The Effects of Deterrence Factors on Income Tax Evasion among Palestinian SMEs

Abstract

Tax evasion remains an issue confronting most policy makers worldwide. Palestine, as an evolving developing country highly depends on tax revenue and funds from international aids to finance the country's growth plan. The current study aims at examining relationships between probability of detection, tax penalty, tax rate and income tax evasion by applying the Deterrence Theory. A proportionate sampling technique was employed to collect data for the study through the use of questionnaires. The total number of useable questionnaires collected for analysis was 184. The collected data were analysed using the Partial Least Square (PLS). The result of analysed data shows that probability of detection and tax penalty were found to be negatively significant, while tax rate was positively significant in relation to income tax evasion. The implication of the findings of the current study is that income tax administration effectiveness can maximize tax collections and discourage tax evasion.

Factors influencing taxpayers to engage in tax evasion: evidence from Woldia City administration micro, small, and large enterprise taxpayers

“…This implies that a 1% change in tax fairness keeping the other things remain constant can result in a change in taxpayers engage in tax evasion by .468% in the same direction. This result is similar to the finding of Majid et al (2017) and contradicts the finding of Alkhatib et al (2019) and Rantelangi and Majid (2018). Thus, the final model of the study would be: Tax evasion = .623 + .197MO + .174TK + .468TF To generalize, the standardized beta coefficient indicates that tax fairness highly affects taxpayers to engage in tax evasion by 56.3%, tax knowledge affects secondly taxpayers to engage in tax evasion by 18.3%, and moral obligation affects taxpayers to engage in tax evasion by 17.7%.…”

“…The regression result indicates in Table 7 that tax fairness positively influences the taxpayers to engage in tax evasion. This result is similar to the finding of Majid et al, (2017) and contradicts with the finding of Rantelangi and Majid (2018) and Alkhatib et al (2019). Accordingly, the proposed hypothesis has been accepted because the beta value is .563 and the p value is less than .05.…”

“…The other factor that influences taxpayers to engage in tax evasion is tax fairness. Tax fairness is a non-economic factor that determines the tax collection of the country (Alkhatib et al, 2019). It is known that the tax collection procedures, principles, and implementation must be fair.…”

“…The stakeholders, government experts, families, individuals, groups, and peers influence taxpayers whether they engaged in tax evasion or not (Alleyne & Harris, 2017). As cited by Alkhatib et al (2019), the influence of peer groups on tax taxpayers is high, thus affecting the taxpayers' preferences, personal values, and behaviors to engage in tax evasion (Puspitasari & Meiranto, 2014). The stakeholders around the taxpayers might be motivators to push taxpayers in the criminal act of tax evasion.…”

The Effect of Deterrence Factors on Discourage Shadow Economy Level and Tax Evasion

“…Hence if the expected penalty is high when caught, the smaller the temptation into shadow economy will be (Virta, 2010). Similarly, it is established that the antecedents of tax evasion will surely have effect on shadow economies, therefore extant studies found that the penalty is negatively related with tax evasion (Alkhatib et al, 2018;Allingham and Sandmo, 1972;Chau and Leung, 2009;Feld and Frey, 2006;Hasseldine et al, 2007).…”