Influence of Tax Awareness, Simplicity, and Knowledge on Voluntary Tax Compliance in Pakistan: The Mediating and Moderating Role of Tax Fairness and Social Norms

Abstract

Tax revenue is one of the principal sources to accelerate government funds. Voluntary tax compliance can play the main role in accomplishing the target.  This study explores the role of Tax Awareness (TAW), Tax Simplicity (TSIMP), and Tax Knowledge (TK) in the determination of voluntary tax compliance behavior. This study father analyzes the mediating role of Perception of Tax Fairness (PTF) among TAW, TSIMP, TK, and voluntary tax compliance. This study also analyzes whether “Social Norms (SN)” moderated the relationship between Tax awareness (TAW) and Voluntary Tax Compliance (VTC). The study uses 2000 observations which are collected with two steps stratified sampling technique of five main metropolitan cities (Lahore, Karachi, Islamabad/Rawalpindi, Peshawar) and their National Assembly (NA) constituencies within each chosen city. The survey “Multi-Stakeholder Perception Survey for the Advocacy to strengthen Demand for Economic Reforms” was conducted on direct taxpayer behavior.

This study utilized confirmatory factor analysis (CFA) to address the reliability and validity concern while Structural Equation Modeling (SEM) technique is applied for empirical investigation of the hypothesized relationship among modeled variables. The findings of the paper reveal that TK, TSIMP, TAW, SN, and PTF contribute positively to the determination of Voluntary Tax Compliance (VTC). Moreover, PTF significantly mediates among TAW, TSIMP, TK, and voluntary tax compliance. Moreover, SN strengthens the relationship between TAW and voluntary tax compliance. The study concludes with suggestions that the sustainability and self-reliance of Pakistan's economy are stringent on voluntary tax compliance of taxpayers. So, the efforts to review tax policies that can develop a simple and fair tax system with horizontal and vertical equity, improve tax awareness and tax knowledge, and educate taxpayers about social norms can help to meet many challenges of Pakistan today.