In Kenya, tax revenue accounts for up to 80% of government budgetary resources, with a negligible proportion coming from grants and loans due to the strict conditionalities adopted in the framework of the structural adjustment programs (SAP) imposed on the Kenyan government in the 1990s by the International Monetary Fund (IMF) and the World Bank (Muriithi and Moyi, 2006). The government uses taxation to generate revenue to cover its expenditure on the provision of social goods and services, to regulate the level of expenditure in the economy, to redistribute income among the population and to control imports into the country (Wilkinson , 2007). Different methods of taxation are used to create a tax base which forms a pool that the tax administration can exploit, thereby imposing a tax burden on the population. The Kenyan tax system is, however, often characterized by an increasing number of non-compliances among small taxpayers and as a result, the government has begun to focus reforms specifically tailored to SMEs in order to improve the level of compliance in Kenya. The most critical challenge for reforms is the presence of a large untaxed informal sector, which leads to high levels of revenue leakage. It is estimated that in the financial years 2000/01 and 2001/02, only 65 to 69 percent of income tax revenue was collected by the KRA (KIPPRA, 2004). The conundrum in economic theory as to why people evade taxes has been widely studied. discussed since Allingham and Sandmo (1972) based their theory heavily on economic crime theory; that the degree of deterrence, as a product of detection and the amount of fines imposed, determines the level of compliance. The likelihood of being detected is determined by the knowledge shared between categories of taxpayers and any disincentives...... middle of paper ...... the level of compliance among small businesses in Kenya. The TOT is a final tax levied at 3% of turnover and is payable quarterly no later than the 20th of the month immediately following the quarter. In its 4th Business Plan, the KRA noted that although the introduction of TOT was supposed to "reduce the administrative burden on small taxpayers and broaden the tax base in the informal sector", it failed to achieve its 2008/2009 reference value of 5,000 new registrants. TOT taxpayers and Kshs 131 million in recoveries (KRA 4thCorporate Plan). Tax reform initiatives undertaken so far in Kenya have mainly aimed to deter and address the loopholes created by the complexities of the tax code, the high tax burden and the high cost of filing returns and paying taxes, without tackling the problems created by the lack of taxes. fairness and justice in the tax system.