EFFECT OF DIGITAL SKILLS PROFICIENCY ON VALUE ADDED TAX (VAT) COMPLIANCE AMONG SMALL AND MEDIUM ENTERPRISES (SMES) IN NAIROBI CITY COUNTY CENTRAL BUSINESS DISTRICT, KENYA

Purpose of Study: The purpose of the study was to determine the effect of digital skills proficiency on Value Added Tax (VAT) compliance among Small and Medium Enterprises (SMEs) in Nairobi City County Central Business District (CBD), Kenya. The study specifically examined whether digital competence influences SMEs’ ability to meet VAT registration, filing, payment, and record-keeping obligations. Methodology: The study adopted an exploratory research design and used a census approach targeting 120 SMEs in Nairobi CBD. Structured questionnaires were administered to eligible respondents involved in VAT activities, with 104 questionnaires successfully returned, representing an 86.7% response rate. Data were analysed using SPSS Version 28 through descriptive statistics, Pearson correlation, and regression analysis. Findings: The findings showed moderate to high levels of digital skills proficiency (M = 3.61, SD = 0.715) and VAT compliance (M = 3.57, SD = 0.705). Use of spreadsheets and digital tools for VAT records recorded the highest digital skills score (M = 3.81), while troubleshooting digital filing problems scored lowest (M = 3.28). Digital skills proficiency had a strong positive and statistically significant relationship with VAT compliance (r = 0.612, p < 0.01). The regression model was significant, F (1,102) = 61.08, p < 0.001, with digital skills explaining 37.5% of the variation in VAT compliance. A one-unit increase in digital skills was associated with a 0.603-unit increase in VAT compliance. Conclusion: The study concludes that digital skills proficiency significantly improves VAT compliance among SMEs in Nairobi CBD. It recommends continuous digital skills training, simplified and reliable KRA digital services, practical filing guidance, and accessible technical support to strengthen SMEs’ capacity to comply accurately and submit VAT obligations on time.