Theresia Woro Damayanti

Department of Accounting, Universitas Kristen Satya Wacana

Indonesia

theresia.damayanti@uksw.edu

Market competition, fairness and tax compliance: The formal sector’s perspective

Ade Lisa Matasik

Department of Accounting, Universitas Kristen Satya Wacana

Indonesia

932017022@student.uksw.edu

Supramono

Department of Management, Universitas Kristen Satya Wacana

Indonesia

supramono@uksw.edu 

Abstract. This study aims to investigate the effects of the formal sector’s perception of market competition and tax fairness on tax compliance. The data has been borrowed from the World Bank’s Survey for the years of 2006-2018 on 49,788 managers of the formal private firms in 140 countries and is analyzed by using the ordered logistic regression.  Our results show that the formal sector’s perception of market competition and tax fairness affect tax compliance. This study also finds that the interaction between the formal sector’s perception of market competition and tax fairness significantly affects compliance. Firms will exhibit greater tax compliance if they consider the competition with the informal sector less intense and tax systems fair. Overall, the results imply that governments need to create conducive market competition and to create and implement fair tax systems.

Received: April, 2020

1st Revision: October, 2020

Accepted: February, 2021

DOI: 10.14254/2071-8330.2021/14-1/2

JEL Classification: H25, H26, L11

Keywords: market competition, tax fairness, tax compliance, formal sector