Determinants of tax compliance behaviour among Yemeni SMEs: The moderating effect of removal of government subsidies

Despite the substantial efforts by the government, income tax compliance among small and medium-sized enterprises (SMEs) in the manufacturing sector of Yemen is very low. Therefore, the present study aims to determine the factors that influence the tax compliance behaviour among the SMEs in Yemen by extending Fischer’s Model that is built on the integration of both economic and socio-psychological theories in the context of tax compliance as well as examining the moderating role of the removal of government subsidies as a new construct of SMEs’ tax compliance behaviour. This study hypothesises ten factors affecting SMEs’ tax compliance behaviour and ten hypotheses on the moderating effects of the removal of government subsidies on such relationships. Using the quantitative approach, this study employed a self –administered questionnaire survey among 490 owner-managers of SMEs listed by the Yemeni Ministry of Industry and Trade (YMIT). From there, 372 responses were received and usable for analysis purpose. The Partial Least Squares (PLS) results revealed positive relationships between tax fairness, tax audit, tax rate, tax penalty, political instability, and zakat payment on SMEs’ tax compliance behaviour and negative relationships of income of SMEs and tax compliance costs on SMEs’ tax compliance behaviour. Meanwhile, peer influence and perception of corruption did not demonstrate any significant influence on SMEs’ tax compliance behaviour. The findings also ascertained the potential moderating effect of the removal of government subsidies on the relationships between tax fairness, tax audit, tax rate, tax penalty and tax compliance costs on SMEs tax compliance behaviour. Besides extending the body of knowledge by providing a robust model to explain several interrelated factors that influence SMEs tax compliance behaviour, the results also offer further insights on the determinants of tax compliance behaviour among SMEs, especially in the Yemen context