INSTITUTIONAL DETERMINANTS OF TAX COMPLIANCE: EVIDENCE ON POLICY EFFECTIVENESS AND TAX LITERACY AMONG ENTREPRENEURS

B A Karunakara Reddy; Harish K

doi:10.29121/granthaalayah.v14.i5.2026.6930

Authors

Dr. B A Karunakara Reddy Professor, Acharya Institute of Management & Sciences, Bangalore
Harish K Research Scholar, AIMS Centre for Advanced Research Centre, University of Mysore.

DOI:

https://doi.org/10.29121/granthaalayah.v14.i5.2026.6930

Keywords:

Tax Compliance, Tax Literacy, Tax Policy Effectiveness, Regulatory Complexity, Entrepreneurs, Institutional Framework, Sem, Voluntary Compliance, Formalisation, India

Abstract [English]

The aim of the study is to study institutional determinants of tax compliance of business entrepreneurs with a special focus on the effectiveness of tax policy and tax literacy. This paper aims to understand the role of policy design and regulatory frameworks in shaping voluntary compliance and formalisation of entrepreneurial activities. Primary data is collected from entrepreneurs of India. The questionnaire was designed using a five-point Likert scale. Quantitative research design was used. The constructs of interest are tax literacy, perceived effectiveness of tax policies, complexity of regulation and tax compliance behaviour. Structural Equation Modelling (SEM) was employed to test direct and mediating relationships between the variables. The findings suggest that tax literacy and perceived policy effectiveness are positively related to tax compliance, while regulatory complexity is negatively related to tax compliance. Tax literacy was also found to mediate the relationship between policy effectiveness and compliance partially, underscoring its important role in translating the institutional provisions into actual compliance behaviour. This study adds to the literature by combining institutional and behavioural perspectives and offering empirical evidence from an emerging economy context. Highlighting the need to simplify tax legislation and the need to improve tax educational programs to promote voluntary compliance and to stimulate the formalisation of entrepreneurial activities.

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