Determinants of sales tax evasion among SMEs in Jordan: The moderating effect of moral obligation

Despite the government’s extensive efforts, sales tax evasion among Jordanian Small and Medium-sized Enterprises (SMEs) is comparatively high, adversely influencing government revenues. The factors that influence SMEs sales tax evasion have not been sufficiently investigated, particularly in Jordan. Previous studies rarely highlight the determinants of sales tax evasion, and the results are somewhat inconsistent. Thus, this study aimed to extend Fischer’s model by integrating economic and socio - psychological theories in the context of sales tax evasion. The moderating role of the moral obligation on the association between sales tax evasion and its determinants was also investigated. The study examined tax transparency and political stability as a new construct to better understand the determinants of sales tax evasion among Jordanian SMEs. This study hypothesized eight factors affecting sales tax evasion and eight hypotheses on the moderating effects of moral obligation. Using a quantitative approach, this study surveyed 500 SMEs owners/managers listed in the Jordanian Ministry of Industry and Trade (MIT), of which 212 responses (42.4%) were usable for analysis purposes. Partial Least Squares (PLS) was used for hypothesis testing. The findings showed that peer influence, tax rate, tax complexity, and tax transparency directly correlate with sales tax evasion. Meanwhile, tax fairness, tax penalty, probability of detection, and political stability did not significantly impact sales tax evasion. This study also offers evidence that integrating moral obligation as a moderator strengthens the model's ability to explain tax evasion and significantly moderates the effect of tax fairness, tax rate, probability of detection, and political stability on sales tax evasion. Thus, policymakers and tax authorities should integrate these variables to formulate appropriate strategies to curtail tax evasion in Jordan, which could lead to the overall improvement in the revenue collection of the country at large