(Dis)obeying the law: corporate tax morale in developing countries

Ensuring high tax compliance is one of the key objectives of every tax system. Yet, while tax non-compliance is known to be significant among small and medium-sized enterprises (SMEs), the motivations underlying it remain surprisingly underexplored, particularly in the context of developing countries. This article introduces a novel theoretical framework for understanding the tax morale of corporate taxpayers, identifying five endogenous and six exogenous motivations for tax (non-)compliance. The proposed framework is informed by an innovative methodological approach using a triangulation of primary data, including 42 interviews and 86 court cases, with a focus on value-added tax and corporate income tax. This article addresses for the first time a crucial question: why is compliance with tax law among SMEs so low, particularly in developing countries? It empirically demonstrates that SMEs’ tax behaviour is influenced by psychological factors, identifying the existence of corporate tax morale that prima facie runs counter to both the legal fiction that holds that SMEs are separate legal entities and the standard tax policy assumption that VAT is a full neutral tax for businesses.