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Role of
Moderating role of patriotism on patriotism
sales tax compliance among
Jordanian SMEs
Ahmad Farhan Alshira’h 389
Department of Accounting, Irbid National University, Irbid, Jordan, and
Received 6 April 2019
Hijattulah Abdul-Jabbar Revised 31 July 2019
13 November 2019
Tunku Puteri Intan Safinaz School of Accountancy, Universiti Utara Malaysia, Accepted 30 December 2019
Sintok, Malaysia

Abstract
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.
Keywords Jordan, SMEs, Patriotism, Deterrence theory, Sales tax compliance
Paper type Research paper

Introduction
Taxation affects the financial decisions of governments as generally advocated in literature
(Hanlon et al., 2015; Gilligan and Richardson, 2005). The importance of tax as a main source
of public finance, enhancement of infrastructure and provision of public services, which in International Journal of Islamic
turn, spurs economic growth for both developing and developed countries, has been made and Middle Eastern Finance and
Management
quite clear (Gangl et al., 2014; Miskam et al., 2013; Alm and Torgler, 2006) . This makes tax Vol. 13 No. 3, 2020
pp. 389-415
compliance a significant concern for countries across the world (Khlif et al., 2016; Alon and © Emerald Publishing Limited
1753-8394
Hageman, 2013; Torgler et al., 2010; Torgler and Schneider, 2007; Andreoni et al.,1998). DOI 10.1108/IMEFM-04-2019-0139
IMEFM However, tax compliance is not always 100%, even in developed countries, where there
13,3 exists a ‘hard-to-tax’ group, which simply evades tax payment or under-declare revenues to
attempt to reduce their tax payments (McGee et al., 2008). In this regard, tax non-compliance
can have severe consequences, particularly because the worldwide cost related to taxpayer
non-compliance is considerably alarming (Farrar et al., 2017). More specifically, on a global
scale, tax non-compliance was estimated to have exceeded US$3.1tn in 2011 (Murphy, 2011).
390 Today, many Arab countries have begun seriously focusing on taxes as a source of revenue
to decrease their budget deficits either in light of the sharp decline in oil prices or to reduce
over-dependency on foreign aid (Alm, 2018).
In a related study, Randlane (2016) stated that hundreds of millions of tax revenues have
been lost because of tax cheating of all varieties including sales tax, wages and lowering the
tax burden via illegal means. The consequence of the inability to collect taxes is that both
the amount and quality of services and public goods provided by the government are
negatively impacted. Therefore, to guarantee a healthier financial basis, governments must
combat tax non-compliance (Zhang et al., 2016; Feld and Schneider, 2010; Torgler and
Schneider, 2009). One avenue to do so lies in the efforts that encourage voluntary tax
compliance behaviour. In this regard, tax behaviour studies tend to investigate factors that
can prohibit tax non-compliance and enhance tax compliance.
Moreover, tax non-compliance imposes economic costs and burdens on governments and
indeed, its presence is centre to some of the most essential issues in public economics. The
most obvious is that it minimizes tax revenues, thereby affecting taxes that compliant
taxpayers face and public services that citizens receive (Alm, 2012). Tax non-compliance
also leads to unfairness between those who comply with tax law and those who do not
comply with tax law by shifting the tax burden to the first group and thereby generating a
motive for further non-compliance (Feinstein, 1991). It causes inadequacy in the production
of businesses, as they try to stay small to facilitate non-compliance (Nur-Tegin, 2008), and
change resources to non-productive activities such as establishing financial subsidiaries to
cover up non-compliance (Alm, 2014; Slemrod, 2007). Non-compliance can also lead to the
retardation of economic growth, as the capacity of countries to provide appropriate public
goods, infrastructure and the development of human capital is slowed down (Johnson et al.,
2000). Its presence requires government to expend resources to detect non-compliance, to
measure its magnitude and to penalize its practitioners (Alm, 1999). Finally, it affects the
accuracy of macroeconomic statistics. More broadly, it is not possible to understand the true
impacts of taxation without considering tax evasion (Alm, 2018). Therefore, increasing the
level of tax compliance is a key issue for governments, considering a large proportion of
government spending is funded through the taxes collected (Chung and Trivedi, 2003).
Accordingly, both policymakers and academic researchers have paid a good deal of
attention to the tax non-compliance issue (Lee, 2018).
The past 30 years witnessed industrialized economies gradually shifting their emphasis
from direct taxation to indirect tax as a revenue-raising tool (Matthews, 2003), such as sales
tax and customs duties. Sales tax [1] is typically known as a value added tax (VAT) or goods
and services taxes (GST) worldwide. All members of the European Union (EU) impose VAT,
whereas some countries, such as Malaysia, Singapore and Australia, impose the alternative
GST. Sales tax was introduced for the first time in France in 1954 (Adams and Webley,
2001). Currently, sales tax is applied in around 160 countries (Azmi et al., 2016) and more
than 120 countries. Sales tax is the major source of government revenue, influencing more
than four billion individuals (Alm and El-Ganainy, 2012). For example, Brazil, Argentina,
Venezuela and Uruguay collect approximately 70%, 65%, 60% and 52% of tax revenue
from VAT, respectively (Smith, 2017). Among EU countries, VAT plays the most significant
role as the source of budget income in Portugal, Poland, Greece, Ireland and Hungary, Role of
ranging from 40% to 64%, of the total revenues (Dobrowolska, 2008). Sales tax system patriotism
enhances the impact of efficiency in the spending of government on the economic growth of
the majority of countries in the world (Chan et al., 2017), indicating the need for everyone to
pay sales tax when buying most services and goods (Simionescu and Albu, 2016).
Like other taxes, sales tax is vulnerable to tax non-compliance, tax cheating and poor
enforcement (Giesecke and Tran, 2012). Sales taxes present many opportunities for non-
compliance; for example, taxpayers can attempt to evade a jurisdiction’s sales tax on 391
particular goods by purchasing them in other neighbouring areas and then consuming them
in the relevant jurisdiction without paying the required use tax, and taxpayers can simply
evade taxes on intangible services. A broad-based retail sales tax is certain to include
significant exemptions (e.g. food, education, health, services), thereby creating firm
incentives for non-compliance. Firms can also present fraudulent invoices that allow them to
understate their tax liabilities, or they can simply fail to register (especially if their value-
added is high, as with service providers); taxpayers may even seek to register as firms to
disguise their own personal consumption as purchased inputs (Alm, 2018). Although these
issues face majority of countries around the world, they are more pervasive in developing
countries than in the Western and developed countries (Lee, 2016; Keen and Smith, 2006).
This is evident from the fact that the level of sales tax non-compliance is equivalent to
15.9% of sales tax revenue in European countries, whereas among developing countries it is
much higher (in Latin America, it reached an average of 31%). Furthermore, in the context
of Jordan, a rough estimate conducted by the International Monetary Fund (IMF) found that
the sales tax evasion is higher than the average in Latin America, more than double the level
evaluated for European countries (IMF, 2016).
In Jordan, the economy is highly dependent on tax revenue that plays a key role in the
public budget appropriation, contributing around 70% of the domestic revenue in the years
from 2010 to 2016 (Ministry of Finance in Jordan, 2016). Despite the various fiscal measures
recently undertaken by the Jordanian Government to increase the domestic revenue, recent
reports on the annual budget demonstrate that Jordan is challenged by a sharp rise in net
public debt and fiscal deficit with the increase in tax non-compliance, specifically in sales
tax (Alshira’h et al., 2018). For example, for every JD3 [2] collected as sales tax, there is at
least JD1 that is lost to tax non-compliance (Alasfour, 2017). Added to this, cases of tax non-
compliance related to sales tax are more than those related to income tax (Nsour, 2014).
Estimates of tax non-compliance grew from JD 1,067.4m in 2011 to JD 1,578.2m in 2015,
indicating an increase of about 48%. Sales tax noncompliance represented about 71% of the
total tax evasion (Jordan Economic and Social Council, 2014; Jordan Independent Economic
Watch, 2014), indicating that sales tax non-compliance persists as a main problem in Jordan
(Alshira’h, et al., 2019; Malkawi and Haloush, 2008).
In the above tax overview of Jordan, Jordanian SMEs have a major role in the economic
development, representing over 99% of the businesses in the economy (Association of
Banks in Jordan, 2016). Such enterprises provide around 50% of the gross domestic product,
and employ around 60% of the total national workforce (Alrousan and Jones, 2016; Saymeh
and Sabha, 2014). Comparatively, SMEs contribute around 90% of shadow economy in
Jordan (United Nations Development Programme, 2012), with approximately 87% of small
businesses and 34% of medium ones have been documented to fail sales tax payment
(Young Entrepreneur Association, 2011).
A study by the Income and Sales Tax Department (ISTD, 2016, 2017) has found that
around 132,000 registered and active companies practice a tax non-compliance, as the tax
these companies pay collectively for their activities each year does not exceed JD66.1m (The
IMEFM Jordan Time, 2019).The study asserted that the analysis of the sales tax revenue generated
13,3 by imports and local goods by the examined companies pointed to the large scale of tax non-
compliance, as the volume of sales should have reflected more revenue. The findings of the
study accorded with those reached by a Jordan Strategy Forum (2018) study, which showed
that it is unbelievable that salaried individuals contributed to the treasury more than the
private sector did (professionals and SMEs). On average, each business has paid JD 440 a
392 year only (JD 66.1m/150,000). To put this observation into its international perspective,
professional and SMEs in Jordan contribute very little towards tax revenues compared to
other countries.
Documentation and evidence attribute tax non-compliance to the lack of awareness on
the link between paying taxes and the performance of the state budget and cite legislative
impediments, such as the government’s inability to access bank accounts of taxpayers, as
another challenge. In addition, the penalty for tax evasion, which is between four months
and one-year imprisonment, is not enough remains unenforced. Further, taxpayers’ lack of
trust in the government appears to be the main driving force behind tax evasion, in that
taxpayers do not see reflections of tax-paying on the quality of services. Furthermore, the
internal and external double taxation is another impediment (Alshira’h, 2019; Al Emam,
2014). Thus, there is a dire need to contribute further towards understanding sales tax
compliance among Jordanian SMEs (Alshira’h et al., 2018). In other words, there is practical
importance and considerable interest associated with knowing how to promote and
encourage sales tax compliance among SMEs in Jordan.
In recent years, tax compliance by businesses has attracted much media attention
(Mickiewicz et al., 2017). In particular, taxation with respect to SMEs has attracted
increasing interest in the past decade in both developing and developed countries (Alshira’h
and Abdul-Jabbar, 2019a; Pope and Abdul-Jabbar, 2008), with SMEs evidenced to play a
significant role in the tax system (Christensen et al., 2001). To compound the matter further,
although owners/managers of SMEs have been found to be more likely to commit tax fraud
than other taxpayers (Kirchler et al., 2006), tax behaviour of SMEs has received surprisingly
little concern in the literature (Alshira’h and Abdul-Jabbar, 2019b; Battisti and Deakins,
2017). So, a need exists for additional studies to be conducted on taxation in relation to SMEs
(Swistak, 2016).
The current paper provides several contributions to the literature of taxation. First, this
paper provides empirical insight on the effect of the deterrence theory on sales tax
compliance of SMEs in Jordan. Most of the past literature has used deterrence theory in the
context of income tax, but very few studies have examined deterrence theory in relation to
sales tax (Woodward and Tan, 2015; Faridy et al., 2014). Prior literature on sales tax is very
scarce relative to its fast diffusion as a fundamental revenue tool for governments
worldwide (Alm and El-Ganainy, 2013).
Second, this study provides evidence of the tax compliance behaviour of firms, which has
not been sufficiently investigated in the tax literature (Abdixhiku et al., 2017), because
previous research studies have mostly focused on individual taxpayers, largely ignoring
business tax compliance (Alm et al., 2018; Alm et al., 2016; Mohamad et al., 2016; Alon and
Hageman, 2013;Alm and McClellan, 2012). Moreover, empirical findings on the factors
affecting tax compliance of SMEs are mostly mixed, which indicate methodological concern
(Battisti and Deakins, 2017). To date, the determinants that affect sales tax compliance
among SMEs have not been thoroughly determined (Woodward and Tan, 2015). Alshira’h
et al. (2016) noted through a review of tax literature in Jordan that a need exists to carry out
studies on the determinants of sales tax compliance in the country because findings on such
determinants remain murky.
 Third, past studies have examined the factors affecting tax compliance by combining Role of
different relevant factors in deterrence theory (Ariel, 2012; Verboon and Dijke,2012). patriotism
Nevertheless, to date no single model has been able to comprehensively account for non-
compliance behaviour. Additionally, no research has expanded deterrence theory to
incorporate the effects of patriotism as a moderator of tax compliance although this social-
related factor could be among the key determinants that influence sales tax compliance and
could be important in understanding sales tax compliance in Jordan. Indeed, Wenzel (2004)
suggested that social determinants may have a substantial effect on deterrence procedures. 393
Consequently, the present research expands deterrence theory to incorporate social identity
theory, using patriotism as a moderating factor of sales tax compliance in Jordan.

Literature review
Tax compliance
Tax is commonly defined as compulsory payment made by people on their wealth to
support the cost of government (Khasawneh et al., 2008). Even though wages, profits, and
other kinds of income are subject to taxation, some specific items are often excluded from
taxability, generally due to the need of a tax authority to enhance a particular behaviour
(Payne and Raiborn, 2018). However, indubitably, tax compliance is crucial for the
successful operation of a nation state.
Although studies and research on tax compliance started in the early 1970s (Alm and
Torgler, 2011), Fischeret al. (1992) noted that no common definitions of tax compliance and
non-compliance exist. Therefore, tax compliance has been subject to various interpretations
and definitions in the literature. One of the most commonly applied definitions of tax
compliance is that of Roth et al.’s (1989), who stated that tax compliance means that the
taxpayer files all required tax returns at the proper time and the returns accurately report
tax liability in accordance with the rules, regulations and court decisions applicable at the
time the return is filed. Jackson and Milliron (1986) defined tax compliance as reporting all
incomes and paying by fulfilling the provisions of laws, court judgments and regulations.
Sales tax compliance, in the context of the current study, is defined as the compliance in
filing tax returns, reporting and paying the proper amount of tax on time and complying
with the goods and services tax laws and administration (Zainan et al., 2017).
In contrast with tax compliance, tax non-compliance refers to the failure of the taxpayers
in meeting the requirements of tax reporting (Abdul-Jabbar and Pope, 2008). This definition
includes both unintentional and intentional non-compliance. Meanwhile, Sikka (2013)
declared that tax evasion is any dubious or dishonest intentionally activity outside the
boundaries of the legal framework to either increase deductions or to conceal taxable income
amounts or minimize the correct tax liability. In comparison, Payne and Raiborn (2018)
defined tax avoidance (or tax mitigation) as the process of using legal means to reduce the
amount of tax that is owed based on enumerated provisions in the tax law.
However, the literature has failed to reach a consensus on a specific definition of tax
compliance covering all the various aspects of tax compliance. In addition, tax non-
compliance can take different forms namely, failure to pay taxes by the due date, non-
submission of tax return, understatement of income and overstatement of deductions
(Kasipillai and Abdul-Jabbar, 2006). In addition to other taxes, sales tax offers many
opportunities for non-compliance as businesses can simply underreport sales, fail to register
sales tax, or introduce incorrect tax invoices that let them understate their taxes due (Alm
et al., 2016).
Research in the tax compliance area has convincingly argued that successful tax
collection encompasses the use of coercive force and power, persuasion, moral values, and a
IMEFM sense of the fairness of the tax system (Kessler et al., 2016). However, no consensus exists
13,3 about why people do or do not pay taxes. One of the early models used to explain tax
compliance behaviour was deterrence theory (Jackson and Milliron, 1986). Among other
things, the deterrence theory suggests that threat of being caught is a more powerful
deterrent for criminal activity than punishment and that increasing the perception of the
chances of being caught helps in decreasing crime (Becker, 1968). The principles of
394 deterrence theory sprung from the Becker model (1968) of the economics-of-crime. Becker
proposed that the determinants such as, audit and penalties, determine the extent of tax non-
compliance.
Following Becker (1968), Allingham and Sandmo (1972) proposed a model of crime to
shape the theory of tax non-compliance. The A-S model is familiar through the deterrence
theory (economic approach) or the expected utility maximization model. The A-S model
assumes that taxpayers engage in rational behaviour and that each taxpayer seeks to
maximize the expected utility of the tax non-compliance gamble, weighing the benefits from
successful tax non-compliance against the probability of detection by audit and penalty. It is
considered as among the oldest theories to resolve the tax compliance puzzle. This theory
argues that key factors to deter illegal behaviours of taxpayers are, a high level of both tax
audits and tax penalties, and rate of taxation (Allingham and Sandmo, 1972). However, this
form was limited to the strict economic factors of tax non-compliance as proposed by the
early model, which neglected to take the social factors (Molero and Pujol, 2012).
Deterrence theory indicates the ability of the tax system to decrease the phenomenon of
tax non-compliance through punishment and threat. It is largely used to understand tax
compliance of an individual’s behaviour in the context of income tax, but very few studies
have used the deterrence theory in the context of sales tax compliance even in developed
countries let alone developing countries (Woodward and Tan, 2015; Adams and Webley,
2001). Casal et al. (2016) stated that, when talking about the determinants of tax compliance,
it is impossible not to consider the concepts of deterrence instruments that tax departments
apply to combat tax non-compliance. The next subsection discusses the determinants of
sales tax compliance.

Tax audit
A sales tax audit is defined as a systematic inspection and monitoring of records, invoices,
tax reporting for any person registered under sales tax or any person selling taxable goods
and service. A tax audit is considered to be one of the most effective factors that can deter
tax non-compliance (Harelimana, 2018; Jackson and Milliron, 1986). A tax audit refers to the
likelihood that the tax authority will detect a taxpayer’s non-compliance (Chau and Leung,
2009). Generally, a higher level of tax audit promotes tax compliance.
Allingham and Sandmo’s (1972) research is a pioneering study in applying deterrence
tools for compliance and it indicated that a tax audit has a significant and positive
relationship with tax compliance behaviour. Some other studies reached the same finding
(Feld and Larsen, 2012; Alm and Mckee, 2006; Trivedi et al., 2003; Witte and Woodbury,
1985). Conversely, some past studies in literature found that the relationship between a tax
audit and tax compliance was significant and negative (Feld and Frey, 2007; Mittone, 2006;
Slemrod et al., 2001),whereas some other past studies (Spicer and Thomas, 1982: Wärneryd
and Walerud, 1982) found no evidence for tax audit relationship with tax compliance.
Studies have examined several types of taxes. In the context of excise duty, tax audit was
found to have a significant positive relationship with excise duty non-compliance
(Sinnasamy and Bidin, 2017a), whereas tax penalty was revealed to have a significant
negative association with excise duty non-compliance (Miskam et al., 2013). In the case of
sales tax, few extant studies have examined the role of a tax audit on sales tax compliance – Role of
these too have exhibited mixed results. Some found that the cost of being penalised if caught patriotism
via a tax audit can serve an effective deterrent (Woodward and Tan, 2015), while others
found that tax audit has no relationship with sales tax compliance (Faridy et al., 2014;
Johnson et al., 2010). On the basis of the prior discussion and drawing from the deterrence
theory, the following hypothesis is proposed:

H1. There is a positive relationship between tax audit and sales tax compliance of 395
Jordanian manufacturing SMEs.

Tax rate
Tax rate is one of the key determinants in the structure of the tax system, and one of the
main factors related to tax compliance (Richardson, 2006). The current study defines sales
tax rate as the percentage imposed on supplies of goods and services, whether imported
from abroad or from free zones and local producers if such are not exempted from the sales
tax law.
Deterrence theory posits that the tax rate is significantly associated with tax compliance
(Allingham and Sandmo, 1972). The results of most studies supported the negative
association between tax rate and tax compliance in the context of income tax (Pellizzari and
Rizzi, 2014; Reckers et al., 1994). However, some previous studies revealed that the
connection between tax rate and income tax compliance is positive (Aronmwan et al., 2015;
Alm et al., 1995; Yitzhaki, 1974). Conversely, there some other studies (Richardson, 2006;
Kim, 2008) indicated that there is no evidence of the effect of tax rate on compliance.
Other studies have examined the relationship between the tax rate and indirect tax. In the
context of excise duty, Sinnasamy and Bidin (2017b) revealed a positive relationship
between tax rate and excise duty non-compliance. In the sales tax compliance, the
relationship between tax rate and sales tax compliance has received very little attention,
with some past studies reporting that tax rate was negatively associated with sales tax
compliance (Giesecke and Tran, 2012; Matthews, 2003; Agha and Haughton, 1996).
Conversely, Engel et al. (2001) declared that the tax rate was positively related with sales tax
revenue. Hence, based on the above discussion, the following hypothesis is formulated to be
tested:

H2. There is a negative relationship between tax rate and sales tax compliance of
Jordanian manufacturing SMEs.

Tax penalty
Penalties are part of the tax system structure and a key factor with respect with tax
compliance (Chau and Leung, 2009). Penalties and sanctions are utilized to prevent tax non-
compliance, and, while effective, this approach is considered to be very costly (Dunn et al.,
2018). The current paper defines sales tax penalty as the sanctions and fines imposed on
SMEs committing sales tax fraud offenses. Allingham and Sandmo (1972) reported that tax
penalty has a significant relationship with tax compliance. Some studies also supported the
positive relationship between tax penalty and tax compliance (Ng and Muturi, 2015; Fischer
et al., 1992; Witte and Woodbury, 1985). In contrast, other studies revealed that the
connection between tax compliance and tax penalty was negative (Martinez-Vazquez and
Rider, 2005; Feld and Tyran, 2002; Fjeldstad and Semboja, 2001). However, other past
studies found no deterrent effects of penalty on tax compliance (Mohdali et al., 2014;
Pommerehne and Weck-Hannemann, 1996; Collins and Plumlee, 1991).
IMEFM On the other hand, the literature on the relationship between tax penalties and excise and
13,3 sales compliance remains scarce. Sinnasamy and Bidin (2017b) showed that a tax penalty
was positively connected with excise duty non-compliance. In the specific context of sales
tax, the relationship between tax penalty and sales tax compliance research is scarce and
has produced mixed results. Woodward and Tan (2015) and Webley et al. (2004) found that
tax penalties had a positive relationship with sales tax compliance. Contrastingly, Faridy
396 et al. (2014) revealed that tax penalties did not have any effect on sales tax compliance. Thus,
there are mixed findings on the effect of the tax penalty on sales tax compliance. Hence,
based on the above discussion, the current study proposes the following:

H3. There is a positive relationship between tax penalty and sales tax compliance of
Jordanian manufacturing SMEs.

Patriotism
Patriotism is perceived among the general citizens as devotion and love of one’s country
(Callan, 2006) associated with a readiness to sacrifice for the good of the state (Nathanson,
1989). The taxpayers’ love of the state and their wish for it to flourish are illustrated by their
tax payment performances (Kahne and Middaugh, 2006). Feelings of patriotism sometimes
play a significant role in all aspects of life in a society, but particular with respect to tax
compliance (Qari et al., 2012). Governments may utilize their educational systems in
instilling patriotism. In turn, this policy can simplify and facilitate tax collection in a way
that patriotic sentiments are used as a replacement for auditing (Konrad and Qar, 2012).
Indeed, MacGregor and Wilkinson (2012) stressed the importance of patriotism of taxpayers
and its positive relationship with increased tax compliance. Moreover, patriotic taxpayers
perceive tax non-compliance activities to be unpatriotic. This is similar to the findings of
Konrad and Qari (2012). On the other hand, Gangl et al. (2016) found that patriotism had no
significant direct relationship with tax compliance but that it had an indirect relationship
with trust in the tax authority and voluntary cooperation. Nonetheless, very few empirical
studies have examined the relationship between patriotism and income tax compliance. To
the best of the researcher’s knowledge, no empirical study has been carried out to evidence
the effect of patriotism on sales tax compliance.
Although the importance of determining the causes for tax non-compliance as an illegal
activity has increased considerably over the years, causes of tax compliance remain a puzzle
(Schneider and Torgler, 2007). Evidence on the influences of deterrence factors on tax
compliance behaviour is somewhat inconsistent. For instance, the studies conducted on the
relationships between tax audit (Woodward and Tan,2015; Faridy et al., 2014; Johnson et al.,
2010), tax rate (Giesecke and Tran, 2012; Matthews, 2003; Engel et al., 2001), and tax penalty
(Woodward and Tan, 2015; Faridy et al., 2014; Webley et al., 2004) with sales tax compliance
have produced mixed results. To compound the matter further, the literature on sales tax
compliance is limited. In addition, some authors found that several factors can moderate the
above relationship.
A moderating variable, according to Baron and Kenny (1986), is a variable that affects
the strength and/or direction of the relation between an independent variable and a
dependent variable. One reason for the inconsistent results in the assorted studies is the
possibility of the effect of a moderating variable. This was stated by Carnes and Cuccia
(1996), who found that the relationship between economic variables and tax compliance was
inconsistent in some measures because they can be moderated by several factors.
In the same line of study, Tajfel (1974) stated that one helpful explanation of the impacts
of patriotism is presented by social identity theory, introduced in 1971 by Tajfel (1974). The
social identity of a taxpayer affects his responsibilities and commitments, and social identity Role of
is considered as one of main socio-psychological factors in tax compliance (Wenzel, 2007). patriotism
More specifically, the social identity theory plays a more significant role in foreseeing
compliance than does legitimacy.
Nonetheless, the use of one theory alone is insufficient in clarifying the issue of tax
compliance (Alm, 1991). Torgler and Schaffner (2007) stated that tax compliance behaviour
cannot be explained and interpreted by the basic model (deterrence theory). Also, Feld and
Frey (2003) revealed that the deterrence approach to tax non-compliance cannot increase tax 397
compliance rates without being used in conjunction with another method. Furthermore,
Andreoni et al. (1998) revealed that integrating economic theory with social psychology
theory is essential. In this regard, Christian and Alm (2014) found that non-economic factors
are critical in the interpretation of tax compliance behaviour. In the same vein, Wenzel (2004)
indicated that social factors may significantly affect and meet the requirements of the
deterrence procedures. Downs and Stetson (2014) indicated that social factors can have
moderating effects on economic factors.
In relation to the above discussion, the traditional model in tax research posits that
taxpayers are rational. They weigh the risky prospect of audit and punishment with
expected utility of the benefits from successful tax compliance. According to the expected
utility model of tax compliance, a rise in tax audit and a rise in tax penalty lead to increased
tax compliance (Alm and Torgler, 2011; Andreoni et al., 1998; Allingham and Sandmo, 1972).
The practical evidence concerning these predictions, however, is mixed (Maciejovsky et al.,
2012; Frey, 2003), prompting alternative explanations of tax behaviour such as patriotism
(MacGregor and Wilkinson, 2012). Hence, based on the above discussion, the current paper
integrates deterrence theory and social identity theory to better understand tax compliance
behaviour and introduces patriotism as a moderator of deterrence factors in the context of
sales tax compliance.
Overall, the limited past literature has found inconsistent results concerning the
relationship between patriotism and tax compliance, suggesting that patriotism can have
possible effects. Gangl et al.(2016) and MacGregor and Wilkinson (2012) stressed the need to
conduct further studies on the relationship between patriotism and tax compliance because
the past literature on the topic is very limited, as a result of which, the role of patriotism
remains ambiguous. Therefore, this paper assumes that patriotism might contribute to a
better understanding of the mixed findings among the relationships between sales tax
compliance and tax audit, tax rate and tax penalty, as a moderating variable. According to
this argument, it is rational to say that the level of taxpayers’ patriotism might impact their
behaviour irrespective of whether a tax audit is certain or not, the tax rate is high or lower
the tax penalty is high or low. In other words, the relationship among sales tax compliance
and the above factors may be moderated by patriotism. This leads to the formulation of the
following hypotheses:

H4. Patriotism moderates the relationship between tax audit and sales tax compliance
of Jordanian manufacturing SMEs.
H5. Patriotism moderates the relationship between tax rate and sales tax compliance of
Jordanian manufacturing SMEs.
H6. Patriotism moderates the relationship between tax penalty and sales tax
compliance of Jordanian manufacturing SMEs.
IMEFM Methodology
13,3 The influence of the tax audit, tax rate, tax penalty and patriotism on sales tax compliance
among SMEs in Jordan is examined in this study, involving SMEs listed in the Jordan
Chamber of Industry (JCI) (2017) as a sampling frame. A micro-business refers to a business
that employs between 1 and 9 full-time employees, a small business employs 10-49 full-time
employees, whereas a medium business employs between 50 and 249 full-time employees.
398 The unit of analysis of the current research is at the organizational level, represented by
owner-managers, as these individuals have a substantial role in the tax decisions in SMEs
(Kamleitner et al., 2012). They are the ones that possess the best knowledge of the financial
affairs of their companies (Lignier, 2009). The owner typically is the manager in Jordanian
SMEs and is likely to participate in tax compliance-related decisions.
The present study used a self-administered questionnaire as the tool to obtain data from
respondents. This study used a comprehensive and updated list of SMEs in the Jordanian
manufacturing sector as a sampling frame. The JCI provides a list of SMEs in the
manufacturing sector via an official application procedure, which included a list of 17,749
SMEs in manufacturing sector according to number of staff. The sample list also contained
the details of every SMEs in the manufacturing sector, such as name, phone number and
email. Furthermore, any business in Jordan is required to register with the JCI to get a license
to work. The sample size for the population of current study should be 377 of the 17,749
firms according to Krejcie and Morgan (1970). To avoid a low response rate, which is a
common issue in most studies involving SMEs in Jordan (Lutfi et al., 2017), the sample size
was increased (Israel, 1992). This oversampling is founded on prior literature that indicated
that a non-response rate that ranged between 70% and 75% was rampant in the context of
businesses in Jordan (Lutfi et al., 2017).
Based on the considerations mentioned above, the sample size of the present study was
increased by 75% to 660 SMEs for the actual data collection phase targeted at respondents.
In the current study, the procedure applied to select a sample was the probability sampling
technique because the method has less bias and provides for the most generalizability of
findings (Zikmund et al., 2013; Sekaran, 2003). Therefore, a systematic random sampling
technique was utilized in this study to select 660 of respondents from the list provided by
JCI. The sampling interval for the current study was (population/sample size) 17,749/660 =
27. At the beginning, the researcher chose the number 27, and the sampling elements were
numbered 27, 54, and 81 and so on up to the last sample to be selected. That is, the sampled
element number of 660. Thus, a total of 398 (60.3%) questionnaires were retrieved out of the
660 distributed. However, 13 questionnaires were found to be problematic and were thus
discarded. Therefore, 385 (58 %) questionnaires were considered useable for data analysis.
A considered potential bias of the questionnaire was that respondents would not be able
to envision sales tax compliance by the items or wordings chosen in the questionnaire. For
this reason, a pilot study was conducted for this research because it offers many important
features such as providing the chance to remove vagueness and raise clarity of some
instrument items and assisting in making any necessary modifications based on the
outcome of the pilot study. In addition to that, the researcher distributed the questionnaire to
five academicians in the area of tax accounting, two SMEs owner-managers and two tax
auditors of the tax authority in Jordan, for review, who further refined the questionnaire to
ensure its accuracy and validity. Items were evaluated for construction faults, flow,
ambiguity and sequencing. The questionnaire was then revised where appropriate.
Additionally, respondents were reassured for the anonymity of their responses and
participation to obtain reliable opinions. Moreover, the questionnaire explained the benefits
and the purpose of the study to encourage the participants to provide honest answers.
 Role of
Variable Items Source
patriotism
Tax audit (TA) 1. Businesses pay the correct amount of sales tax Faridy et al.
when there are greater enforcement and monitoring (2014)
2. The likelihood of audits encourages me to comply
with the sales tax law
3. Businesses registered for sales tax are often
subject to tax authority audits and inspections 399
Tax rate (TR) 1.A fair sales tax rate should be the same for every Christensen et al.
type of business size (1994)
2.A fair sales tax rate should be the same for every
type of goods
3.A fair sales tax rate should be the same for every
type of sector
Tax penalty (TP) 1. Businesses that are discovered for tax non- Braithwaite
compliance will be forced to pay the sales tax they (2001)
owe with interest
2. Businesses that are discovered for tax non-
compliance will be forced to pay large penalty and
pay the sales tax they owe with interest
3. Businesses that are discovered for sales tax non-
compliance will be taken to court and pay the sales
tax they owe with interest
4. Businesses that are discovered for sales tax non-
compliance will be taken to court, pay a substantial
penalty and pay the tax they owe with interest
Patriotism (PA) 1. Businesses are more patriotic when they buy MacGregor and
goods made in Jordan than goods made in other Wilkinson (2012)
countries
2. A business that pays more in sales taxes is more
patriotic than a business that pays less in taxes
3. A person who cheats on his/her sales taxes is not
patriotic
4. A business that hides its sales revenue in a foreign
country to avoid sales taxes is not patriotic
5. Businesses that cheat on sales taxes are not
patriotic
6. I would be willing to increase sales tax rate if it
would help my country
Sales tax 1. Most business owner-managers always correctly Woodward and
compliance (STC) record the details of a sale on the sale tax invoice Tan (2015)
2. Most business owner-managers generally believe
that it is unacceptable to alter a sales tax invoice to
allow a customer to claim more sales tax
3. There are no circumstances when it might be
acceptable to alter the details on a tax invoice to
allow another business owner-manager to claim
more sales tax
4. If the customer’s requests a tax invoice to be
altered so they can claim more sales tax, business
owner-managers will not do it for them
5. If business owner-managers altered a tax invoice
to allow a customer to claim more sales tax, they Table 1.
would not feel good about it Measurement of
(continued) variables
IMEFM
Variable Items Source
13,3
6. There are no circumstances when business owner-
managers find it justifiable to ask another sales tax
registered business to alter a tax invoice so that they
can claim more sales tax
7. Most business owner-managers believe that it is
400 unacceptable to alter a tax invoice to include private
expenses as business expenses for sales tax
purposes
8. I think it is unacceptable to alter a tax invoice so
that private expenses appear to be business-related
in order for me to make a sales tax claim
9. Some businesses owner-managers believe that it is
unacceptable to create fake invoices or alter invoices
in order to claim sales tax refunds that they are not
entitled to
10. I do not find faking invoice or altering an invoice
justifying a sales tax refund
11. If I created or in any way altered a tax invoice to
get a claim for sales tax I was not entitled to, I would
Table 1. not feel good about it

Measurement
All the five (5) latent variables in this quantitative approach were adapted from past
literature. A five-point Likert-type scale was used to measure all latent variables with
answers ranging from strongly disagree (1) to strongly agree (5). Specifically, the three items
of sales tax audit were adapted from Faridy et al. (2014) and the three items of tax rate were
adapted from Christensen et al. (1994). The sales tax penalty comprised four items adapted
from James et al. (2005) who originally adopted them from Braithwaite (2001). Patriotism
had 6 items adapted from Mac Gregor and Wilkinson (2012) and, finally, the 11
measurement items for sales tax compliance were adapted from sales tax invoicing context,
as employed by Woodward and Tan (2015). The tax invoice is considered to be the most
important document that must be issued by any business, and it is a necessary requirement
of sales tax law to collect sales tax when taxable goods or services are sold or issued by a
seller. Table 1 shows the items of variables.

Data analysis
The present research utilized the Partial least squares structural equation modelling (PLS-
SEM) analysis technique using Smart PLS 3 to examine the proposed hypotheses and to
analyse the research model. PLS-SEM is a statistical instrument that is gaining importance
among researchers being utilized to analyze empirical data in various fields of study
including tax compliance (Farouk et al., 2018). PLS-SEM has the ability to test various
relationships simultaneously (Ringle, 2012). PLS-SEM modelling is appropriate for
examining the complex models that have a high number of items, variables, and
associations (Chin, 2010). Furthermore, PLS-SEM is capable of examining even small
samples (Hair et al., 2014). Because normality distribution is not important in PLS-SEM
(Sarstedt et al., 2014), it can be helpful in many cases when other methods are not. Moreover,
PLS-SEM comprises a two-stage procedure as recommended by Hair et al. (2014), namely,
Latent construct Items Loading CA CR AVE
Role of
patriotism
Sales tax compliance (STC) STC1 0.818 0.844 0.881 0.518
STC2 0.819
STC3 0.757
STC4 0.648
STC5 0.626
STC8 0.663 401
STC9 0.680
Tax audit (TA) TA 1 0.816 0.773 0.867 0.686
TA2 0.823
TA3 0.845
Tax rate (TR) TR1 0.770 0.713 0.838 0.633
TR2 0.796
TR3 0.822
Tax penalty (TP) TP1 0.822 0.808 0.872 0.629
TP2 0.813
TP3 0.790
TP4 0.746
Patriotism (PA) PA1 0.580 0.831 0.860 0.509
PA2 0.623
PA3 0.648
PA4 0.760
PA5 0.827
PA6 0.808 Table 2.
Convergent validity
Note: STC6, STC7, STC10, STC11 were deleted because of low AVE assessment

the measurement model (outer model) and the structural model (inner model). The outer
model assesses the reliability and validity of the constructs and indicators, while the inner
model evaluates the significance of the hypothesised relationships.

Assessment of measurement model

The measurement model in this study was evaluated in light of convergent validity and
discriminant validity. Convergent validity indicates the extent to which the indicators for
the variables represent and measure the variables and can be eligible to correlate positively
with other measures of the same variables (Hair et al., 2014). The convergent validity was
assessed by evaluating the indicators loadings, composite reliability and average variance
extracted (AVE). As presented in Table 2, the indicator loadings, Cronbach’s alpha (CA) and
composite reliability (CR) exceed the minimum threshold of 0.40 and 0.70, respectively (Hair
et al., 2014). However, sales tax compliance items number 6,7,10 and 11 were deleted because
of low indicator loadings and to increase composite reliability. Furthermore, the rule of
thumb about the number of items suggested by Kline (2016) and Kenny (1979) for a
minimum of two items was maintained because even after items elimination, all the
constructs had a minimum of three items. Thus, based on comprehensive results,
convergent validity was acceptable in this study.
After convergent validity was confirmed, the next step involved the examination of the
discriminant validity based on Fornell–Larcker’s criterion as suggested by Hair et al. (2014).
The discriminant validity of the latent contracts was established by comparing the AVE
squared roots and correlation coefficients among variables. As reported in Table 3, all the
AVE squared roots were greater than the diagonal values presented in their respective rows
IMEFM and columns, indicating discriminant validity at the variable level. Overall, it can be
13,3 concluded that the measurement model has achieved the requirements of reliability,
convergent and discriminant validity at both the indicator and variable levels.

PA STC STR TA TP
402 PA 0.713
STC 0.143 0.720
TR 0.088 0.168 0.796
TA
0.092 0.286 0.167 0.828
TP 0.062 0.186
0.078 0.156 0.793
Table 3.
Discriminant validity Note: Highlighted values are to suggest that AVE square root of variable is higher than inter-variable
assessment correlations

The authors also evaluated the measurement model using the PLS-SEM to obtain the R2
value and evaluate the amount of variance interpreted by exogenous variable. The R2
represents the value of variance in the dependent construct (endogenous) that can be
interpreted by one or more independent constructs (exogenous) (Hair et al., 2014). All these
three constructs demonstrated a R2 value of 0.123, indicating that 12.3% of the variance in
the sales tax compliance was explained by tax audit, tax rate and tax penalty. Moreover, the
R2 value increased to 0.232 with the moderating effect of patriotism. This illustrates that
23.2% of the variance in sales tax compliance was influenced by tax audit, tax rate and tax
penalty with the indirect effect of patriotism.

Structural model assessment

The objective of testing the structural model is to examine the effect of the exogenous variable
and moderating variable on the endogenous variable. The significance of the path coefficients
was calculated through the bootstrapping function with 5000 re-samples. Table 4 and Figure 1
display the path coefficients (b -values), t-values, and the p-values of all proposed hypotheses.
Overall, as shown in Table 3, the results revealed that tax audit ( b = 0.214, t = 3.483, p < 0.01)
and tax penalty ( b = 0.154, t = 2.447, p < 0.05) were significantly related to sales tax
compliance, indicating support for hypotheses H1 and H3, but not H2.
Regarding the moderating effect of patriotism, the analysis of bootstrapping illustrated
the hypothesized moderating effect of patriotism on the association between sales tax
compliance and its determinants as presented in Table 4 and Figure 1. Hypothesis H4

Hypothesis No. Relationship Path coefficient T-value P-value Decision

H1 TA -> STC 0.214 3.483 0.000** Supported

H2 TR -> STC 0.071 1.278 0.201 Not supported
H3 TP -> STC 0.154 2.447 0.014* Supported
H4 PATA -> STC 0.163 2.053 0.040* Supported
Table 4. H5 PATR -> STC 0.185 2.624 0.009* Supported
Result of hypotheses H6 PATP -> STC 0.150 2.732 0.006* Supported
testing (direct
relationship) Notes: * p < 0.05; ** p < 0.01, (one-tailed)
 Role of
patriotism

403

Figure 1.
Structural model
(partial least square
bootstrapping)

5
4.5
4
Compliance

3.5
Sales Tax

Moderator Figure 2.
3
2.5 Low Patriotism Interaction term
2 between patriotism
1.5 High Patriotism and tax audit on sales
1 tax compliance
Low Tax Audit High Tax Audit

5
4.5
4
Moderator
Sales Tax Compliance

3.5
3 Low Patriotism Figure 3.
2.5 High Patriotism Interaction term
2 between patriotism
1.5 and tax rate on sales
1 tax compliance
Low Tax Rate High Tax Rate

5
4.5
4
Sales Tax Compliance

Moderator
3.5
3 Low Patriotism Figure 4.
2.5 High Patriotism Interaction term
2 between patriotism
1.5 and tax penalty on
1 sales tax compliance
Low Tax Penalty High Tax Penalty
IMEFM predicted that patriotism moderates the relationship between tax audit and sales tax
13,3 compliance. The study result showed support for H4 ( b = 0.163, t = 2.053, p < 0.05). This
implies that the patriotism had a moderating effect, indicating that a high level of patriotism
diminishes the positive relationship between tax audit and sales tax compliance. Figure 2
indicates that the interaction pattern is in the line with H4; that is, tax audit is more effective
on sales tax compliance when patriotism is high.
404 Hypothesis H5 proposed that patriotism moderates the relationship between tax rate and
sales tax compliance. The findings (Table 4 and Figure 1) provided support for H5 ( b =
0.185, t = 2.624, p< 0.05), where the interaction term was significant and positive between
patriotism and tax rate, indicating that a high level of patriotism diminishes the positive
relationship between tax rate and sales tax compliance. Figure 3 points out that the
interaction pattern is consistent with H5; that is, the tax rate is more effective on sales tax
compliance when patriotism is high.
Hypothesis H6 predicted that patriotism moderates the relationship between tax penalty
and sales tax compliance. The result, as reported in Table 4 and Figure 1, suggests that the
interaction effect between patriotism and tax penalty was significant ( b = 0.150, t = 2.732, p <
0.05), suggesting that a high level of patriotism amplifies the positive association between tax
penalty and sales tax compliance of SMEs. Thus, patriotism has a positive moderating effect on
the relationship between tax penalty and sales tax compliance. Figure 4 suggests that the
interaction pattern aligns with H6, that is, tax penalty is more effective on sales tax compliance
when patriotism is high. Therefore, H6 is supported.

Predictive relevance Q2
According to Hair et al.’s (2010) recommendation, researchers who utilize PLS-SEM should
use measures to point out the model’s predictive relevance in assessing the quality of
models. Sattler et al. (2010) suggested the blindfolding process to examine the predictive
relevance (Q2) of the structural model. Based on Hair et al.’s (2011) study, when the cross-
validated redundancy measure (Q2) value is greater than zero, then the predictive relevance
of the model is confirmed. Following this standard, the cross-validation redundancy
measure (Q2) for the endogenous variable was 0.095, which shows that the model has
predictive relevance (Table 5).

Discussion of findings
The present study’s primary objective was to test the association between tax audit, tax rate
and tax penalty with sales tax compliance among Jordanian SMEs. It also aimed to test the
moderating effect of patriotism on the relationship between tax audit, tax rate, and tax
penalty, with sales tax compliance in the same context. As referred to earlier, the findings
demonstrated that tax audit appears to be the key significant factor influencing sales tax
compliance. This finding corresponds to past literature that reported the critical significance
of tax audit in sales tax compliance in the context of SMEs (Woodward and Tan, 2015). A
reasonable interpretation could be that owner-managers of SMEs compared the costs
involved in being penalized and an audit and the burden of sales tax compliance. The aim of
deterring non-compliance is usually to generate fear by increasing the chances of a tax audit

Table 5.
Construct cross- Endogenous latent variables SSO SSE 1-SSE/SSO
validated
redundancy (Q2) Sales tax compliance 1,484.000 1,343.060 0.095
(Forest and Sheffrin, 2002). The results of the study imply the need for greater emphasis to Role of
be placed on the practice and enforcement of audit on sales tax filing. patriotism
The current study finding does not confirm the prediction of deterrence theory
(Allingham and Sandmo, 1972) that the tax rate influences tax compliance. In the context of
sales tax compliance, the relationship between tax rate and sales tax compliance has
received very little attention, with majority of the studies reporting a significant association
between tax rate and sales tax compliance (Giesecke and Tran, 2012; Matthews, 2003; Agha
and Haughton, 1996). In contrast, the current study found an opposite result. The likely
405
reason for this could be that most past literature used analysis of official data from tax
authority, but the current study relied on behavioural perception of SMEs owner-managers
with regard to credit sales upon issuance of tax invoice. Perhaps, SMEs owner-managers did
not believe that they seek to engage in sales tax compliance based on tax rate. Another
possible explanation could be derived from the belief of SMEs owner-managers that they are
only collecting sales tax from the customers as a tax authority thereby sales tax rate is not
important to them.
Prior research has shown that tax rates have a debatable impact on tax evasion, that is,
decreasing tax rates did not necessarily lead to a decrease in tax evasion (Kirchler et al.,
2014) and increasing tax rates did not necessarily decrease compliance behaviours
(Allingham and Sandmo, 1972). The authors attempted to find an association between tax
rates, tax penalty, actual income and tax audit on the one hand and tax non-compliance on
the other. Using statistical modelling led to the conclusion that taxpayers may select either
to fully tax report or not, regardless of tax rates, and, therefore, tax rates appeared to be
insignificant in influencing tax non-compliance.
In the present paper, the results revealed that a higher tax penalty encouraged sales tax
compliance. Tax penalty has been considered to be one of the main tools in determining tax
compliance (Devos, 2013; Chau and Leung, 2009). In fact, the threat of penalties has been
considered as one of the most efficient methods to prevent tax non-compliance (Mohdali
et al., 2014), and the majority of the available literature and empirical studies have found the
same result (Woodward and Tan, 2015; Ng and Muturi, 2015; Witte and Woodbury, 1985).
Threat and fear are adequate to reduce non-compliance among owner-managers of SMEs
motivating their honest reporting of sales. Consequently, the tax authority can be improved
to serve as a deterrent to sales tax non-compliance. Governments can set sanctions for sales
tax non-compliance as high as a likely deterrent, but they must balance that claim against
potential abuse by corrupt tax auditors or those who harshly penalise the taxpayers for
making honest mistakes (Alleyne and Harris, 2017).
Moving on to the moderating effect of patriotism, based on the results obtained, it has a
positive and significant association with the tax audit and sales tax compliance. Therefore,
this is an indication that the effects of patriotism strengthened the influence of tax audit on
sales tax compliance. As such, in the existence of patriotism and with an increase in tax
audit, the owner-managers of SMEs in Jordan would more likely to be more compliant with
sales tax collections.
The findings also showed the significant and positive moderating effect of patriotism on
the associations between tax rate with sales tax compliance. This means that taxpayers
would be willing to increase the collection of the sales tax rate if this would help the country
due to their love of the nation. The study also found positive and significant coefficients for
the impact of the tax penalty on sales tax compliance in the presence of the moderating
effect of patriotism. This indicates that owner-managers of SMEs in Jordan are patriotic in
paying taxes because of the tax penalties that stem from being discovered for misreporting.
IMEFM Thus, tax penalty leads to increased sales tax compliance compounded by the presence of
13,3 patriotism, as a moderator.

Conclusion, limitations and future research

Tax compliance has been extensively researched and yet, the question of why people pay
taxes failed to fully answer. Tax compliance is a critical issue for governments around the
406 world. To spur economic growth and development, small- and medium-sized enterprises
(SMEs) around the world are expected to comply with tax laws. However, determinants that
are associated with sales tax compliance of SMEs have not been sufficiently tested in the
past literature. Tax compliance studies tend to test determinants that can increase tax
adherence and reduce tax non-compliance. Therefore, this paper examined whether tax
audit, tax rate and tax penalty impact sales tax compliance in direct relationships. It also
examined the moderating effect of patriotism on the relationship of tax audit, tax rate and
tax penalty with sales tax compliance of SMEs. Considering the fact that very little prior
research has examined the associations between tax audit, tax rate and tax penalty with
sales tax compliance (Woodward and Tan, 2015; Faridy et al., 2014), the current research
may be considered to be among the first known study to examine this association in a
Middle Eastern and Arab country, particularly in the presence of patriotism as a moderator.
This study contributes to reducing the gap in the literature regarding sales tax compliance.
This is particularly significant as sales tax compliance studies are generally scarce in the
context of SMEs.
The findings of this paper showed evidence that tax audit plays a determinant role in
increasing the level of sales tax compliance – evidence that aligns with past studies
(Woodward and Tan, 2015).Surprisingly, the current study did not find support for the effect
of tax rate on sales tax compliance, which is consistent with prior literature in the context of
income tax (Sapiei and Kasipillai, 2013; Kim,2008; Nur-Tegin, 2008; Richardson, 2006). In
addition, this study found tax penalty to be related positively with sales tax compliance,
supporting results reported in past studies (Woodward and Tan, 2015; Webley et al., 2004).
Finally, the findings also showed that the interactions between patriotism and tax penalty,
tax audit and tax rate were strong. Therefore, the more patriotic SMEs owner-managers are,
the higher they will support and share the values of their country by complying with the
sales tax laws. Thus, one would expect patriotic appeals for higher sales tax compliance to
have a verifiable effect in countries with high levels of patriotism. One would also expect
countries with high levels of patriotism to have higher levels of sales tax compliance than
that those with low levels of patriotism.
The SME sectors of countries (developed and developing) remain important for national
economies and thus form a crucial part of national tax systems. The results of the present
research provide several implications, particularly for tax authorities and policymakers,
who are in charge of developing and enforcing tax laws. Therefore, tax authorities should
take in account increased operation inspections of SMEs to improve the effectiveness of tax
auditors and combine this with friendly remediation. It is imperative to suggest that tax
authorities must impose sufficient sanctions and encourage the feeling of love of country
and patriotism in owners-managers of SMEs.
In spite of its contributions, the research, however, is not without its limitations. Of note,
given the potential incriminating information that could be uncovered and sensitive nature
of taxes, the study measured actual behaviour rather than behavioural intention. Future
research should consider measuring behavioural intention towards sales tax compliance.
This study is a pioneering research on sales tax compliance of SMEs, most specifically sales
tax compliance in Arab countries and the Middle East. Although this study can be used as a
theoretical framework for future research studies, it is confined to the limited geographical Role of
area in which it has been carried out. Future work should extend the model to comprise patriotism
other determinants such as, tax compliance cost, financial condition, religion as well
patriotism and determine their relationship with sales tax compliance among SMEs. The
study framework provides the basis for future mixed-method studies to expand
generalizability and to delve more deeply into the opinions and feelings about the topic
under study. This approach could also assist the unearthing of variances in the opinions and
perceptions of the existing dominant societal structures to maintain power relations between 407
the taxpayer and the tax authority. Future research studies may promote and verify the
applicability and validity of these results by applying it in various contexts.

Notes
1. It is important to note that sales tax in the Jordanian context refers to VAT or GST elsewhere.
Thus, caution should be made when referring to sales tax context in other countries.
2. The exchange rate of the Jordanian Dinar has been pegged with the US dollar since 1994 (JD 1 =
US $1.4)

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disclosure in SMEs”, Journal of Finance and Accountancy, Vol. 16 No. 9, pp. 1-15.
Al-Saad, I.K. (2014), “Impact of accounting disclosure in the imposition of sales tax on business profits
in Jordan”, International Journal of Business and Social Science, Vol. 5 No. 1, pp. 227-243.
Brown, R. and Mazur, M. (2003), “IRS’s comprehensive approach to compliance measurement”,
National Tax Journal, Vol. 56 No. 3, pp. 689-700.
Haddad, A.E., Sbeiti, W.M. and Qasim, A. (2017), “Accounting legislation, corporate governance codes
and disclosure in Jordan: a review”, International Journal of Law and Management, Vol. 59 No. 1,
pp. 147-176.
Hashimzade, N., Huang, Z. and Myles, G.D. (2010), “Tax fraud by firms and optimal auditing”,
International Review of Law and Economics, Vol. 30 No. 1, pp. 10-17.
Hashimzade, N., Myles, G. and Tran-Nam, B. (2013), “Applications of behavioural economics to Tax
evasion”, Journal of Economic Surveys, Vol. 27 No. 5, pp. 941-977.
Koessler, A.K., Torgler, B., Feld, L.P. and Frey, B.S. (2016), “Commitment to pay taxes: a field experiment on
the importance of promise”, Working paper. 10/2016, Tax and Transfer Policy Institute, Canberra,
available at: http://pdfs.semanticscholar.org/081f/7307423946f4ac425effb9685bb483569983.pdf
Lutfi, A.A., Idris, K.M. and Mohamad, R. (2016), “The influence of technological, organizational and
environmental factors on accounting information system usage among jordanian small and medium-
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Corresponding author
Ahmad Farhan Alshira’h can be contacted at: alshraah.ahmad@yahoo.com

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