This study investigates the influence of tax literacy on tax compliance among Small and Medium
Enterprises (SMEs) in Lang’ata Sub-County, Nairobi County. It examines how tax knowledge,
tax benefits, and tax computation skills affect compliance behavior among SME owners and
managers. The objectives of the study were to: assess the effect of tax knowledge on tax
compliance; evaluate how perceived tax benefits influence compliance; and determine the impact
of tax computation skills on SMEs’ ability to meet their tax obligations. The study is guided by
the Fiscal Exchange Theory, the Theory of Planned Behavior (TPB), and Agency Theory. A
descriptive research design was adopted, targeting 75 SMEs in Lang’ata. Stratified random
sampling and structured questionnaires were used to collect both qualitative and quantitative
data. Statistical analysis, including correlation and regression, was conducted using SPSS
Version 26.
Findings revealed that tax knowledge, perceived tax benefits, and tax computation skills all had
strong and statistically significant positive effects on tax compliance. Specifically, tax
knowledge accounted for 66.8% of the variance in compliance, tax benefits 69.5%, and tax
computation skills 82.6%. Notably, SMEs with stronger tax literacy demonstrated better
compliance, higher accuracy in filing, and increased awareness of legal obligations and
incentives. The study concludes that tax literacy is a critical determinant of tax compliance
among SMEs. Gaps in understanding tax obligations, benefits, and calculation methods
contribute to persistent non-compliance. To address this, the study recommends that the Kenya
Revenue Authority and related stakeholders intensify localized tax education programs, promote
digital tax tools tailored to SMEs, and offer continuous training on sector-specific tax practices.
These interventions can enhance voluntary compliance, increase revenue collection, and support
SME sustainability in Kenya.