Effect of Tax Morale on Pay as You Earn Tax Compliance Among Small and Medium Enterprise Owners in Nairobi Central Business District, Kenya

Taxation serves as a vital source of government revenue worldwide, supporting the provision of public goods and services. Consequently, tax compliance is crucial for maintaining economic stability and contributing to national development. This study aimed to examine the impact of tax morale on PAYE tax compliance among owners of small and medium enterprises in Nairobi's Central Business District, Kenya. The research was grounded in the Ability-to-Pay Theory, the Theory of Planned Behavior (TPB), The study employed an explanatory research design. The target population was 4391 small and medium enterprises in Nairobi Central Business District and a sample size of 366 SMEs in Nairobi Central Business District. The study showed that out of the 366 issued questionnaires, a total of 304 questionnaires were completed and included in the study. This implies an 83.1% response rate. The study used primary data, which was collected through questionnaires. The data collected was analyzed using both descriptive such as mean and frequency distributions, standard deviation and percentages. Inferential statistics included regression analysis and correlation analysis. A linear regression model was used to establish the strength of the relationship between independent and dependent study variables. Tax morale also had a positive and significant effect on PAYE tax compliance (β = 0.311, p = 0.019). The study recommends that the Kenya Revenue Authority should develop and implement comprehensive civic education campaigns specifically targeting SME owners, emphasizing the societal benefits of tax compliance and the moral imperative of fulfilling tax obligations. Future studies should investigate the impact of economic factors, including business profitability, cash flow volatility, and market conditions, on PAYE tax compliance among SME owners.