Does deterrence-based enforcement matter in alms tax (Zakat) compliance?

Hijattulah Abdul-Jabbar and Saeed Awadh Bin-Nashwan

International Journal of Social Economics, 2022, vol. 49, issue 5, 710-725

Abstract: Purpose - Government seeks to realize its economic objectives and eventually its social objectives as well through taxation. In a Muslim-majority economy, besides many types of taxation imposed, some government also legally enforced an alms tax (Zakat) via specific authority. The purpose of this study is to examine the role of enforcement in Zakat compliance and how it can enhance the effect of social motivations, namely perceived institutional credibility and social pressure, on zakat payers' compliance decisions. Design/methodology/approach - This research is underpinned by economic deterrence theory and employed data collected through a cross-sectional approach. A total of 274 Yemeni entrepreneurs responded to the questionnaire and analysed using SmartPLS version 3.2.9. Findings - The study finds that social pressure and institutional credibility are significantly related to entrepreneurs' compliance with Zakat. Importantly, enforcement-moderated interactions of social pressure and perceived credibility on Zakat payers' compliance are statistically significant. Practical implications - Some signals emerged from the results which could be used by governments throughout the Muslim-majority state to mitigate Zakat evasion amongst entrepreneurs. Furthermore, the study can provide information to Zakat authorities and policymakers on how to restore public trustworthiness and increase Zakat collection from entrepreneurs as well as cautioning such authorities that social pressure may possess an unfavourable attitude towards Zakat laws, influencing Zakat payers to do this action itself. Originality/value - This study provides a shred of unique evidence by suggesting a new approach to the Zakat literature and linking the deterrence-based enforcement and social motivation with practice, which contributes to strengthening compliance levels amongst entrepreneurs and ultimately enhancing Zakat funds.

Keywords: Alms tax; Zakat compliance; Enforcement; Institutional credibility; Social pressure (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijsepp:ijse-06-2021-0346

DOI: 10.1108/IJSE-06-2021-0346

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