NATIONAL CULTURE AND TAX AVOIDANCE
DOI:
https://doi.org/10.35631/AIJBES.829065Keywords:
National Culture, Tax AvoidanceAbstract
This study investigates the impact of national culture on tax avoidance for three dimensions of national culture, namely power distance, individualism and uncertainty avoidance. Theoretical backgrounds are Agency theory, Institutional theory and Legitimacy theory. A quantitative research approach was chosen, and a regression model is used to test the hypothesis. The three cultural variables are found to be negatively significant determinants of tax avoidance. Thus, in cultures with strong cultural structures, companies tend to adopt a more cautious tax strategy and are more tax compliant. Government effectiveness has a strong negative relationship with tax avoidance and thus the quality of a government’s institutions is a critical factor in a country in order to prevent tax avoidance. The results of this study are in contrast to most of the prior studies which either did not find any direct evidence of the effect of culture on tax avoidance or that the effect of culture is influenced by the quality of governance and the extent of regulatory interference that a company faces. The study has several implications for policy makers in strengthening the institutional environment in order to improve tax compliance.
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