With the presence of the religiously mandated practice of zakat, there are ongoing debates on whether governments have the right to levy taxes, especially in predominantly Muslim communities. This study aims to explore the moderating effect of Islamic religious outlook (IRO) on relationships between the determinants, such as governance quality (GQ), service quality (SQ), tax penalties (TP),and tax rate (TR), and tax non-compliance (TNC) behaviour.
Adopting a cross-sectional design through a quantitative method, the authors collected 341 surveys from micro, small, and medium enterprises (MSMEs) and analysed them using SmartPLS software.
Interesting outcomes were obtained from this study. The authors observed that IRO exerts a positive impact on TNC behaviour among MSMEs. Likewise, the economic factor (TP) was positively associated with non-compliance behaviour, whereas TR, SQ and GQ failed to report significant conclusions. With integrating IRO as a moderator into the model, it was revealed that the IRO-moderated interactions of GQ, SQ, TP and TR on TNC behaviour are significant.
The results offer substantial actionable insights for tax authorities and governments in developing nations, particularly those with a predominantly Muslim population. This study specifically aims to enhance the understanding of the critical determinants that significantly impact taxpayers’ behaviour, aiming to strengthen tax collection. Some policies must be implemented to mitigate non-compliance with tax rules, especially among MSMEs Muslim-majority countries. For instance, tax rebates to those who paid zakat might be an effective way to enhance compliance, whereas regulations need to be reconsidered to avoid potential conflict between zakat and taxes.
To the best of the authors’ knowledge, this attempt is the first to empirically analyse IRO on whether governments have the right to levy taxes and its moderating role in tax literature. The insights from this study can advance future academic endeavours and also assist in formulating actionable strategies to boost tax funds.
