Moderating Role of Personality Traits Between Tax Audit, Tax Rate, Tax Penalty and Sales Tax Compliance in Pakistan

Abstract

The landscape of Finance in the modern day has become dynamic- with the introduction of behavioural finance, and the possibilities are endless. The study aims to demonstrate the impact of tax audits, tax rates, and tax penalties on sales tax compliance in light of personality traits. To this stage, the effect of personality traits and behavioural trends on sales tax compliance has not been explored thoroughly in Pakistan. In this study, 340 questionnaires were distributed through convenience sampling to the owners-managers of manufacturing and service sector representatives of SMEs operational in Faisalabad, Pakistan. After this, the data collected through the questionnaire were categorically analyzed using SPSS to validate the measurement model and structure. The findings demonstrated the direct positive relationship between tax audit, tax rates, tax penalty, and sales tax compliance. Further, the personality trends of neuroticism reflect a significant impact as a moderator towards tax-compliant behaviour. Policymakers may deploy these findings to enhance sales tax collection by making individualized systems catering to specific behaviours and personality traits to ensure maximum tax compliance. Tax administration authorities should deploy strict policies to deal with the non-compliant behaviour of taxpayers. It will help enhance the tax-to-GDP ratio of Pakistan and will generate more funds for public expenditures.