Determinants of Tax Non-Compliance in Budget-Friendly Boutique and Economy-Class Hotels in Nepal

Abstract

This study examines tax non-compliance behavior among budgetfriendly
boutique and economy-class hotels in Nepal with reference to
perceived fairness of the tax system, cost of tax compliance, coercive
power of tax authorities, complexity of the tax system, and peer
influence and social norms. A quantitative cross-sectional research
design has been applied in this study to analyze the potential impact
of these factors on the tax non-compliance behavior of these small,
medium-sized, and economical hotels in Nepal. Data was collected from
employees associated with 93 budget-friendly boutique and economyclass
hotels located in Kathmandu, Lalitpur, Bhaktapur, Pokhara, and
Bharatpur. Here, N=187 owner/investors, hotel managers, and heads
of accounts and finance departments participated in this study. The
results indicate that the cost of tax compliance and peer influence/social
norms are influential determinants of tax non-compliance behavior
among budget-friendly boutiques and economy-class hotels. Although
counterintuitive, this study challenges the conventional deterrencebased
assumption that coercive enforcement improves tax compliance
behavior. This study concludes that tax regulators need to implement
peer-based interventions and compliance-focused recognition programs
and adopt supportive rather than punitive enforcement strategies for
tax adherence among budget-friendly small- and medium-sized hotels
in Nepal.