Influence Of Creative Accounting Practices On Tax Evasion Amongst Small And Medium Enterprises In Nakuru, Kenya

Abstract

Tax evasion has become a challenge to the Kenya Revenue Authority (KRA). In April of 2018 for instance, KRA charged a business person with a KSh. 7 billion tax evasion that was undertaken through use of fraudulent accounting practices. This study thus sought to examine the influence of creative accounting practices on tax evasion amongst small and medium enterprises (SMEs) in Nakuru in Kenya. It was guided by the deterrence theory and economics of crime theory and employed descriptive research design. The study specifically targeted the owners/managers of all the 20,355 SMEs operating within Nakuru County. Nassiuma (2000) formula was employed to arrive at a sample size of 100 SMEs’owners/managers. Proportional stratified random sampling technique was used to select the 100 owners/managers of SMEs from the target population. A structured questionnaire was used to gather primary data while secondary data was collected through document analysis. Content validity of questionnaires was based on responses given by five content experts. Cronbach Alpha coefficient of 0.71 was realized as a test for reliability of the instrument. Descriptive statistics that included frequencies and percentages as well as inferential statistics such as correlation and regression analysis were employed in data analysis. The study found that creative accounting practices positively influence tax evasion amongst SMEs in Nakuru. It recommended that the KRA should enforce the use of Electronic Tax Registers to eliminate loopholes that allow for manipulation of source documents, understatement of sales figures, and overstatement of purchase figures by SMEs