Effect of Tax Knowledge on Alternative Dispute Resolution Mechanism among Three Star Hotels in Mombasa County, Kenya

Abstract

The adversarial judicial system's handling of tax disputes demonstrates how complicated and technical tax issues are, demonstrating how tax systems are typically prejudiced against taxpayers and how genuine investments are tarnished if tax benefits are involved. As a result, alternative dispute resolution mechanism (ADRM) are more pertinent because they allow for the release of sizable sums of tax revenue held in disputes while fostering better relationships between the parties involved. Several studies have been conducted addressing various issues in the ADRM but empirical evidence is scarce on the effect of tax knowledge on Alternative Dispute Resolution. The research aimed to determine the effect of tax knowledge on Alternative Dispute Resolution Mechanism among three-star Hotels in Mombasa County, Kenya. It was anchored on four theories, which include Conflict Resolution-Theory, Ability-to-pay tax Theory, The Benefit-Theory of-Taxation and The cost of-service theory. The study's three specific objectives were to establish the effect of provisional fiscal tax knowledge, provisional procedural tax knowledge and provisional legal tax knowledge on Alternative Dispute Resolution Mechanism among three star Hotels in Mombasa County, Kenya. A correlation research design was used where data was collected from the respondents by use of questionnaires from a sample of 16 respondent hotels, which included 2 members made up of the Director and accountant, 15 members of the KRA's tax resolution division staff, and 15 tax consultants working in Mombasa County. To assess the intensity and direction of the relationship between the variables and the

magnitude of tax knowledge variables on alternative dispute resolution, correlation and multi- linear regression analysis were used respectively, while descriptive statistics were used to

produce means and standard deviation from the collected data. Fiscal, procedural and legal tax knowledge have had a strong positive significant effect (Provisional fiscal tax knowledge r= 0.789, p=.000; Provisional procedural tax knowledge r= 0.799, p=.000 and Provisional legal tax knowledge r=0.688, p=. 000.respectively) and Alternative Dispute Resolution among three star Hotels in Mombasa County, Kenya respectively. It is concluded that fiscal tax knowledge, procedural tax knowledge and legal tax knowledge had a strong positive and significant effect on Alternative Dispute Resolution among three- star Hotels in Mombasa County, Kenya. Based on these findings, it is recommended that three star-hotels in Kenya should strategically improve the stakeholder’s knowledge along the three tax knowledge variables (Fiscal, procedural and legal) to achieve and maintain the 80% global ADR standard, and remain popular in meeting the needs of the stakeholders. Further, they should focus and put more emphasis on the procedural tax knowledge variable since it is the variable that scored the highest correlation as shown by r=0.799. It is further recommended that additional research be done on other factors, such as hospitality culture and technology complexity, among others, that may affect Alternative Dispute Resolution among three-star hotels in Mombasa County, Kenya, because 86.5% of the results in this study were explained by independent variables