Determinants of sales tax compliance among Jordanian SMEs : the moderating effect of public governance

Tax compliance leads to reducing the fiscal deficit and public debt, thereby it provides funding to satisfy the economic and social development. Despite the extensive government’s efforts, the compliance of sales tax (typically known as value added tax globally) among the Small and Medium-sized Enterprises (SMEs) in Jordan is relatively low, thus, it negatively impacts the government revenues. Previous studies regarding the determinants of sales tax compliance among SMEs are limited and somewhat inconsistent. Therefore, the present study aimed at extending Fischer’s model that is built on the integration of both economic and socio-psychological theories in the context of sales tax compliance as well as examining the moderating role of the public governance and patriotism as a new construct to have better understanding on the determinants of sales tax compliance. This study hypothesised eight factors affecting sales tax compliance, as well as eight hypotheses on the moderating effects of public governance on such relationships. Using the quantitative approach, this study employed a self-administered questionnaire survey of 660 owner-managers of SMEs listed in the Jordan Chamber of Industry of which 212 responses were usable for analysis purpose. The Partial Least Squares (PLS) results revealed positive influence of tax audit, tax penalty, tax moral, tax fairness and patriotism on sales tax compliance and a negative effect of tax complexity on sales tax compliance respectively. Meanwhile, peer influence and tax rate do not demonstrate any significant influence on sales tax compliance. The findings also ascertained the considerable moderating effect of the public governance on the associations between tax audit, tax penalty, and peer influence on sales tax compliance. Besides extending the body of knowledge by providing a comprehensive model to explain how several interrelated factors influence sales tax compliance, the results offer insights on the determinants of sales tax compliance among SMEs.