax
administration influenced compliance behavior via fairness judgments, showing that trust in the
tax administration impacts compliance behavior.
In sum, tax-compliant conduct is a multifaceted phenomenon that is affected by a wide
range of variables. Many factors, such as tax knowledge, societal norms, trust, perceived justice,
and deterrent measures, have been found to affect taxpayer behavior. Audits and fines are
examples of deterrent tactics that can reduce non-compliance, but they may not be enough to
guarantee permanent compliance. Instead, tax administrations should consider increasing
taxpayers' voluntary compliance by emphasizing tax education, trust, and equity.
Capital Gains Tax compliance in Kenya
The profit from selling a capital item such as a home, stock, or bond is subject to a capital
gains tax (CGT) tax. After a 30-year break, Kenya reinstated the CGT in 2015. Reasons for CGT
non-compliance in Kenya are investigated. The government has had trouble enforcing the tax
since some taxpayers haven't filed their returns or paid the required amount. CGT compliance in
Kenya may be influenced by many variables, including taxpayer education, tax system openness,
and the tax's perceived fairness. When policymakers aim to increase compliance rates, an
appreciation of these issues is essential.
Better capital gains tax (CGT) compliance in Kenya can be achieved via more taxpayer
education. Taxpayers must know their CGT responsibilities and the potential repercussions of
failing to meet them. The importance of taxpayer education in improving tax compliance in
Kenya was recently highlighted in research by Kariuki and Kinyua (2018). The study found that
education on tax compliance increased taxpayers' likelihood of meeting their tax responsibilities.
CGT is still relatively new in Kenya, so educating taxpayers is very important for achieving
compliance. The government's ability to collect taxes may be harmed if people do not pay the
appropriate amount because they do not comprehend the nature of the tax.
 There is a strong correlation between the openness of Kenya's tax system and the
country's relatively high CGT compliance rate. The term "transparency" describes how easily
understandable and available the tax code is for taxpayers. With trust in the tax system restored,
people are more inclined to pay their fair share. According to research published by the World
Bank in 2017, a more open tax system is crucial to improving compliance in low-income nations.
Kenyan taxpayers' faith in the government may be eroded if tax information is not publicized.
The Kenyan government may improve the openness of the tax system by simplifying tax rules,
making tax data available on the government's website, and advising taxpayers on their CGT
responsibilities.
The extent to which taxpayers believe the CGT is fair also has a significant role in
determining whether or not it is followed in Kenya. If taxpayers think the tax system is equitable,
they are more inclined to follow the rules. According to research conducted in Kenya, the degree
to which taxpayers view the tax system as the fair has a considerable impact on the extent to
which those taxpayers comply with the law. Researchers found that taxpayers who saw the CGT
as equitable were more inclined to file their taxes on time. On the other hand, those who thought
the tax was unjust were more inclined to engage in non-compliant activities like underreporting
their capital gains. Thus, the Kenyan government must guarantee that taxpayers consider the
CGT equitable. Taxpayers of different socioeconomic backgrounds and political affiliations
should be treated equally by the government to improve justice.
The effectiveness of the CGT's enforcement is key in determining compliance in Kenya.
When it comes to taxes, the government needs to be able to enforce the rules. According to
research by Ikiara (2020), tax compliance in Kenya is substantially influenced by the efficiency
of tax enforcement. According to the results, taxpayers are more inclined to follow tax rules if
they believe the government will effectively enforce them. Enhancing the efficiency of Kenya's
tax administration system would help the government crack down on CGT evasion. Investment
in technology, training for tax officials, and expanding human resources are all ways to get there.
Government agencies can work together with the judicial system to increase enforcement.
The Kenyan government and its citizens must pay more attention to capital gains tax
compliance. Many factors, such as tax literacy, enforcement methods, taxpayer views, and
socioeconomic circumstances, have been proven to affect compliance behavior. Improvements in
tax education and enforcement, as well as public campaigns emphasizing the positive outcomes
of compliance, can help motivate taxpayers to comply voluntarily. Trust in institutions and
propensity towards compliance can be damaged by factors such as corruption and political
instability, both of which policymakers should consider.
More study is needed to fully understand how these factors influence taxpayers' decisions
to pay capital gains taxes in Kenya and other developing nations. In particular, future research
might examine the impact of tax awareness campaigns and other forms of education on
compliance behavior, as well as the part played by cultural norms and attitudes towards taxes.
Studying how capital gains tax compliance affects economic growth, investment, and
entrepreneurship would be interesting. Such research might improve policy decisions to
encourage taxpayers to voluntarily comply and give useful insights into the factors influencing
compliance behavior.
Empirical studies on factors influencing tax compliance among landlords
Much empirical research has been undertaken to determine the factors impacting the
compliance behavior of landlords in Kenya, where tax compliance is a pressing problem. Ongore
and Ombui (2018) researched factors influencing landlords' compliance with tax regulations in
Kisii County, Kenya. Tax compliance was shown to be significantly predicted by respondents'
level of education, tax awareness, and opinion of fairness. Higher-educated landlords were more
likely to follow tax regulations than their less-educated counterparts. Similarly, more
knowledgeable landlords were likelier to follow the rules than those who knew less about taxes.
According to the survey, landlords who saw the tax system as fair were also more inclined to
comply.
Kibiego and Kariuki (2019) researched what influences landlords in Nairobi, Kenya, to
comply with tax laws. According to the results, tax knowledge, social norms, and faith in the tax
authorities were all significant predictors of compliance behavior. Those landlords who knew
more about taxes were more likely to file them on time. A sense of civic responsibility and other
social standards were found to increase conformity. Landlords who believe in the tax
administration are likelier to follow the law.
Owino and Mutero (2018) researched the factors that affect landlords' tax compliance in
Kisumu, Kenya. Compliance behavior was highly influenced by tax knowledge, tax justice, faith
in the tax authority, and fines. Better-informed landlords were more likely to follow the rules
than their less-informed counterparts. The extent to which taxpayers believe the tax system treats
them fairly has a beneficial influence on their propensity to comply with the law. It was also
observed that landlords' faith in the tax authorities significantly predicted their likelihood of
complying with tax regulations. The study also discovered that the fear of fines had a detrimental
influence on compliance behavior, suggesting that heavy punishments may inhibit voluntarily
complying.
Onyango and Kirui (2020) looked at what factors influence Eldoret, Kenya, landlords to
pay their taxes. According to the results, tax knowledge, social norms, and faith in the tax
authorities were all significant predictors of compliance behavior. Better-informed landlords
were more likely to follow the rules than their less-informed counterparts. A sense of civic
responsibility and other social standards were found to increase conformity. Landlords who
believe in the tax administration are likelier to follow the law. Researchers also concluded
landlords might benefit from tax education programs and awareness initiatives to become more
tax compliant.
Mwangi and Otieno (2018) researched the effect of fines and penalties on the tax
compliance behavior of Kenyan landlords. The study results showed that the threat of fines and
penalties significantly increased the compliance behavior of landlords. According to the
research, imposing financial sanctions on landlords who fail to comply with the law is a deterrent
against such conduct. To ensure high compliance among landlords, the report suggested that tax
authorities enhance the severity of penalties and fines for non-compliance.
Kiiru (2019) researched whether landlords in Kenya were more likely to be tax compliant
after receiving tax education. According to the results, landlords' compliance rates increased
significantly after receiving tax education. Landlords who had received tax education were more
likely to file their taxes by the law than those who had not. The findings indicated that
government tax agencies should fund education initiatives to increase landlord compliance. The
research also stressed the need to tailor tax education programs to landlords' unique requirements
and circumstances, such as making materials available in local languages and using real-world
examples.
Gitonga and Njangiru (2019) researched CGT compliance in Kenya and the factors that
affect it. Compliance with the CGT was significantly influenced by taxpayers' views on the tax
system's fairness, their level of tax literacy, their level of trust in the tax authorities, and the
severity of the penalties for non-compliance. Those who thought the tax system was equitable
were likelier to report capital gains than those who didn't. The study also showed that people
with more extensive tax understanding were more likely to comply with the CGT. Taxpayers
who believe in the taxing authorities are likelier to report and pay their CGT dues on time.
Finally, the study discovered that the harshness of punishments for non-compliance influenced
compliance actions.
Likewise, Wambua et al. (2018) set out to discover factors affecting tax compliance
among small and medium-sized enterprises (SMEs) in Kenya. The study concluded that among
SMEs, tax compliance behavior was significantly influenced by factors like the perceived
fairness of the tax system, trust in the tax authorities, tax expertise, and penalties for non-
compliance. This research shows that small and medium-sized enterprises (SMEs) are more
likely to comply with tax regulations if they believe the tax system is fair. Trust in the tax
authority was also positively connected with compliance behavior, with SMEs more likely to
follow tax regulations if they had faith in the tax authority. It was also shown that tax knowledge
is a key factor in compliance behavior, with SMEs with a greater degree of tax knowledge being
more likely to comply with tax rules. The study concluded that the severity of penalties for non-
compliance influenced the compliance behavior of SMEs.
In a nutshell, research has repeatedly demonstrated that taxpayers' tax compliance
behavior in Kenya is strongly influenced by their level of tax knowledge, trust in the tax
authorities, societal norms, the perceived fairness of the tax system, and the consequences of
non-compliance. Perceived fairness of the tax system and societal norms also play crucial roles
in influencing compliance behavior, alongside tax knowledge and trust in the tax authorities,
which are consistent predictors throughout the research. There is also a strong correlation
between the harshness of sanctions for non-compliance and compliance rates. Hence, to increase
tax compliance among taxpayers, officials in Kenya should work to expand tax education
initiatives, boost public confidence in the tax authority, and make the tax system appear more
equitable. Furthermore, authorities should guarantee that consequences for non-compliance are
fair and proportional to the violation committed.
Importance of tax education, perception, technology, and deterrence measures in
promoting tax compliance behavior
Taxpayer compliance is an essential part of every country's revenue system. Nonetheless,
it might be difficult for governments everywhere to achieve their ideal levels of compliance. This
study of the literature looks at how tax education, public opinion, technology, and disincentives
all play a part in increasing taxpayer compliance.
Tax education
There is empirical evidence that tax education increases tax compliance. Knowledgeable
taxpayers are more likely to comply with tax rules, as Kibiego and Kariuki (2019) stated.
Similarly, Kiiru (2019) discovered that educating landlords on their tax obligations considerably
raised compliance rates. As Wambua et al. (2018) point out, tax education is critical in
encouraging compliance among SMEs (SMEs). The authors point out that small and medium-
sized enterprises (SMEs) with a deeper understanding of tax law are likelier to follow the
regulations.
Perception
Tax compliance is greatly aided by positive self-perception. Some factors that have been
demonstrated to affect taxpayer compliance are how just the tax system is seen to be, how much
confidence one has in tax officials, and how severe the consequences are for not paying taxes.
Those landlords who thought the tax system was fair were more likely to file their taxes as
required, according to research by Ongore and Ombui (2018). To a similar extent, Gitonga and
Njangiru (2019) discovered that shareholders who thought the tax system was fair were more
inclined to disclose capital gains. Wambua et al. also found that taxpayers who had faith in the
tax system were likelier to follow the rules (2018). The authors found that if a company's small
or medium-sized business had trust in the tax authorities, it was more likely to comply with tax
requirements.
Technology
In recent years, there has been a rise in interest in using technology to encourage tax-
compliant actions. In many nations, the introduction of electronic tax filing systems has
increased the percentage of taxpayers who file their returns. Electronic filing systems may make
tax compliance easier and cheaper, claim Alm and Torgler (2017). Automated solutions can
improve tax returns by decreasing the number of mistakes and the likelihood of fraud.
Deterrence measure
Fines and penalties, as forms of a deterrent, have been proven to substantially affect the
taxpaying habits of its targets. As demonstrated by Mwangi and Otieno (2018), the prospect of
fines and penalties greatly enhanced compliance behavior on the part of landlords. Along with
the prior research, Owino and Mutero (2018) discovered that the threat of fines negatively
impacted compliance actions. Taxpayers' compliance with the law was shown to be affected by
the severity of fines for non-compliance, according to research by Gitonga and Njangiru (2019).
The authors propose that stricter punishments be employed to encourage conforming actions.
In conclusion, there is strong evidence that tax education, perception, technology, and
deterrent measures all play an important role in encouraging tax compliance. To promote
compliance behavior, governments should engage in tax education programs targeted at certain
taxpayer groups, improve the reliability of electronic tax filing systems, and enforce suitable
deterrent measures. These steps should be integrated into a more comprehensive compliance plan
that seeks to encourage voluntary compliance while decreasing the cost of compliance.
Gaps in the literature on Capital Gains Tax compliance among landlords in Nakuru town,
Kenya
Notwithstanding the significance of tax compliance, knowledge gaps exist about the
factors that impact CGT compliance behavior among landlords in Nakuru town, Kenya. The next
part addresses knowledge gaps about capital gains tax compliance among Nakuru town
landlords.
Research on the particular characteristics that impact capital gains tax compliance among
landlords in Nakuru town is lacking in the literature. Several prior studies have examined what
motivates various types of taxpayers in Kenya, including Firms and individuals, to comply with
their tax obligations (Kibiego & Kariuki, 2019; Wambua et al., 2018). However, there is a
shortage of studies examining the factors that impact compliance behavior among landlords in
Nakuru town. There is a lack of research on this specific taxpayer population, which makes it
difficult for policymakers to implement effective tax education and deterrent initiatives to
increase compliance.
As another example, there is a lack of data on how effective tax education initiatives are
at increasing capital gains tax compliance among landlords in Nakuru town. Tax education is key
to increasing SME and individual tax compliance (Kibiego & Kariuki, 2019; Wambua et al.,
2018). However, there is no data on the efficacy of tax education programs aimed at landlords in
Nakuru town. Without this information, politicians in Each town may not be able to craft tax
education initiatives that are responsive to the unique requirements of landlords there.
 Last but not least, there are still major voids in the research on landlords' compliance with
Kenya's capital gains tax in Nakuru town. These holes include scant research on the efficacy of
tax education initiatives in encouraging compliance behavior among landlords in Nakuru town
and a lack of study on the particular characteristics that impact compliance behavior among this
set of taxpayers. Improving compliance rates among Nakuru town's landlords requires
addressing these knowledge gaps.
Summary of literature review
The necessity of tax compliance is discussed, and the roles of tax education, perception,
technology, and deterrent measures in increasing taxpayer compliance are investigated in the
literature review section. This analysis supports the assumption that tax education benefits
compliance behavior, especially among small and medium-sized enterprises (SMEs) and
landlords. Key elements impacting compliance behavior include the perception of the tax
system's fairness, faith in tax officials, and the severity of penalties for non-compliance. It has
been discovered that tax compliance may be simplified and the cost of compliance reduced via
technology, namely electronic tax filing systems. Finally, fines and penalties are effective
deterrents for promoting tax compliance among taxpayers. The study concludes that
governments should spend money on individualised tax education programmes, improve
electronic tax filing systems, and enforce suitable deterrent measures to increase compliance
behavior. A complete knowledge of tax compliance behavior requires filling in the gaps in the
research on specific taxpayer groups like landlords.

Methodology

This chapter describes the approach taken to investigate the extent to which landlords in Nakuru
town, Kenya, complied with capital gains tax regulations. This research aims to learn how
common tax evasion by landlords is, what variables contribute to landlords' compliance
behavior, and how efficient present deterrent measures are at increasing compliance.
Research Design:
A mixed-methods research strategy will be used to find the answers to the study
questions. Since it permits gathering quantitative and qualitative data, this method has grown in
popularity in social science research because it yields a complete picture of the studied subject
(Creswell & Plano Clark, 2018). Survey results will show how widely landlords in Nakuru hold
certain opinions and practices concerning the capital gains tax. Yet, the qualitative information
from in-depth interviews will explain why landlords think and act as they do about the capital
gains tax.
Several investigations of taxpayer observance of the law have used mixed-method study
methodologies. Kibiego and Kariuki (2019), for instance, employed a mixed-method study
approach to investigate what factors affect the tax compliance behavior of SMEs in Kenya.
Through surveys and in-depth interviews, the authors gathered quantitative data on the tax
compliance practices of SMEs and qualitative data on their interactions with tax authorities.
Comparable mixed-method research was conducted by Akbar et al. (2020) to uncover the causes
of tax evasion by small and medium-sized enterprises (SMEs) in Pakistan. The authors gathered
quantitative data from surveys on SMEs' tax compliance behavior and qualitative data from
focus groups on SMEs' attitudes toward tax evasion.
Complex research issues requiring in-depth knowledge of the underlying causes driving
attitudes and actions are ideal candidates for the mixed-method research approach. Compared to
relying on quantitative data, the mixed-method research strategy employed in this study will
provide a richer understanding of the factors impacting landlords' compliance behavior toward
the capital gains tax.
Sampling:
Landlords in Nakuru town, Kenya, will be selected using a convenience selection method
for the study. Landlords who have sold property during the previous five years and are now
subject to capital gains tax will make up the target audience. A sample size calculator will be
used to determine how many people to survey depending on the size of the whole population and
the acceptable degree of inaccuracy. A demographic questionnaire will also be a part of the
research to learn about the landlords' demographics, including age, gender, education, and
income.
Social scientists sometimes resort to convenience sampling when a random sample is
either impossible to get or extremely inconvenient to study (Babbie, 2016). It entails picking
people who fit the criteria of being both available and willing to take part in the study.
Notwithstanding its flaws, such as the possibility of bias and its lack of generalizability,
convenience sampling is helpful in exploratory research when focused on understanding a
specific phenomenon (Etikan et al., 2016).
Research on taxpayer compliance has also been conducted using convenience sampling.
For instance, Chau et al. (2018) relied on a convenience sample to study taxpayers' compliance
with tax laws in Hong Kong. Sohail et al. (2021) utilized convenience sampling to investigate
what variables influence taxpayers in Pakistan to file their taxes.
The validity and trustworthiness of a study's findings rely heavily on the researchers'
ability to accurately determine the sample size with which they work. Using a sample size
calculator is a suggested approach to this problem. Calculators for determining the optimal
sample size for achieving a certain degree of precision and confidence employ statistical
methods. Sample size calculators have been used in previous research on tax compliance.
Nguyen et al. (2019), who researched tax compliance in Vietnam, relied on a sample size
calculator to calculate the appropriate size of their study's sample. Similarly, Lasisi et al. (2021)
utilized a sample size calculator to figure out how many people to survey for their study on tax
compliance in Nigeria.
Including a demographic questionnaire within the study will allow for collecting useful
background information about the landlords, which will aid in analyzing the study's findings.
There have been previous studies that used demographic surveys to investigate tax compliance.
In their research on tax evasion among Pakistani SMEs, Akbar et al. (2020) surveyed the
population. Similarly, Kibiego and Kariuki's (2019) survey of tax compliance practices among
Kenyan small and medium-sized enterprises (SMEs) included demographic questions.
Data Collection:
The project will gather data using a mixed-methods approach, utilizing self-administered
questionnaires and semi-structured interviews to obtain quantitative and qualitative data,
respectively. The surveys are meant to elicit numerical data about landlords' tax knowledge,
perspective on capital gains tax, application of technology, and compliance practices.
Nevertheless, qualitative information on landlords' perspectives, expectations, and experiences
with capital gains tax compliance will be gathered through semi-structured interviews (Creswell
& Creswell, 2017). Researchers can use the benefits of both qualitative and quantitative data
through mixed techniques to gain a deeper grasp of the study topic (Creswell & Plano Clark,
2018).
 When studying tax compliance, surveys that respondents fill out on their own have
proven useful. For instance, Oats et al. (2021) used self-administered questionnaires to inquire
about taxpayers' willingness to partake in UK tax avoidance. Alabede et al. (2020) also surveyed
Nigerian taxpayers independently to learn more about their perspectives on paying their fair
share of taxes. The tax compliance practices of SMEs in Tanzania were also investigated by
Fjeldstad et al. (2012), who employed self-administered questionnaires to do so.
Research interviews that are only partially structured are frequently utilized to gather
qualitative information. They enable more in-depth questioning of participants, resulting in a
wealth of specific data on their backgrounds, attitudes, and behaviors (Bryman, 2016). Semi-
structured interviews have also been used in the previous study on tax compliance. Lasisi et al.
(2021), for instance, interviewed Nigerian taxpayers in their study on tax compliance to get their
perspectives. Nguyet et al. (2018) conducted semi-structured interviews with Vietnamese
taxpayers to learn more about their perspectives on tax evasion.
We'll collect data over three weeks to acquire a good sample size and not disrupt
landlords' normal activities too much (Bryman, 2016). The respondents must remain anonymous
to foster openness and collect accurate data. Protecting study participants' anonymity is standard
practice (Creswell & Creswell, 2017).
In conclusion, questionnaires and semi-structured interviews will be utilized as a part of a
mixed-methods strategy to gather information about landlords' attitudes about and experiences
with capital gains tax in Nakuru town, Kenya. Quantitative information about landlords' tax
knowledge, perspective on capital gains tax, use of technology, and compliance behavior will be
gathered from the survey. In contrast, qualitative information about landlords' perspectives,
attitudes, and experiences with capital gains tax compliance will be gathered through interviews.
Researchers can benefit from using mixed approaches since they can learn more about the whole
scope of the study topic.
Data Analysis:
Descriptive statistics, such as means and frequencies, will describe the data and highlight
patterns and trends in a quantitative data study (Field, 2017). Relationships between variables
will also be explored using inferential statistics like correlation and regression analysis (Pallant,
2016). One method for investigating the nature and intensity of the connection between tax
literacy and conformity behavior is using correlation analysis.
 Thematic analysis, a common technique for extracting recurring concepts from
qualitative data, will be applied in this study (Braun & Clarke, 2019). In thematic analysis, data
is coded into categories or themes, and patterns throughout the data are identified and expanded
upon to form overarching themes (Braun & Clarke, 2019). Qualitative data on landlords'
perspectives and experiences with capital gains tax compliance, for instance, may reveal issues
including views of justice, the complexity of the tax system, and the authority's efficacy.
By combining quantitative and qualitative methods, we may learn much about the tax
compliance habits and views on capital gains tax held by landlords in Nakuru town, Kenya.
Ethical Considerations:
Ethical standards for research involving human participants will be followed. Each
participant will provide their informed consent, and their anonymity and confidentiality will be
protected. Before initiating data collection, an institutional review board (IRB) will also evaluate
and authorize the project. Ethical concerns are necessary to safeguard the safety and well-being
of study participants while working with human beings (American Psychological Association,
2017). Human subjects research relies on the ethical concept of informed consent to ensure
people taking part in the study understand what it's for and what may happen to them if they take
part (National Institutes of Health, 2018). Institutional review boards (IRBs) aim to ensure that
any research involving human participants is performed lawfully and morally (National Institutes
of Health, 2021).
Overall, valid and reliable study findings may be ensured by adhering to ethical research
practices and employing suitable data analysis techniques. Researchers now have access to
updated standards and tools to aid them in ethically conducting research and employing suitable
data analysis techniques (American Psychological Association, 2017; National Institutes of
Health, 2021; Field, 2018; Braun & Clarke, 2020).
Limitations:
Nevertheless, the sampling method used in the study may not completely represent
Nakuru's landlord population. Self-reported data may also be vulnerable to social desirability
bias, which might undermine the reliability of the study's findings. Furthermore, the analysis
might be hampered by the difficulty in obtaining reliable data on capital gains tax compliance.
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