The Effects of Social Influence Factors on Income Tax Evasion among the Palestinian SMEs

Abstract

The phenomenon of tax evasion has proved to be a common challenge across both the developing and developed countries. This may be considered a vital threat to national revenue of any government, and results in fiscal deficits. In the case of the developing countries, Palestine depends heavily on the revenue from tax and funds coming from international aids in financing the national growth plan. Hence, this study aims at examining the interrelationships among tax fairness, peer influence, corruption, and income tax evasion based on the theory of Social Influence. The procedure involved a proportionate sampling of the targeted respondents, and the data collection was achieved quantitatively by means of appropriate questionnaires. The returned questionnaires were screened and only 184 were useful for analysis. The analysis of the data was done by means of Partial Least Square (PLS) software. The outcome of the data analyses revealed that both peer influence and tax fairness had a negative but significant influence. Regarding corruption, it was insignificant though was positive in relation to the evasion of the income tax. This finding implies that the income tax administration efficiency can make a maximum gain from tax collections as well as discourages tax evasion.