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.
Highlights
Tax revenue is globally regarded as the oldest means of generating funds for sustainability of governments and most economies rely on taxation in order to meet up their expenditure needs (Kira, 2017; Okauru, 2012)
SMEs have the potential of a high source of tax revenue generation; but are hindered by a high level of tax evasion
The findings of the current research revealed that the probability of detection and tax penalties are negatively associated with income tax evasion, while, tax rate is positively associated with income tax evasion
Summary
Tax revenue is globally regarded as the oldest means of generating funds for sustainability of governments and most economies rely on taxation in order to meet up their expenditure needs (Kira, 2017; Okauru, 2012). The lack of compliance to the provisions of tax laws indicates that taxpayers are evading tax (Kirchler, 2007) In this regard, Franzoni (2000) asserted that tax evasion is the commonest and most critical challenge of tax administration. SMEs in Palestine make up 99% of business taxpayers, they accounted for only 30% of the income tax revenues This is far less than what is expected to be generated from the SMEs (Fallah, 2014). With the current level of tax evasion in Palestine, there is need for an in-depth examination of the important economic factors that could influence tax evasion in a bid to develop policies to increase revenue for the government
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