Tax Sanction by Reward and Punishment Mechanism as A Part of Tax Law in Increasing Tax Morale

Abstract

Background: Taxation is an important source of revenue for a country. Research in many developing countries has recently demonstrated that tax can play a significant role in the development of power of state and society. This is seen on two principles, namely the imposition of a tax as a negotiation process based on social contract (revenue-bargaining policy) and taxes for institutional development to strengthen the capacity of the state to perform its functions. Unfortunately, countries with tax systems still have problems with tax compliance because of low tax morale and low tax sanction enforcement.   Purpose: The study’s purpose was to conduct research related to the effect of tax sanction by combining reward and punishment against tax morale to increase tax compliance.   Theoretical reference: Tax morale is the intrinsic motivation and willingness of individuals and businesses to comply with tax obligations voluntarily. Rewards can be framed as gains, leveraging prospect theory to enhance the perceived benefits of tax compliance. Punishments function as deterrents to non-compliance by increasing the perceived costs of evasion. Rewards and punishments can be balanced to create an optimal incentive structure. The perceived fairness in the distribution of rewards and punishments contributes to tax morale.   Method: Research is undertaken through online surveys. In this study, besides conducting descriptive analysis to see the characteristics of respondents and the mean and frequency of each variable, data is also analyzed by Partial Least Square (PLS) analysis. In the implementation, descriptive analysis is realized by Qualtrics Software and verification analysis, consisting of assessing outer model and assessing inner model.   Results and Conclusion: The study highlighted the respondent’s agreement toward reward and punishment mechanism in the tax sanction and this mechanism can enhance tax morale. The findings emphasize the significant impact the tax sanction via reward and punishment on tax morale.   Implications of research: The implementation of tax sanctions, as a part of tax law, in the form of easiness (reward) and uneasiness (punishment) in obtaining public services. It is considered more humane than imprisonment sanction to people, who have contributed to the country by taxes paid and smoother to increase tax morale, so that the green economy and sustainable developments in the tax sector can be realized.   Originality/value: Reward and punishment mechanism in enhancing tax morale.