Moderating role of patriotism on sales tax compliance among Jordanian SMEs

• Published in: International journal of Islamic and Middle Eastern finance and management Vol. 13; no. 3; pp. 389 - 415
• Main Authors: Alshira'h, Ahmad Farhan, Abdul-Jabbar, Hijattulah
• Format: Journal Article
• Language: English
• Published: Bingley Emerald Publishing Limited 07.07.2020; Emerald Group Publishing Limited
• Subjects: Audits; Budget deficits; Compliance; Deterrence; Deterrence theory; Developing countries; Economic growth; GDP; Government; Gross Domestic Product; Industrialized nations; Jurisdiction; LDCs; Manufacturing; Measurement; Patriotism; Policy making; Public services; Questionnaires; Random sampling; Sales; Sales taxes; Small & medium sized enterprises-SME; Suitability; Tax audits; Tax evasion; Tax increases; Tax rates; Tax revenues; Taxation; VAT; Jordan (country); Latin America; Patriotism; Jordan; Sales tax compliance; SMEs; Deterrence theory
• ISSN: 1753-8394; 1753-8408
• DOI: 10.1108/IMEFM-04-2019-0139

Purpose The purpose of this paper is to investigate the impact of tax audit, tax rate and tax penalty on sales tax compliance and examine the moderating effect of patriotism on the associations between tax audit, tax rate and tax penalty with sales tax compliance among Jordanian manufacturing small- and medium-sized enterprises (SMEs). Design/methodology/approach In this study, 660 questionnaires were distributed by using systematic random sampling to manufacturing SMEs in Jordan, after which a total of 385 useable questionnaires were deemed suitable for analysis. Partial least squares structural equation modelling (PLS-SEM) was used to validate the measurement model and structural model and the predictive relevance of the study’s model. Findings The findings showed that tax audit and tax penalty were positively associated with the level of sales tax compliance, whereas tax rate was insignificantly associated with sales tax compliance. They also demonstrated the moderating significant effect of patriotism on the relationship between tax penalty, tax audit and tax rate with sales tax compliance. Research limitations/implications Tax authorities and policymakers in developing majority societies in developing countries and in other Arab countries, especially in Jordan may use the results to focus their interest on the formulation of policies founded on the outcomes of the study to strengthen eligible SMEs to comply to further boost their sales collections. Originality/value This study extends the deterrence theory in the context of sales tax compliance by proposing the moderating effect of patriotism in the deterrence theory on sales tax compliance among SMEs. Moreover, the suitability for the use of PLS-SEM as a statistical tool in investigating the extended deterrence theory with patriotism as a moderating variable as well as its implications for theory and practice was also discussed.