The Impact of Applying Reverse Charge Mechanisms and Withholding Tax on Reducing Tax Avoidance in the Saudi Business Environment

Abstract

The research aimed to measure the impact of applying the accounting mechanisms of reverse charge and withholding tax to reduce tax avoidance in the Saudi business environment by studying and analyzing the reverse charge and withholding tax mechanisms as well as the methods of measuring the tax base of transactions that take place between residents and non-residents. It also studied the impacts of applying accounting mechanisms for reverse charge and withholding tax and clarified their impact on reducing tax avoidance. The research found a statistically significant relationship at the level of significance (α≤0.05) between applying reverse accounting mechanisms and withholding tax in Saudi Arabia’s business environment for taxable enterprises and reducing tax avoidance. The application of reverse charge mechanisms and withholding tax has a positive impact on controlling the tax community, increasing tax revenues, and reducing tax avoidance. For a tax examination, the transactions that take place between residents and non-residents are limited by the declaration of value-added tax, the declaration of withholding tax, and access to the tax base properly and fairly without resorting to personal estimates. These findings benefit users of this information in the tax administration. Indeed, tax administrators are able to determine the tax base fairly, limit transactions between residents and non-residents, and have access to correct, accurate, and undistorted information. This will limit tax avoidance, increase tax revenue and achieve tax justice.