The impact of electronic tax systems on tax compliance: a case study of VAT mobile money tax collection in Somalia

Abstract

The purpose of this study was to examine the effect of electronic tax systems, specifically the VAT mobile money collection system, on tax compliance in Somalia. Somalia is a fragile post-conflict state, lacking institutional trust, political will to curb corruption, and fiscal capacity. A huge potential to revolutionize tax collection and transparency lies in leveraging mobile money technology, which now accounts for over 70% of financial transactions in the country. Using the well-anchored Theory of Planned Behavior (TPB), the paper studies the relationships of three TPB-entrenched constructs System Quality and Reliability, Accessibility and Convenience and Transparency and Accountability in which taxpayer compliance behavior and intention depend on. The research utilized quantitative data obtained from 527 respondents in transitional and peri-urban localities and a PLS-SEM tool using SmartPLS to assess relationships between the different variables. The results show that the three factors have direct significant effects on tax compliance and the strongest factors, Transparency & Accountability significantly influence tax compliance (β = 0.454, t = 20.083, p < 0.000). Positive effects are also observed for System Quality & Reliability (β = 0.294) and Accessibility & Convenience (β = 0.270). The high R² value of 0.972 indicates explanation power of the model. These results imply that well-designed digital tax systems can help increase voluntary compliance and lead to restored trust in government institutions. More relevantly, the study concludes that Somalia’s VAT mobile money initiative could serve as an example for other developing countries interested in technology driven transparency and citizen-oriented tax reforms.