The Deterrent Role of Social Norms on Tax Evasion in Indonesia

Indonesia, as a developing nation, confronts significant challenges with tax evasion, exacerbated by a substantial shadow economy. This phenomenon results in the non-reporting or underreporting of hundreds of trillions of rupiah in income, which should constitute the tax base. Such dynamics create strong incentives for individuals to engage in tax evasion practices. Researchers have extensively examined tax evasion across various disciplines and methodologies, yet each approach has its limitations, leaving the issue incompletely addressed. Hence, this study integrates these shortcomings, encompassing detection risk, fiscal psychological burden, fiscal transparency, and modernization of tax administration as pivotal factors influencing tax evasion. Furthermore, tax evasion in Indonesia often garners negative publicity, particularly involving unscrupulous employees of the Directorate General of Taxes (DJP), thereby contributing to a highly unfavorable societal perception of tax officials. This negative stigma potentially shapes social norms that impact taxpayer compliance behaviors. Consequently, this research employs social norms as a moderating variable. The study gathered valid responses from 418 individual taxpayers through distributed questionnaires, revealing significant impacts of detection risk, fiscal psychological burden, fiscal transparency, and modernization of tax administration on tax evasion. Interestingly, social norms were found to moderate all independent and dependent variables except for the modernization of tax administration.