Okiro - The Effect of E-Payment System On Revenue Collection by The Nairobi City County Government

THE EFFECT OF E-PAYMENT SYSTEM ON REVENUE COLLECTION BY THE
NAIROBI CITY COUNTY GOVERNMENT
BY
ALBERT OKIRO
A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE

AWARD OF DEGREE OF MASTER OF BUSINESS ADMINISTRATION, SCHOOL
OF BUSINESS OF UNIVERSITY OF NAIROBI
2015
DECLARATION
This research work is my original work and was not been presented for examination
in any other university.
Signature ------------------------------------ Date------------------------------------
Name: Albert Okiro
Reg: D61/68400/2013
Supervisor
This Research project has been submitted for presentation with my approval as
University Supervisor
Signature ------------------------------------ Date------------------------------------
Winnie Nyamute
School of Business
Department Finance and Accounting
University of Nairobi
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DEDICATION
I dedicated to my family for their support and prayers especially my daughters Angel
(Mum), Crystal (Toto), my wife Irene for their patience when I was busy with my
studies. To my late farther Samson Okiro for showing me the value of education early
in life, I will always cherish your ideals dad.
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ACKNOWLEDGEMENT
First, I wish to acknowledge the almighty God for this far he has brought me and
enable me to accomplish this project.
Secondly, I wish to acknowledge my supervisor Ms. Winnie Myamute for his tireless
guidance and positive criticism in this project work.
I also acknowledge the staff of Nairobi City county for providing me with the
necessary information required for this project.
My sincere thanks also go to my fellow students and colleagues in office who helped
in various consultative discussions during this project work.
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ABSTRACT
A sound revenue system for devolved governments sets the pace for the success of
fiscal decentralization, since it is the avenue for administrative accountability by
empowering communities. Nowadays, modern e-payment services provide
convenience in revenue that highly improve revenue collection performance and gain
a competitive edge. The county governments therefore needs to improve targeting
revenue collection mechanisms and systems to reach collection targets aimed at
expanding the revenue base and increasing tax compliance through integration of
proper technology in revenue collection. However, there is a rising challenge as far as
adoption of e-payment adoption by County Governments in Kenya is concerned.
Since this is a new technology in Kenya and there are limited studies and information
about e-payment in Kenya. However, studies have not significantly addressed the
factors of e-payment system affecting revenue collection by the Nairobi City County
Government, a knowledge gap. It is in this light that this study sought to addresses;
level of compliance to budget estimates, and absorption of the e-payment by the
payers, resulting from the e-payments system as factor influencing performance of
revenue collection by the County Government, as it fills the existing knowledge gap,
in an effort to recommend on ways to ensuring optimal revenue collection. The
objective of the study was to determine the effect of e-payment system on revenue
collection by the Nairobi City County Government. This study used a descriptive
research in soliciting information in the area of research and its target population was
selected 18 Nairobi government departments, which were operational between 2013
and 2015. Data was collected from secondary sources and analyzed, with respect to
the study objectives using both descriptive and inferential statistics. The study found
that revealed that the revenue collection performance in Nairobi City County
increased considerably after introduction of e-payment system in revenue collection.
The study concludes that the adoption e-payment system positively influences the
revenue collection performance in Nairobi City County. There was a significant
relationship between level of compliance to budget estimates in before adoption e-
payment (p-value= .000) and level of compliance to budget estimates after adoption
of e-payment (p-value = .041) and revenue collection performance in Nairobi City
County government, since the p value for each predictor variable was less than 0.05.
It was found that 92.20% of variation in revenue collection performance in Nairobi
City County government is explained by the adoption of e-payment and before adopt
e-payment. The study recommends that the Government of Nairobi City County
should ensure that all its wards, departments and other related units are compelled by
regulations to adopt e-payment and other ensure management of revenue collection
system to lead to assurance total compliance to the budgets and there should be
awareness campaigns to ensure that the consumers get the right information as
pertains to e-payment revenue collection.
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TABLE OF CONTENTS
DECLARATION........................................................................................................ i
DEDICATION .......................................................................................................... ii
ACKNOWLEDGEMENT ........................................................................................ iii
ABSTRACT ............................................................................................................. iv
TABLE OF CONTENTS........................................................................................... v
LIST OF TABLES ................................................................................................. viii
ABBREVIATIONS .................................................................................................. ix
CHAPTER ONE:INTRODUCTION ...................................................................... 1
1.1 Background of the Study...................................................................................... 1
1.1.1 E-Payment System ...................................................................................... 2

1.1.2 Revenue Collection in County Governments ............................................... 3
1.1.3 E-Payment and Revenue Collection ............................................................. 4
1.1.4 Nairobi County ............................................................................................ 5
1.2 Research Problem ................................................................................................ 6
1.3 Objectives of the Study ........................................................................................ 8
1.4 Value of the Study ............................................................................................... 9
CHAPTER TWO:LITERATURE REVIEW ....................................................... 10
2.1 Introduction ....................................................................................................... 10
2.2 Theoretical Review ............................................................................................ 10
2.2.1 Revenue Diversification Theory (RDT) ..................................................... 10

2.2.2 Resource Based View Theory (RBV) ........................................................ 11
2.2.3 The Expediency Theory of Taxation .......................................................... 12
2.3 Determinants of E-payments performance.......................................................... 13
2.4 Empirical Studies ............................................................................................... 13
2.5 Summary of Literature Review .......................................................................... 18
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CHAPTER THREE:RESEARCH METHODOLOGY ....................................... 21
3.1 Introduction ....................................................................................................... 21
3.2 Research Design ................................................................................................ 21
3.3 Population and Sample ...................................................................................... 22
3.4 Data Instruments and Collection ........................................................................ 22
3.5 Pre-Testing ........................................................................................................ 23
3.5.1 Validity ..................................................................................................... 23

3.5.2 Reliability.................................................................................................. 24
3.6 Data Analysis .................................................................................................... 24
CHAPTER FOUR:DATA ANALYSIS, RESULTS AND DISCUSSION ........... 28
4.1 Introduction ....................................................................................................... 28
4.1.1 Study Response ......................................................................................... 28
4.2 Descriptive Analysis .......................................................................................... 29
4.2.1 Revenue Collection performance before and After E-Payment .................. 29

4.2.2 Peak Period in Performance of Revenue Collection ................................... 32
4.3 Correlation Analysis .......................................................................................... 32
4.4 Regression Analysis ........................................................................................... 34
4.5 Interpretation and Discussions ........................................................................... 38
CHAPTER FIVE:SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

................................................................................................................................ 40
5.1 Introduction ....................................................................................................... 40
5.2 Summary of Findings ......................................................................................... 40
5.3 Conclusions ....................................................................................................... 41
5.4 Limitations of the Study ..................................................................................... 42
5.5 Recommendations.............................................................................................. 43
5.5.1 Policy Recommendations .......................................................................... 43

5.5.2 Recommendations for further study ........................................................... 44
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REFERENCES ...................................................................................................... 46
APPENDICES ....................................................................................................... 50
APPENDIX I : WORK PLAN ................................................................................. 50
APPENDIX II: BUDGET ........................................................................................ 51
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LIST OF TABLES
Table 1: Analysis on Revenue Collection for FY 2013-14 and FY 2014-15 ............. 30
Table 2: Analysis by Revenue Collection Performance Peak Period ........................ 32
Table 3: Correlations Statistics of Independent and Dependent Variables ................ 33
Table 4: ANOVA for financial performance ............................................................ 35
Table 5: Coefficients for Study Model ..................................................................... 36
Table 6: Revenue Collection Performance Model Summary .................................... 37
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ABBREVIATIONS
ATM Automated Teller Machine
BPA British Parking Association
E-Cash Electronic Cash
EFT Electronic Funds Transfer
E-payment Electronic Payment
FY Financial Year
GoK Government of Kenya
ICT Information Communication Technology
IS Information Systems
OECD Organization for Economic Co-Operation and Development
P2P Digital Person to Person
RBV Resource Based View Theory
RDT Revenue Diversification Theory
RoK Republic of Kenya
SPSS Statistical Package for Social Science
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CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Revenue collection is very important for every government in the world as it enables
the government to acquire assets which are not liable to debt and which the
government uses to develop its economy (Ngotho & Kerongo, 2014). More
importantly, high revenue collection performance is vital to promote efficiency in the
service delivery and economic development at the counties. However, studies and
other journal publication have shown that most governments face serious challenges
in their revenue collection performance (Balunywa, 2014), where governments are not
able to collect sufficient funds to cover their budget expectations. For years revenue
collectors have not been channeling all the amount of money they collect to the
County Treasury (Ngotho & Kerongo, 2014).
For instance, revenue collection staff may collude with the revenue payers to avoid
paying the prescribed charges and instead bribe the collector to shield against paying
the correct amount to the City County. The net effect could be a bigger loss, which
would deter county economic development (Mutakha, 2011; Mwangi, 2010), growth
(Olatunji, 2009), and improved service delivery (Namoit, 2012). To eliminate or
significantly reduce corruption, achieve the county financial objective and simplify
payments (Abor, 2004), the Electronic Payment (E-Payment) has been introduced
(Njanja, 2014). In fact, the world has witnessed an upsurge of Electronic Payment
(Njanja, 2014) system meant to facilitate elimination of losses of revenue through
corruption (Balunywa, 2014) and simplify payments (Abor, 2004).
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E-payment is a payment by direct credit, Electronic Transfer of credit card details, or
some other electronic means, as opposed to payment by cheque and cash. (Agimo,
2004). E-payment is a payers transfer of a monetary claim on a party acceptable to
the beneficiary, a financial exchange that takes place online between the buyer and the
seller. The process of cashless transactions plays a big role in ensuring that the
County Governments collect enough revenue to fund its projects.
1.1.1 E-Payment System
E-payment has been designed to help individual customers and companies as well as
the banks itself in eliminating or reducing some of the problems inherent in the
settlement and payment process. Customers can pay their bills without having to
actually move to the banks premises (Wahab, 2012). They may also have access to
their account information and even transfer money to other accounts in the comfort of
their homes.
When it comes to making electronic payments, there are a handful of options
available to people, primarily: checks, Electronic Funds Transfer (EFT), Automated
Teller Machine (ATM), cards (debit, credit and smart), Electronic Purses/Wallets,
mobile money (Mobile Banking and Money Transfer), Telephone Banking, Personal
Computer Banking (Home Banking), Digitized 'E-Cash' Systems, Electronic Cheque,
Online/Internet Payments and Digital Person to Person (P2P) Payments (Wahab,
2012). The content of P2P exchange is usually the form of digital financial instrument
such as encrypted credit card numbers, electronic checks, or digital cash that is
backed by a bank or an intermediary, or by a legal tender.
According to Pariwat & Hataiseere (2004), for the achievement of effective and
efficient retail payment systems, the following considerations that shape the choice of
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payment method for consumers and businesses should be taken into account; the
convenience, reliability and security of the payment method, the service quality,
involving such features as the speed with which payment are processed; the level and
structure of fees charged by financial institutions; taste and demographic; and
technological advances which have improve the speed, convenience and flexibility of
different payment systems. E-payment is convenient, safe, and secure methods for
payment of bills and other transactions by electronic means such as card, telephone,
the Internet, Electronic Fund Transfer. Electronic payment gives consumers an
alternative to paying bills and debts by cash, cheque and money order (Wahab, 2012)
1.1.2 Revenue Collection in County Governments
Revenue collection is very important for every County Government globally as it
enables the government to acquire assets which are not liable to debt and which the
government uses to develop its economy. So, revenue is collected by the government
upon its citizens for support or for the purpose of facilitating the Service Delivery in a
country (Aamir et al., 2011). It is neither a voluntary payment by the tax payer nor
like a donation. Rather it is an enforced payment to the government (Garner, 1999).
County Governments therefore collect revenue for investment, Socio-Economic
development and growth at the grassroots (Olatunji, 2009) and service delivery. Thus
collection of adequate revenue by County Government is essential for economic
development, growth, and improved service delivery at the County level (Clegg &
Greg, 2010).
So, sound revenue system for county governments is a vital pre-condition for the
success in promoting efficiency in the service delivery and economic development at
the counties (Ngotho & Kerongo, 2014). For most developing countries, revenue
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collection goes hand-in-hand with economic growth and the revenue is the lifeblood
for governments to deliver essential services and to make long-term investments in
public goods (Organization for Economic Co-Operation and Development [OECD],
2008).
However, revenue collection in the developing economies like Kenya has not always
been as effective as it should be. They face various challenges in their revenue
collection performance (Owuor et al., 2013), where counties are not able to collect
sufficient funds to cover their budget expectations and thereby causing huge local
revenue collection gaps (ICPAK, 2014; Onyango, 2013). Ismail (2013) indicates that
the main challenges in revenue collection rotate around revenue collection system.
The performance of revenue collection in County governments is deteriorated by
corrupt practices issues which result into tax evasion through corruption by corrupt
revenue collection officers (Balunywa, 2014). Completely avoiding tax evasion,
ensure total revenue collection performance (high revenue collection compliance).
Elimination of corruption would ensure that the county collects all the projected
revenue and thereby increasing the revenue collection performance.
1.1.3 E-Payment and Revenue Collection
Though the major aim of Revenue Collection for most governments is to stimulate
and guide the economic and social development of the country, there are several
determinants for an effective realization of the exercise. As such County governments
are successfully implementing E-payment to overcome the challenges of the
corruption earlier experienced by the former city, municipal and county and therefore
enhance optimal revenue collection. According to Balunywa et al. (2014), the use of
Information Communication Technology (ICT), such as e-payment, would
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considerably increase the revenue collection as it helps tracking noncompliant
revenue payers.
Thus, the implementation of e-payment is paramount in ensuring optimal revenue
collection. Various ICT based revenue collection applications are available for use in
the modern world today. These are simply referred to as Electronic Payment (E-
payment) system (Ndunda, Ngahu & Wanyoike, 2015), integrated into revenue
collection. The E-payment system is accessible online through Point of Sale (PoS)
terminal devices and physical agents (such mobile phones, debit cards, agents, mobile
money). The E-payment is intended to help the companies using it to eliminating or
reducing and minimizing corruption (some of the problems inherent in the settlement
and payment process), by allowing customers to pay their bills without having to
actually move to the firm premises. The customers have access to their account
information and even transfer money to other accounts in the comfort of their homes
(Wahab, 2012).
1.1.4 Nairobi County
Promulgated new constitution of Kenya (Republic of Kenya [Rok], (2010) lays the
basis of devolution of funds in Kenya (Owuor, et al., 2013) to the 47 County
Governments (Namoit, 2012). This constitution empowers counties to collect revenue
and incur expense locally (Owuor, et al., 2013) on economic development, economic
growth and improved service delivery at the county level (Ngotho & Kerongo, 2014)
without relying on the National Government (Muriisa, 2008).
The Nairobi County government was the first county to adopt e-payment system in
Kenya, which went live to bring efficiency and convenience in revenue collection
(Njanja, 2014). In Nairobi City (which is within Nairobi County), users of city
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parking space can make payments using mobile money, debit cards, over-the counter
payments at 29 partner banks and at independent agent stalls spread across the city.
The agents send money on behalf of a client but issue a receipt to confirm the
transaction. All the digital payment options offered are linked to the system through
the Nairobi County e-wallet that is created on signing up. No charges are incurred
when making payments through independent agents, the e-county mobile app and
using mobile money, but banks offering the service may impose a charge on
transactions.
The e-payment system in Nairobi County is used for parking fees, single business
permit, rent and land rates (Mueke, 2015). Revenue collection is very important for
every county government as it enables the government to acquire assets which are not
liable to debt and which the government uses to develop its economy. However,
revenue collection in the developing economies in counties has not always been as
effective as it should be (Ngotho & Kerongo, 2014).To eliminate or significantly
reduce corruption, the e-payment project provides an alternative means of payment of
county revenue that do not require cash to exchange hands (Kinyanjui & Kahonge,
2013)
1.2 Research Problem
The enactment and adoption of Constitution of Kenya 2010 saw the devolvement of
several public services to the County Governments (Rok, 2010), including revenue
collection by these governments to finance their operations and/or functions (Ndunda
et al., 2015). The County Governments get their revenue from taxation, permit fees,
cess, license fees, parking fees and other sources (Odd-Helge, 2006). When the
County Governments fail to optimally collect requisite revenues, the public will
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negatively be affected by being denied vital services, a challenges that would
drastically affect the devolution process (Fjeldstad & Heggstad, 2012). On the
contrary, a sound revenue system for devolved governments sets the pace for the
success of fiscal decentralization (Bird, 2010), since it is the avenue for administrative
accountability by empowering communities. According to Muema et al. (2014),
modern e-payment services, such as smart parking service, provide convenience in
revenue collection through use of devices such as mobile devices in the parking
industry, highly improve revenue collection performance and gain a competitive edge.
(British Parking Association [BPA], 2012; Wang & Wenbo, 2013).
However, there is a rising challenge as far as adoption of e-payment adoption by
County Governments in Kenya is concerned. Since this is a new technology in Kenya
and there are limited studies and information about online banking in Kenya. So, the
adoption of online payment needs to be treated with caution (Muema, et al., 2014).
For instance, the Nairobi County Government, the e-payment introduced the e-
payment to enhance its revenue collection and to check theft of county revenue by
corrupt officials. Although the e-payment revenue from business licenses have grown
60 percent (Mueke, 2015), the system is yet to bear fruit because some officials are
sabotaging it. Most of the fees the government charged still ended up in the pockets of
county government staff. For instance, it had been revealed that half of citys revenue
cash does not reach the county treasury but ended up in the pocket of the county
revenue collectors (Muchemi, 2015). So, the e-payment system faced the challenge of
some officers, did not welcome it, colluding with revenue payer to defraud the county.
As results, the county achieved only 24.34 per cent of the revenue targets for 2014-15
by mid-year. The county therefore needed to improve targeting revenue collection
mechanisms and systems to reach collection targets (Wekesa, 2015) aimed at
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expanding the revenue base and increasing tax compliance through integration of
proper technology in revenue collection. The performance of the e-payments
achievement of its core objective in performance of revenue collection was
characterized by; level of compliance to budget estimates, and rate of adoption by the
payers (Kinyanjui & Kahonge, 2013)by the payers (Kinyanjui & Kahonge, 2013) and
level of penalty recovery.
However, studies (such as by; Muema et al. (2014); Kinyanjui and Kahonge (2013);
Wahab (2012); Rocheleau and Wu (2005)) had not significantly addressed the effect
of e-payment system on revenue collection by the Nairobi City County Government.
This is to say that past studies hade not sufficiently addressed the factors of e-payment
system affecting revenue collection by the Nairobi City County Government, a
knowledge gap. It is in this light that this study sought to addresses, level of
compliance to budget estimates, and rate of adoption by the payers (absorption of the
e-payment by the payers, resulting from the e-payments system as factor influencing
performance of revenue collection by the Nairobi City County Government, as it
filled the existing knowledge gap, in an effort to recommend on ways to ensuring
optimal revenue collection. The study attempted to establish whether the E-payment
affect revenue collection in Nairobi County.
1.3 Objectives of the Study
The objective of the study was to determine the effect of e-payment system on
revenue collection by the Nairobi City County Government.
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1.4 Value of the Study
The study findings and recommendation would be beneficial to County Governments,
National Government, and the citizens of both governments. The Nairobi City County
government would benefit by gaining information on how to ensure effective e-
payment that would enrich the revenue collection by the government hence achieve
the objectives of the county and propel socio-economic development through
effective revenue collection performance. The potential success story of Nairobi
County would also motivate other peer Counties to emulate this trend.
The findings of the study would enable the National Government to recognize the role
of County Governments in creating effective strategies to enhance revenue
generation. The National government and its agencies might gain by obtaining
information to enable them put in place policies to support the achievement and
sustainability of devolved funds for socio-economic benefit through effective revenue
collection mechanisms.
The study added knowledge in the public-private devolution and revenue allocation in
a devolved government, making it useful to academicians and scholars. The findings
from the study would contribute to the body of scholarly knowledge in e-payments as
a tool to optimal revenue collection. The study was a window opener for more
research in the area of effective e-payment systems that would enhance high revenue
collection performance, making it useful to researchers and scientists.
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CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter presents a review of literature pertinent to the study as presented by
various researchers, scholars, analysts and authors. It summarizes literature that has
been reviewed for the purpose of the study with regards to E-payment and revenue
collection performance. The literature covers an empirical review, which is an
overview of the literature of past studies, findings and recommendation showing the
research gap to be filled. It also has a review of theoretical literature (theoretical
framework). Lastly, the conceptual framework of the study and summary is provided.
2.2 Theoretical Review
The present study reviewed various theories e-payment and revenue collection. The
main theories reviewed include the Revenue Diversification Theory (RDT), Resource
Based View Theory (RBV), and The Expediency Theory of Taxation.
2.2.1 Revenue Diversification Theory (RDT)
Bernelot (2013) suggest that revenue diversification, i.e. an equal balance between
multiple incomes sources in the revenue portfolio of nonprofit organizations usually
lead to increased financial stability. In this study the revenue diversification strategy
that stems from the financial Modern Portfolio Theory, will be applied as the second
potential revenue strategy for county governments. According to Bernelot (2013), the
revenue diversification theory focuses on whether a more diversified, well-balanced
revenue portfolio increases financial stability for county by reducing revenue
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volatility. There is a positive effect of the strategies adopted in raising revenues on
finances. Commercial and market-oriented revenue strategies have been found to have
a positive effect on revenue collection performance.
2.2.2 Resource Based View Theory (RBV)
According to Martinez-Costa et al., 2008), the resource based view theory is theory,
which has become one of the most widely used theoretical frameworks in the
Strategic Management (Newbert 2007), holds that the success of a firm is based on
the resources and capabilities it holds in control which may become a source of
competitive advantage. Scholars have always related dynamic capabilities to Resource
Based View (RBV) and in the process defined it as the key strategic and
organizational routine used by the Managers to alter their resource bases to generate
new value-creating strategies (Helfat and Peteraf, 2003).
Dynamic capabilities are the buffer between resources of the firm and the shifting
business environment, which enhance sustainability of its competitive advantage
(Protogerou et al 2008; Ambrosini et al, 2009). This a sentiment that was held firmly
onto by Barney (1991), who posits that for a resource to yield competitive advantage,
it must be valuable, rare among competitors, imperfectly imitable, and should not be
substitutable by competitors. According to Fahy (2002), the role of company
managers is crucial to firm-level competitiveness, since their perceptions of the
circumstances dictate the selection of resources to be exploited, developed and
protected (Sirmon et al., 2007).
As regards e-payments, the adoption is based on internal factors to enhance efficiency
and improve processes, the knowledge and expertise gained (Somsuk, 2010), which
actually creates opportunities for real competitive advantage (Alcina & Inaki, 2013).
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An organization adopting e-payments would adequately improve the revenue
collection performance for the county. However, if the motivation for adoption of the
e-payments system is solely external, the organization implementing the system
would meet the pressures and might not improve revenue collection (Martinez-Costa
et al., 2008). The present study find this theory very beneficial in that the theory
revenue collection performance measures are used as the indicators to assess the
success of the county in achieving stated strategies, objectives and critical success
factors (Hass et al. 2005).
2.2.3 The Expediency Theory of Taxation
The expediency theory of taxation states that every tax revenue collection proposal
must pass the test of practicability, which must be the only consideration when the
county government is choosing a revenue collection proposal. Proposition is that the
economic and social objectives of the government should be treated as irrelevant,
since it is useless to have a tax which cannot be levied and collected efficiently.
However, there are pressures from economic, social and political groups. Every group
tries to protect and promote its own interests and county government are often forced
to reshape tax structure to accommodate these pressures (Bhartia, 2009).
In addition, the administrative set up may not be efficient to collect the tax at a
reasonable cost of collection. Taxation provides a powerful set of policy tools to the
authorities and should be effectively used for remedying economic and social ills of
the society such as income inequalities, regional disparities, unemployment, cyclical
fluctuations and so on (Bhartia, 2009). The expediency is relevant to the present study
in that, it seeks to explain influence of administrative set up, such as efficient e-
payment system, in revenue collections by County Governments.
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2.3 Determinants of E-payments performance
The study borrows heavily from the RBV and the expediency theory of taxation. The
RBV is of the indication that an institution adopting e-payments ends up adequately
improving its revenue collection performance for the county. As a requirement, the
county would need to implement the system that would overcome external pressures
and eventually improve revenue collection. The expediency theory of taxation
emphasizes on the need for efficient administrative set up to collect enhance high
revenue collection performance. One of these set up system include the adoption of an
effective and efficient e-payment system.
The study therefore developed a concept which proposes that performance of the
revenue collection in Nairobi County is influenced by e-payments system. The main
factor contributing to performance of the revenue collection is the efficiency of the e-
payments characterised by; compliance to budget estimates and level of adoption (rate
of absorption of e-payment) by the payers (Kinyanjui & Kahonge, 2013).
This study therefore regards compliance to budget estimates and rate of adoption as
the independent variables (IV) while performance of the revenue collection as the
dependent variable (DV).
2.4 Empirical Studies
The present study reviewed various global, regional, and local studies on effects of e-
payments on revenue collection performance. For instance, a study by Ndunda et al.
(2015) revealed that level of tax payment (compliance) affected optimal revenue
collection. The study a regression model, which established am marginal relationship
between tax compliance and revenue collection. It was established revenue clerks and
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tax officials were corrupt and the staff lacked adequate training facilities and
opportunities led to inexperienced employees in the County Government. The
recommendations by the study were that county governments needed to increase
competence of revenue clerks and other County officials and attract skilled and
competitive employees for the purpose of increasing revenue collection performance.
The study fell short of identifying other systems for improvement of revenue
collection, which the current study sought to establish.
A study by Kinuthia and Akinnusi (2014) found that the barriers to e-commerce
development were; Economic, Social, Telecommunications infrastructure barrier,
legal/political, individual and organizational barriers. The first three variables are
positively but moderately correlated with each other, while with the exception of
telecommunications infrastructure, others are poorly correlated with individual and
organizational barriers. As expected, the latter two correlate moderately with each
other. The regression analysis suggests that telecommunications infrastructure barriers
hold the key to unlocking the expansions of e-commerce in Kenya, as a decrease in
this area would have multiplier effects on the other barriers. The study recommended
that the government has a vital role to play in reducing the first four barriers, which
are all external to organizations, while at the organizational level, organizations
should set (ecommerce) goals and objectives that are well spelt out; build human
organizational capital structures to facilitate good working relationships and provide
training on e-commerce to minimize resistance and blocking of new changes in
organizations.
A study by Nyongesa (2014) recommended for decentralized ICT based tax collection
systems and offices in the sub-counties in adoption of differentiation strategies in
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revenue collection role in Mombasa County. Among other strategies was; the
remission of cash to the nearest bank and not to the cash offices, improved tax rates,
widened the tax base, devolution of tax base to county government departments,
improved controls on management of cash. However, the use of automation of
revenue collection system would widely increase the revenue collection. The study
recommends that the County Government of Mombasa needs to automate its revenue
collection, through partnering with the regional banks whereby the tax payers will be
given option of paying county fees through mobile money or branded credit cards via
new revenue collection system. The study also recommends the development of
revenue management capacity by training qualified personnel, established proper
revenue management mechanisms), so as for the County to provide quality services to
the people.
Muema et al. (2014) study indicated that Nairobi county and the parking industry
were generally ready to adopt the mobile parking management system, although as
with any technological adoption it was bound to face some barriers which could be
overcome. A study by Kinyanjui and Kahonge (2013) revealed that the use of e-
payment by mobile phone based technology in mobile parking increase parking fees
collection. However, there is need to develop an application to control traffic flow,
allocation and availability of parking space within the streets of Nairobi, which is a
major concern to every motorist.
Otieno et al. (2013) study found that there is a relationship between Information
Systems (IS) and both efficiency and effectiveness in revenue collection, there is a
strong positive relationship between Internal Control Systems and revenue collection.
However, resistance to change by the council staff was derailing the full
15
implementation of IS. The study is useful to the present study for full integration of
IS, and more specifically e-payment system, in revenue collection. A study by Wahab
(2012) established that the adoption and use of the e-payment system was found to be
low mainly due to the inadequate availability of point of sale terminals at shopping
points among others. These are affecting the perceived ease of use even though the
perceived usefulness of e-payment systems is strongly present among individuals and
businesses. The study recommended customer education and wide spread deployment
of e-payment point of sale terminals to merchants.
Kayaga (2010) study showed that new technology alone is not sufficient if the
government does not recognize the need for skilled tax officials. The scholar further
avers that, effective tax administration requires qualified tax personnel with requisite
skills to maintain these systems and operate them to their fullest potential. Simiyus (
2010) study indicated established that, tax officers accepted bribes when offered to
reduce tax liability and demand for bribes when they visited, a situation that hugely
affected revenue collection in Nairobi County, Kenya. Gikandi and Bloor (2010)
study found that some factors tended to inhibit the adoption of e-commerce in Kenya.
These include; lack of resources, constant change in technology, time available to
develop systems, the lack of spread of accessibility and use of Internet by the general
population, especially in the rural areas. Organizational, governmental and
developmental issues were also identified as constraints to the adoption of e-
commerce in the banking sector in Kenya. The study observed that e-banking
introduced new risks requiring new risk management strategies, including Internet
security, customer and legal related issues. The study concluded by emphasizing the
role of Kenya Government in achieving a secure environment for e-banking activities
16
by; putting in place clear laws, rules and regulations and providing relevant technical
training to the regulatory authority to empower them to enforce the laws effectively.
The study by Rocheleau and Wu (2005) found that some of the most challenging e-
government applications involve allowing citizens and other customers to conduct
financially related transactions electronically with governments on a 24-hour, 7-day a
week basis. Generally, usage rates are low, demonstrating that there is a gap between
the potential and reality of this form of e-government. Statistical tests showed that
convenience fees have a negative effect on usage rates. The governments can affect
usage rates by providing incentives to employ online transactions and/or penalties for
making payment by manual methods. Governments may also improve their usage
rates by making their websites and applications accessible and easy-to-use as well as
by extensively marketing these applications.
A study by Moulder (2005) showed that most county governments had plans to offer
online payment of utility bills, fees and fines. Norris & Moon (2005) point out that the
percent of governments adopting e-payments financial transactions should have
jumped by 32 per cent between 2000 and 2002 but the actual increase was only 6.5
percent. There are significant obstacles to offering online services which included;
lack of IT staff and financial resources; issues of security and convenience. This
finding could reflect their interest in developing online transaction systems. The study
by Kaburia (2004) found out that lack of suitable e-Payment alternatives was a critical
challenge to the growth of e-commerce in Kenya. An e-Payment model suitable for
individuals in Kenya was proposed. Perlman (2001) established that the use of third
party vendors has allowed counties without large ICT resources to implement an
online ticket-paying system. This shows that small and moderately-sized cities can
17
experience success through use of vendors and cooperative efforts of pooling
resources.
2.5 Summary of Literature Review
The study reviewed various literature on theories relate to e-payment and revenue
collections. The study reviewed theories found useful to the present study which
were; RDT, RBV and the expediency theory of taxation. RDT indicates that there is a
positive effect of the strategies adopted in raising revenues, such as the e-payment
system, on finances, The RBV shows that adoption of modern system in revenue
collection, such e-payments, adequately improves the countys collection
performance. The expediency theory of taxation indicates that efficient administrative
set up, such as adoption of an effective and efficient e-payment system, highly boost
collect revenue collection performance.
The study by Ndunda et al. (2015) revealed that level of tax payment (compliance)
affected optimal revenue collection but failed to show how use of modern collection
system such as e-payment would influence revenue collection performance. Kinuthia
and Akinnusi (2014) study found that telecommunications infrastructure barrier was
one of barriers to effectiveness of e-commerce but fell short of showing the impact of
e-commerce on revenue collection. The study by Nyongesa (2014) found that the use
of automation of revenue collection system would widely increase the revenue
collection but it was not clear how the revenue collection would be influence by e-
payment. In fact the study recommends that the County Government of Mombasa
needs to automate its revenue collection without specifying the system to use.
Muema et al. (2014) study was vocal in agitating for e-payment in Nairobi County
and the parking industry using mobile parking management system but the study was
18
cognizant of the barriers which could be overcome. The study did not give the
specific mechanisms of overcoming these barriers, which the current study will do.
The study by Kinyanjui and Kahonge (2013) revealed that the use of e-payment by
mobile phone based technology in mobile parking increased parking fees collection. It
recommended for development of an application to control traffic flow, allocation and
availability of parking space within the streets of Nairobi but failed to handle the
penalty payment mechanism, an issues the present study will handle carefully.
Otieno et al. (2013) study found that IS enhanced both efficiency and effectiveness in
revenue collection but did not touch on e-payment system as means of increasing
revenue collection and eliminating corruption. The study by Wahab (2012)
established that the adoption and use of the e-payment system was found to be low
mainly due to the inadequate availability of resources Gikandi and Bloor (2010) study
found that lack of resources tended to inhibit the adoption of e-commerce in Kenya.
The study by Rocheleau and Wu (2005) found governments can affect usage rates of
e-payment by providing incentives to employ online transactions and/or penalties for
making payment by manual methods but did not show the effectiveness of the e-
payments in risk management. A study by Moulder (2005) showed that most county
governments had plans to offer online payment of utility bills, fees and fines. Norris
& Moon (2005) point there is interest by governments to use e-payment systems. The
study by Kaburia (2004) found out that lack of suitable e-Payment alternatives was a
critical challenge to the growth of e-commerce in Kenya. Perlman (2001) established
that the use of third party vendors has allowed counties without large ICT resources to
implement an online ticket-paying system.
19
Although the studies reviewed provided very useful information to the present study
on e-payment and revenue collection, very few have addressed the efficiency of
revenue collection as being influenced by; penalty payment system, clamping system,
and control within the e-payments system in Nairobi County. This is knowledge that
necessitated the need for this study
20
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This chapter provides an explanation of the research design and the methodology that
was applied in carrying out the research study and justification for using a particular
research design. It also describes the characteristic of the population which was used
in the study, detailed description of sampling methods to be used, procedures, data
collection instruments and the procedure of data collection and finally describes the
appropriate data analysis methods.
3.2 Research Design
Orodho (2003) defines research design as the scheme, outline or plan that is used to
generate answers to research problems. A research design can be regarded as an
arrangement of conditions for collection and analysis of data in a manner that aims to
combine relevance with the research purpose. The study adopted descriptive research
design since it describes the state of affairs as it is. Descriptive design is used when
collecting information about peoples attitudes, opinions, habits and other possible
behavior (Orodho and Kombo, 2005). The study aimed at describing the state of
affairs of e-payments on revenue collection performance as it is and therefore
descriptive research design was considered as the most appropriate for this study.
The characteristics of officers from the Nairobi City County was the focus of
descriptive research. It provided a knowledge base which can act as a springboard for
other types of quantitative research methods. This involved the collection of data that
provided an account or description of the situations. Instruments used to obtain data in
21
descriptive studies included researcher own tool. This type of research described what
existed and might have helped to uncover new facts and meaning. The purpose of
descriptive research was to; observe, describe and document the aspects of a situation
as it naturally occurs (Polit & Hungler 1999).
3.3 Population and Sample
Target population refers to the entire group of individuals or objects to which a
researcher is interested in generalizing the results of the study and having observable
same characteristics (Mugenda & Mugenda, 2003). The population was the 18
Nairobi County departments.
Samples are always subsets or small parts of the total number that could be studied
(Orodho & Kombo 2002). The study used census since the target population was
manageable and easily accessible. All the 18 Nairobi County departments participated
in data collection.
3.4 Data Instruments and Collection
Data was collected from secondary sources using desk checking method. The main
source of secondary information was published guides, journals, reports and
information from internal sources. Secondary data was also obtained from existing
documents such as financial statements and journals. The study collected data on the
budget to estimates in FY 2013/2014 as well as budget to estimates in FY 2014/2015
from all 18 departments of Nairobi City County. Further, the study also collected data
on revenue collected in FY 2013/2014 as well as revenue collected in FY 2014/2015
for each of the 18 departments in Nairobi City County. The data representing the e-
payment was calculated as the difference between level of compliance to budget
22
estimates in FY 2014-2015 and level of compliance to budget estimates in FY 2013-
2014 for each department. The data was summarized into the main expenditure and
data collection vote heads.
3.5 Pre-Testing
The study conducted a pre-testing of the research instrument before administering it,
in an attempt to test the reliability and validity of the research tool. The exercise
enabled the study to identify possible problems; clarify on the instrument and
appropriateness of the language during the main study. The pilot also assessed the
relevance of the research objectives; test the respondents understanding of the
research tool and any potential problems. It was also possible to establish how long it
would take to complete the questionnaires. The pre-testing aims at determining the
reliability of the research tools including the wording, structure and sequence of the
questions. It will also test for validity of the research instrument. The pre-test is
conducted to detect flaws and weakness in design and instrumentation and to provide
data for selection of a probability sample.
3.5.1 Validity
Validity, which is the degree to which result obtained from analysis of the data
actually represents the phenomenon under study, was done to test the tool for
accuracy and meaningfulness using content validity test. This measured the degree to
which data collected using a particular the tool represented the specific domain of
indicators/content of efficiency of irrigation water use. The assessment of content
validity was carried by two professional experts; e-payment expert and revenue
collection expert. The e-payment consultant, who is the supervisor, assessed the tools
to establish what concept the instrument was trying to measure. The revenue
23
collection expert determined whether the sets of items can accurately measure the
performance of revenue collection. The Experts were requested to comment on the
representativeness and suitability of questions and give suggestions on the structure of
the tools. This helped improve the content validity of the data that was collected.
3.5.2 Reliability
Reliability was conducted to a measure of the degree to which research instruments
yield consistent results (Mugenda & Mugenda, 2003; Cooper & Schindler, 2008). The
data was tested for reliability to establish issues such as data sources, methods of data
collection, time of collection, presence of any biasness and the level of accuracy. The
test for reliability established the extent to which results were consistent over time.
The researcher improved the instrument by reviewing or deleting inconsistent items
from the instrument. To test for reliability, the study used the internal consistency
technique.
3.6 Data Analysis
Data Sampling, classification and analysis was done in order to come up with clear,
understandable, up-to-date, genuine and reliable information aimed at achieving
objectives of the research study. The collected data was thoroughly examined and
checked for errors and tabulated accordingly. The study used descriptive statistics to
analyze the data to establish patterns, trends and relationships. The various
representation of information include: figures, tables, and narrative.
The conceptual model was Y = f(X1, X2)
Y = Performance of revenue collection , measured in terms of the difference
between Level of compliance to budget estimates in FY 2014-2015 and
24
Level of compliance to budget estimates in FY 2013-2014 (Level of
compliance to budget estimates in FY 2014-2015 - Level of compliance to
budget estimates in FY 2013-2014)
X1 = Level of compliance to budget estimates in FY 2013-2014, measured in
terms of percentage of revenue collection to budget estimates
The study data was collected from secondary sources of Nairobi County financial
statements and reports. To measure the performance of revenue collection (RV), the
study collected data on revenue collected in the Fiscal Year (FY) 2013/2014 and
compare this to the revenue collected in the FY 20145/2015. The study then
established the rate of growth or decline in revenue collection, performance of
revenue collection.
The study also established the growth or decline in compliance to budget to estimates,
level of compliance to budget estimates by obtaining the rate of compliance to budget
to estimates in FY 2013/2014 and rate compliance to budget to estimates in FY
2014/2015. The performance of revenue collection was the difference between the
two rates, rate of compliance to budget to estimates in FY 2013/2014 and rate of
compliance to budget to estimates in FY 2014/2015.
Thereafter, regression was carried out to estimate a model to explain performance of
Revenue Collection in terms of; level of compliance to budget estimates, rate of
adoption, and level of penalty recovery resulting from the e-payments. The study
carried out multiple regression analysis to establish the relationship between the
25
independent variables (predictor) and dependent variable (response) and measure the
strength of the relationship based on the regression model below. The regression was
achieved using multiple regression analysis to establish the nature of the relationship
based on the model;
Y 0 1 X 1 2 X 2 (3.1)
Where:
0 = is a constant, which is the value of dependent variable when all the
independent variables are 0
1 - 2 = Regression coefficients of independent variables or change induced by
X1 and X2
= Error of prediction
Y = Performance of revenue collection, measured in terms of the difference
between Level of compliance to budget estimates in FY 2014-2015 and
Level of compliance to budget estimates in FY 2013-2014 (Level of
compliance to budget estimates in FY 2014-2015 - Level of compliance to
budget estimates in FY 2013-2014)
26
The values for level of compliance to budget estimates were regressed against the
performance of revenue collection to estimate the study model. The study used IBM
Statistical Package for Social Science (SPSS) ver 20.0 software.
27
CHAPTER FOUR
DATA ANALYSIS, RESULTS AND DISCUSSION
4.1 Introduction
This chapter contains data analysis, results, and discussions from the analysis of the
collected data. The results from analysis were presented using tables and
interpretation in form of narratives. The study analysed the data using descriptive
statistics and thereafter inferential analysis. Further, the chapter contains discussions
of the research findings. When discussing the results, the study referenced the
literature reviewed in chapter two, which was both theoretical literature and empirical
studies.
4.1.1 Study Response
The study sample population was chose to use 35 ISO certified government
institutions and 35 non certified institutions as the, which translated to sample
population of 70 respondents. The entire study sample population responsed to the
study by availing all the required data for 2014-2014 FY and 2014-2015 FY. So, the
response rate was also 100%. The response was very high from the words of
Mugenda and Mugenda (2003), who classified response variously. According to
Mugenda and Mugenda (2003), a response rate of 50% is adequate, any response not
exceeding 60% and greater than 50% is good, and response rate above 69% is very
high. The response of 100% was therefore very good and would produce useful data,
further, all the areas of data collection were represented.
28
4.2 Descriptive Analysis
The study used the study objective to analyze the data and considered three variables,
level of compliance to budget estimates in FY 2013-2014 (Independent variable),
level of compliance to budget estimates in FY 2014-2015 (Independent variable) and
change in performance of revenue collection (Dependent variable). The study
objective was to evaluate the effects of e-payment on performance of revenue
collection in Nairobi City County. First, the study analyzed the data using descriptive
statistics. The study could not obtain data for FY 2013/2014 because there was change
of hand from the former Nairobi City Council to the Nairobi City County
Government, after the promulgation of the new constitution and creation of County
Governments. The other data that was obtained was for the FY 2014/2015, after the
introduction of the e-payment system by the Nairobi City County in some of its
revenue collection functions. It was not possible to use other data for detailed
analysis.
4.2.1 Revenue Collection performance before and After E-Payment
The study first assessed the performance of revenue collection before the introduction
of e-payment and after the introduction of e-payment. The study sought to establish
whether there was significant change in the performance of revenue collection due to
e-payment system. This was in an effort to establish whether the dependent variable,
e-payment affected the performance of revenue collection in Nairobi City County.
The study analysed the performance of revenue collection data for each financial year
FY; 2013/2014 and 2014/2015. The study also obtained the performance of revenue
collection, expressed as percentage for each year where the FY performance was
expressed as level of compliance to budget estimates = Revenue collection for the
29
FY*100/ the Budget Estimates for the FY. This was later expressed a percentage to
simplify for interpretation and the results were recorded in Table 1.
Table 1: Analysis on Revenue Collection for FY 2013-14 and FY 2014-15
PEFORMANCE PEFORMANCE CHANGE IN

REVENUE FY 2014-2015 % FY 2013-2014 % PERFORMACE %
ADMINISTRATION DEPARTMENT 98.01 94.25 3.76
DECENTRALIZATION 98.23 98.58 -0.35
COMPLIANCE, FIRE SERVICES AND
DISASTER MANAGEMENT 73.72 65.13 8.59
LEGAL DEPARTMENT 98.87 18.56 80.31
INSPECTORATE 95.87 63.82 32.04
FINANCE 98.68 72.13 26.56
HEALTH 96.17 135.36 -39.19
PROCUREMENT 97.12 107.95 -10.83
WATER,ENERGY,FORESTRY,ENVIRONMENT
& NATURAL RESOURCES 108.74 54.43 54.31
CITY PLANNING DEPARTMENT 96.23 62.87 33.36
HOUSING DEVELOPMENT DEPARTMENT 100.41 49.10 51.31
VALUATION 90.16 69.45 20.71
HOUSING SECTION 95.48 91.91 3.57
PUBLIC WORKS AND INFRASTRUCTURE 77.04 66.83 10.22
EDUCATION, YOUTH AFFAIRS, SPORTS
CULTURE & SOCIAL SERVICES 99.85 64.28 35.58
EDUCATION 99.28 75.65 23.63
TRADE, INDUSTRIALIZATION, CO-
OPERATIVE DEVELOPMENT AND TOURISM 89.28 101.46 -12.18
AGRICULTURE ,FORESTRY & NATURAL
RESOURCES 104.23 68.77 35.46
AVERAGE 95.41 75.59 19.82
Source: Research Data (2015)
Table 1 showed that on the average performance of revenue collection was higher in
FY 2014-15 than in FY 2013-14. In FY 2014-15 the average performance of revenue
collection was 95.41% and in In FY 2013-14 the average performance of revenue
collection was 72.59%.From these results it was also shown the performance of
revenue collection increased by 19.82% for the FY 2013/2014 to FY 2014/2015. Most
departments showed higher performance of revenue collection in FY 2014/2015 than
in FY 2013/2014.
30
Legal department recorded the highest increase revenue collection performance of
80.31%, followed by water, energy, forestry, environment & natural resources
(54.31%), then housing development department (51.31%) and then education, youth
affairs, sports culture & social services (35.58%). The next was agriculture ,forestry &
natural resources (35.46%) followed by city planning department (33.36), inspectorate
(32.04%), finance (26.56%), education (23.63%), valuation (20.71%), public works
and infrastructure (10.22%), compliance, fire services and disaster management
(8.59%) and administration department (3.76%). the housing section recorded the
least increase in revenue collection performance of 3.57%,
However, other revenue sources showed that they underperformed in FY 2014-2015
as compared in FY 2013-2014. This was indicated by a negative change in revenue
collection performance. Health Showed the highest underperformance of -39.19%, the
next was trade, industrialization, co-operative development and tourism (-12.18%) as
procurement (-10.83%) increase and the, decentralization (-0.35%).
The results in Table 4 indicate that the e-payment considerably influenced the revenue
collection performance in Nairobi County between the FY 2014/2015 and 2013/2014.
The e-payment considerably influenced the revenue collection performance in Nairobi
County between the FY 2014/2015 and 2013/2014. However some revenue source
performed poorly after introduction of e-payment system, a situation attributable to
the e-payment system not being implemented in some areas. The most pronounced
application of e-payment in the Nairobi County government was in parking and rate
collections.
31
4.2.2 Peak Period in Performance of Revenue Collection
The further evaluated the maximum, minimum and average revenue collection value
for FY 2014-2015 and 2013/2014, using descriptive statistics. The results obtained
were captured in Table 2.
Table 2: Analysis by Revenue Collection Performance Peak Period
FY 2014-2015 FY 2013 -2014 CHANGE

Statistics % % %
Average Performance 95.40 75.59 19.83
Lowest Performance 73.72 18.56 -39.19
Highest Performance 108.74 135.36 80.31
The results in Table 2 showed that the average performance of revenue collection
increased by 19.83% from 75.59% to 95.40% in the FY 2013/2014 and FY 2014/2015
respectively. The lowest performance of revenue collection in FY 2014/2015 was
73.72% and that of FY 2013/2014 was 18.56%, while the lowest change in
performance of revenue collection was 39.19%. The highest performance of revenue
collection was 135.36% of FY 2013/2014 while that the highest in FY 2014/2015 was
108.74% as the highest change in performance of revenue collection was 80.31%.
4.3 Correlation Analysis
A correlation analysis was carried out on the study variables to establish whether
there existed any significant relationship between the dependent variable and the
independent variables using 0.05 level of significance test. The study proposed that e-
payment system affected revenue collection by the Nairobi City County Government.
The assessed whether that there was a statistically significant relationship between e-
payment system and the performance of revenue collection used in the study. The data
32
was analysed using the Pearsons product method correlating the Dependent Variable
(DV); performance of revenue collection to all Independent Variables (IVs); level of
compliance to budget estimates in FY 2014-2015, and level of compliance to budget
estimates in FY 2013-2014.
The study first correlated the study variables to establish whether there exist any
relationship between the IVs and the DV. The result on Table 3 illustrates these
relationships.
Table 3: Correlations Statistics of Independent and Dependent Variables
Correlations
Performance of Budget Compliance Budget Compliance
Revenue Collection FY 2014-2015 FY 2013 -2014
Performance of Pearson 1 .765 -.026**
Revenue Collection Correlation
Sig. (1-tailed) .046 .000
N 18 18 18
Budget Compliance Pearson .765 1 .130
FY 2014-2015 Correlation
Sig. (1-tailed) .046 .303

N 18 18 18
**
Budget Compliance Pearson -.026 .130 1
FY 2013 -2014 Correlation
Sig. (1-tailed) .000 .303

N 18 18 18
**. Correlation is significant at the 0.01 level (1-tailed).
The study analysed the correlations as computed in Pearson correlation. The results in
table 3 show that under the Pearson correlation, all the Independent Variables; level of
compliance to budget estimates in FY 2014/2015 and level of compliance to budget
estimates in FY 2013/2014 were statically significant to financial performance. From
the results; level of compliance to budget estimates in FY 2014/2015 had the highest
relationship (r = .756, p =.046) and then level of compliance to budget estimates in
33
FY 2013/2014 (r = .026, p =.000). For each Independent Variables (IV), the p-value
was less than .05. In fact for each Independent Variables, p< .01<.05. This made the
relationship very significant. In short, all the Independent Variables can be used to
explain revenue collection performance, which allowed for further analysis to
establish the regression model.
4.4 Regression Analysis
The independent variables were tested to establish whether they were determinants of
dependent variable using multiple regressions using the 0.05 level of significance test.
The regressions tests were carried out on the independent variables; level of
compliance to budget estimates in FY 2014/2015 and level of compliance to budget
estimates in FY 2013/2014 against the dependent variable; revenue collection
performance and thereby estimated the model;
Y 0 1 X 1 2 X 2 (4.1)
Where:
0 = is a constant, which is the value of dependent variable when all the
independent variables are 0
1 - 2 = Regression coefficients of independent variables or change induced by
X1 and X2
= Error of prediction
Y = Performance of Revenue Collection
X1 = Level of Compliance to Budget Estimates in FY 2013-2014
34
X2 = Level of Compliance to Budget Estimates in FY 2014-2015
The values for status of certification, and period of certification will regressed against
the mean for Financial Performance to estimate the study model.
Table 4: ANOVA for financial performance
ANOVAa
Sum of Mean
Squares df Square F Sig.
Regression 12402.404 2 6201.202 101.450 .000b
Residual 916.889 15 61.126
Total 13319.293 17
a. Dependent Variable: Performance of Revenue Collection
b. Predictors: (Constant), Level of Compliance to Budget Estimates in FY 2014-2015, Level of
Compliance to Budget Estimates in FY 2013 -2014
Source: Research data (2015)
The study designed hypotheses to test the model based on 0.05 level of significance.
These were;
H0: 1=2=0 (i.e. the coefficient of level of compliance to budget estimates in FY
2014-2015 and level of compliance to budget estimates in FY 2013 -2014 are all zero)
H: At least one i 0
H0 is accepted if p-value >.05 (at 5% level of significance)
H0 is reject if p-value <=.05 (at 5% level of significance) H: and is accepted
From Table 6, it can observed that p-value = .000. Since p-value <.001< .05
(F=101.450, P-value=.000), then we reject then null hypothesis and accepted the
alternative hypothesis. So, at the 5% significance level (i.e =0.05, level of
significance), there exists enough evidence to conclude that at least one of the
predictors; level of compliance to budget estimates in FY 2014-2015 and level of
35
compliance to budget estimates in FY 2013 -2014, is useful in predicting the
Performance of Revenue Collection. Therefore the model is useful.
Table 5: Coefficients for Study Model

Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Std.
B Error Beta t Sig.
(Constant) 58.609 18.183 3.223 .006
Budget Compliance FY 2013 -2014 -1.045 .073 -.973 -14.239 .000
Budget Compliance FY 2014-2015 .431 .193 .153 2.239 .041
a. Dependent Variable: Performance of Revenue Collection
Source: Research data
From the results in Table 5, the level of compliance to budget estimates in FY
2013/2013 is .000 and level of compliance to budget estimates in FY 2014/2015 is
.041. Since the p value for each predictor variable was less than 0.05, there is an
indication that there was a significant relationship between each independent variable
and the dependent variable. This is to say that all the predictor variable; compliance to
budget estimates in FY 2013/2013 and level of compliance to budget estimates in FY
2014/2015 could be used to measure (estimate) the dependent variable, performance
of revenue collection. The coefficient for level of compliance to budget estimates in
FY 2013/2013 is -1.045, and level of compliance to budget estimates in FY
2014/2015 is .431.
The model was therefore fitted as; Y 58.609 1.045X 1 .431X
It should also be noted that level of compliance to budget estimates in FY 2014/2015
variable is positive and -values is positive. This was an indication that level of
compliance to budget estimates in FY 2014/2015 is directly proportional to revenue
collection performance at Nairobi City County, in which case an increase in level of
36
compliance to budget estimates in FY 2014/2015 caused an increase (improvement)
in revenue collection performance. However, level of compliance to budget estimates
in FY 2013/2014 is negative and -values is negative. This was an indication that
level of compliance to budget estimates in FY 2013/2014 is indirectly proportional to
revenue collection performance at Nairobi City County. So as an increase in
compliance to budget estimates in FY 2013/2014 lead to decrease in revenue
collection performance at Nairobi City County.
Table 6: Revenue Collection Performance Model Summary

Model Summary
R R Square Adjusted R Square Std. Error of the Estimate
.965a .931 .922 7.81831
a. Predictors: (Constant), level of compliance to budget estimates in FY 2014-2015, level of
compliance to budget estimates in FY 2013 -2014
Further, from table 6, the adjusted R2 was 0.922, which means that 92.20% of change
in revenue collection performance at Nairobi City County is explained by the
independent variables; level of compliance to budget estimates in FY 2013/2014 and
compliance to budget estimates in FY 2013/2014. This is shown in Table 6, which
indicates that the coefficient of determination was .922, implying that a variation in
level of compliance to budget estimates in FY 2013/2014 and compliance to budget
estimates in FY 2013/2014 cause an increase of 92.20% of revenue collection
performance.
37
4.5 Interpretation and Discussions
The adoption e-payment was found to considerably affect the revenue collection
performance in Nairobi City County, which was in agreement to study by Gupta
(2000) which found that a study by Ndunda et al. (2015) revealed that level of tax
payment (compliance) affected optimal revenue collection. The study by Ndunda et
al. (2015) established a marginal relationship between tax compliance and revenue
collection, which was true in the present study. The findings in the current study
which also agreed to those in Nyongesa (2014) which recommended for decentralized
ICT based tax collection systems and offices in the sub-counties in adoption of
differentiation strategies in revenue collection role. These two studies found that ISO
certified companies improved their financial performance while the non-certified ones
experienced substantial deterioration. There was consistency in the study findings and
cited studies.
The study by Kinyanjui and Kahonge (2013) revealed that the use of e-payment by
mobile phone based technology in mobile parking increase parking fees collection as
that by Muema et al. (2014) indicated that Nairobi county and the parking industry
were generally ready to adopt the mobile parking management system. The findings
were confirmed by the present study, which showed considerable increase in revenue
collection performance after introduction on e-payment system.
Also the Otieno et al. (2013) study found that there exists a relationship between
Information Systems (IS) and both efficiency and effectiveness in revenue collection,
there is a strong positive relationship between Internal Control Systems and revenue
collection. In the case of the present study it was established that e-payment
significantly increase the revenue collection performance, a confirmation of the
38
findings in the study by Otieno et al. (2013). Perlman (2001) study established that
the use of third party vendors has allowed counties without large IT resources to
implement an online ticket-paying system. This shows that small and moderately-
sized cities can experience success through use of vendors and cooperative efforts of
pooling resources.
The present study found that lack of e-payment system reduce the revenue collection
performance as indicated by the level of budget compliance in FY 2013/2014. This
agreed to the study by Kaburia (2004), which found out that lack of suitable e-
Payment alternatives was a critical challenge to the growth of e-commerce in Kenya.
An e-Payment model suitable for individuals in Kenya was proposed. The study also
found that some departments were not recording viable results in revenue collection
after adoption of e-payment. The findings agreed to the study by Rocheleau and Wu
(2005), which found that there are some of challenging e-government applications
involve allowing citizens and other customers to conduct financially related
transactions electronically with governments on a 24-hour, 7-day a week basis.
Generally, usage rates are low, demonstrating that there is a gap between the potential
and reality of this form of e-government.
39
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
This chapter provides the summary of findings, conclusions as well as the
recommendations based on the findings. It further highlights the research gaps the
researcher felt should be filled by further research as well the limitations of the study.
The conclusions and recommendation were based on the study objective, which was
to determine the effect of e-payment system on revenue collection by the Nairobi City
County Government.
5.2 Summary of Findings
The objective of the study was to determine the effect of e-payment system on
revenue collection by the Nairobi City County Government using; level of
compliance to budget estimates in FY 2014-2015 and level of compliance to budget
estimates in FY 2013/2104 as independent variables revenue collection performance
as the dependent variable. The aim of the study was to establish whether the e-
payment system would significantly increase revenue collection by the Nairobi City
County Government through assessment of the level of compliance to budget
estimates in FY 2014-2015 and level of compliance to budget estimates in FY
2013/2104 (measured using compliance of the budget).
The study found that the e-payment system would significantly influenced revenue
collection performance by the Nairobi City County Government positively, such that
increased adoption of e-payment system increases revenue collection performance.
However, reduced adoption of e-payment system negatively influenced revenue
40
collection performance, where it reduced the compliance to budget hence poor
financial performance of Nairobi City County Government.
There was a there was a significant relationship between level of compliance to
budget estimates in FY 2013/2014 (p-value= .000) and level of compliance to budget
estimates in FY 2014/2015 (p-value = .041) and revenue collection performance in
Nairobi City County, since the p value for each predictor variable was less than 0.05.
It was found that 92.20% of variation in revenue collection performance in Nairobi
City County is explained by the level of compliance to budget estimates in FY
2013/2013 and level of compliance to budget estimates in FY 2014/2015. The study
there found that revenue collection performance in Nairobi City County was
positively associated to adoption of e-payment system.
5.3 Conclusions
Based on the study findings, this study revealed that the revenue collection
performance in Nairobi City County increased considerably after introduction of e-
payment system in revenue collection. The adoption of e-payment makes the Nairobi
City County ensure higher compliance to budget estimated, meaning that adoption of
e-payment system has pronounced revenue collection performance in Nairobi City
County effect than non e-payment system. The study concludes that the adoption e-
payment system positively influences the revenue collection performance in Nairobi
City County
It was established that the period after adoption e-payment system affected the
revenue collection performance in Nairobi City County. The revenue collection
performance in Nairobi City County government institutions ensure that they enhance
the continuous improvements during the period after adoption e-payment system,
41
which enhances the revenue collection performance in Nairobi City County as the
period increase, the revenue collection performance becomes better. The study
concludes that the period before adoption e-payment system influences the revenue
collection performance in Nairobi City County government negatively, decreasing the
revenue collection performance of the government.
There was a there was a significant relationship between level of compliance to
budget estimates in before adoption e-payment (p-value= .000) and level of
compliance to budget estimates after adoption of e-payment (p-value = .041) and
revenue collection performance in Nairobi City County government, since the p value
for each predictor variable was less than 0.05. An increase in adoption of e-payment
leads to an increase in revenue collection performance in Nairobi City County
government and vice versa. It was found that 92.20% of variation in revenue
collection performance in Nairobi City County government is explained by the
adoption of e-payment and failure to adopt e-payment. So the two factors; adoption of
e-payment and/or failure of adoption of e-payment are predictors of revenue
collection performance in Nairobi City County government.
5.4 Limitations of the Study
Various limitations challenged the study. For instance it was very difficult to obtain
the some study data due to reluctance and uncooperativeness of the respondents, who
felt that they were being disturb and would even fail to explain some technical terms.
The researcher and research assistant struggled to get meaning of these data and
values. However the researcher explained that the data that was to be obtained was for
academic purpose only. The respondents might have given inaccurate and incorrect
42
information but the researcher first conducted meeting with the respondents to explain
that the purpose of the study was purely academic.
Further, the study used the revenue collection instead of the unit vote head to obtain
the desired, which limited the precision of the data, considering that Government of
Nairobi City County has many vote heads that would give more data to arrive at better
results.
The study also faced the challenge of limited time for data collection and other
processes. To overcome this challenge, the study the researcher employed the services
of a researcher assistant to assist in collecting data and analysis.
The study was further constrained by limited financial. The researcher then sought for
a loan from his SACCO to obtain more fianc which supplement the study budget.
Lastly, the study was limited to the honesty and of respondent.
Lastly, the study model was also limited as it showed that 92.20% variation of
revenue collection performance in Nairobi City County government was cause by
change in adoption in e-payment. This means that there are other factors that account
for the remaining 7.80%.
5.5 Recommendations
5.5.1 Policy Recommendations
The study recommends that the Government of Nairobi City County should review its
revenue collection standards and audit policies to ensure that all its wards,
departments and other related units are compelled by regulations to adopt e-payment
and other ensure management of revenue collection system to lead to assurance total
compliance to the budgets There should be structured e-payment adoption standards
43
and structure in Nairobi City County. The free hand operated by the City county
departments in revenue collection should be tightened to ensure that all sections
departments and other units have adopted e-payments systems. There should be clear
regulation and policies governing adoption of e-payments systems. The Government
of Nairobi City County should increase their public awareness campaigns to ensure
that the consumers get the right information as pertains to e-payment revenue
collection.
5.5.2 Recommendations for further study
The study embarked on collecting data from revenue source heads sections in Nairobi
City County government. However, it isolated the specific basic revenue source,
which limited the applicability of the results to Nairobi only. So other studies should
be done to assess the affects specific basic revenue source of Nairobi City County
government.
The study found that it was very difficult to obtain the some study data due to
reluctance and uncooperativeness of the respondents, who felt that they were being
disturb and would even fail to explain some technical terms. It therefore recommends
that another study should be conducted on the same variables by a researcher from
within Nairobi City County government to avoid the limitations of inaccurate and
incorrect information.
The study also faced the challenge of limited time for data collection and other
processes. To overcome this challenge, another study should be conducted with the
authority of Nairobi City County government and county staff compelled to assist in
collecting data and analysis.
44
The study was further constrained by limited financial. The study therefore
recommends that another study should be conducted by the county government itself
and the study should be fully sponsored to avoid limitation of financial resources.
The found that 92.20% variation of revenue collection performance in Nairobi City
County government was cause by change in adoption in e-payment. This means that
there are other factors that account for the remaining 7.80%. From these findings it clear
that there are other which affect the revenue collection performance in Nairobi City
County government, raising concern of which factors are. The present study therefore
recommends that studies should be conducted to assess the other factors contributing the
remaining 7.80%.
45
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49
APPENDICES
APPENDIX I: WORK PLAN
The project will be undertaken between July 2015 and November 2015. The entire
schedule for the project will be as follows: -
July
ACTIVITY 2015
Produce Proposal
Submission of Proposal
Defense
Tools development and
Data Collection
Data processing and
analysis
Report Writing
Final Defense
Correction and Final
Submission
Source (Researcher, 2015)
50
APPENDIX II: BUDGET
No. CORE ACTIVITIES Item/ Participants Total (Kshs)
1. Consolidation of Internet usage 2,000.00

Literature Library search 4,000.00
Travelling Expense 3,000.00
2. Designing and Typing and photocopying of 10,000.00
development research instruments
3. Consultancy Professionals 40,000.00

4. Research Induction and Transport for researcher and two
Training research assistants 10,000.00
5. Pilot Testing, Finalizing 5 questionnaires 5,000.00

of research instruments
6. Main field data collection Travel, accommodation and
(2 months) subsistence 12,000.00
Researcher
7. Data processing and One research assistants

report writing 10,000.00
8. Contingency and
institutional costs 7,000.00
110,000.00
Total
Source (Researcher, 2015)
51

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THE EFFECT OF E-PAYMENT SYSTEM ON REVENUE COLLECTION BY THE

NAIROBI CITY COUNTY GOVERNMENT

A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE

in any other university.

Signature ------------------------------------ Date------------------------------------

Name: Albert Okiro

Signature ------------------------------------ Date------------------------------------

Department Finance and Accounting

in life, I will always cherish your ideals dad.

enable me to accomplish this project.

guidance and positive criticism in this project work.

necessary information required for this project.

in various consultative discussions during this project work.

ACKNOWLEDGEMENT ........................................................................................ iii

LIST OF TABLES ................................................................................................. viii

CHAPTER ONE:INTRODUCTION ...................................................................... 1

1.1 Background of the Study...................................................................................... 1

1.1.1 E-Payment System ...................................................................................... 2

1.2 Research Problem ................................................................................................ 6

1.3 Objectives of the Study ........................................................................................ 8

1.4 Value of the Study ............................................................................................... 9

CHAPTER TWO:LITERATURE REVIEW ....................................................... 10

2.1 Introduction ....................................................................................................... 10

2.2 Theoretical Review ............................................................................................ 10

2.2.1 Revenue Diversification Theory (RDT) ..................................................... 10

2.3 Determinants of E-payments performance.......................................................... 13

2.4 Empirical Studies ............................................................................................... 13

2.5 Summary of Literature Review .......................................................................... 18

3.1 Introduction ....................................................................................................... 21

3.2 Research Design ................................................................................................ 21

3.3 Population and Sample ...................................................................................... 22

3.4 Data Instruments and Collection ........................................................................ 22

3.5 Pre-Testing ........................................................................................................ 23

3.5.1 Validity ..................................................................................................... 23

3.6 Data Analysis .................................................................................................... 24

CHAPTER FOUR:DATA ANALYSIS, RESULTS AND DISCUSSION ........... 28

4.1 Introduction ....................................................................................................... 28

4.1.1 Study Response ......................................................................................... 28

4.2 Descriptive Analysis .......................................................................................... 29

4.2.1 Revenue Collection performance before and After E-Payment .................. 29

4.3 Correlation Analysis .......................................................................................... 32

4.4 Regression Analysis ........................................................................................... 34

4.5 Interpretation and Discussions ........................................................................... 38

CHAPTER FIVE:SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction ....................................................................................................... 40

5.2 Summary of Findings ......................................................................................... 40

5.3 Conclusions ....................................................................................................... 41

5.4 Limitations of the Study ..................................................................................... 42

5.5.1 Policy Recommendations .......................................................................... 43

APPENDIX I : WORK PLAN ................................................................................. 50

APPENDIX II: BUDGET ........................................................................................ 51

Table 1: Analysis on Revenue Collection for FY 2013-14 and FY 2014-15 ............. 30

Table 2: Analysis by Revenue Collection Performance Peak Period ........................ 32

Table 3: Correlations Statistics of Independent and Dependent Variables ................ 33

Table 4: ANOVA for financial performance ............................................................ 35

Table 5: Coefficients for Study Model ..................................................................... 36

Table 6: Revenue Collection Performance Model Summary .................................... 37

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