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Abstract

This study aims to examine the effect of determinants of the quality of tax audits for content creation tax on formal tax compliance and actual tax compliance. We used the questionnaire tool to collect data for a sample of 179 tax auditors, also we used partial least squares (PLS) to test the hypotheses. The result showed each of the regulations and laws, the quality of communication between the tax authority and taxpayers and the determinants associated with organizations have a positive effect on formal tax compliance. Meanwhile, the regulations and laws have a positive effect on actual tax. Also, there is no effect for both the quality of communication between the tax authority and taxpayers and the determinants associated with organizations on actual tax compliance. This study focused on the income tax on the profits of content creators and did not address the value-added tax on content creation. This study was also limited to the opinions of tax auditors and did not address the opinions of content creators.

Plain Language Summary

Quality of tax audits for content creation tax and tax compliance

Although there are many studies that dealt with the issue of taxes in Egypt. But studies addressing the content creator tax are still limited. The purpose of the study to examine the effect of determinants of the quality of tax audits for content creation tax on formal tax compliance and actual tax compliance.

Keywords

content creation tax actual tax compliance formal tax compliance Egypt

Introduction

Social media has become a fundamental influence in our lives today as it allows direct interaction between the sender and receiver of information. There are three motivations for people to use social media and subsequently consume online content, that is, access to information, entertainment, and communication (Benson et al., 2014; Huotari et al., 2015; F. Zhao & Yao, 2020;). Statistics reveal that there are approximately 3.96 billion social media users worldwide, such as in Facebook, Twitter, Linkedin, Google Plus, Pinterest, Instagram, and other sites. Moreover, there are more than 365 social networking sites worldwide, which can be used in accordance with one’s target segment (O'Connor et al., 2022; Omnicore, 2021). Digital content created by ordinary people has become dominant on social media (Huotari et al., 2015; F. Zhao & Yao, 2020). Digital content involves several topics, such as website maintenance and updating, photography, videography, blogging, online commenting and digital media editing and distribution (Gardiner, 2019; Majali, 2017). The phenomenon of content creators, such as “Youtubers” or “bloggers,” started several years ago, but it has become widespread recently, particularly after the COVID-19 pandemic. Many of them achieved wide fame, and some of them exceeded one million or tens of millions of followers on their accounts. For example, YouTube channels have generated millions of profits, and in 2019, YouTube became the second most visited website in the world (after Google) (Corrêa et al., 2020). As YouTubers have a great ability to create content that millions of people watch (SocialBlade, 2020), this case has benefited Egyptian content makers, where many of whom make millions of dollars annually. The tax rule is “Anyone who earns income from any activity or profession is, by law, subject to tax.” The Egyptian Ministry of Finance announced in September 2021 that content makers would be subject to taxes according to Income Tax Law 91 of 2005 and its amendments, or Law 152 of 2020, which was approved for the development of small and medium enterprises. The Egyptian Tax Authority asked content creators on the Internet and those who make profits through social networking sites to apply to obtain a commercial registration and a tax card, open a tax file and pay tax. The content creation tax (CCT), similar to other taxes, is subject to tax non-compliance and tax evasion. For example, a content creator taxpayer can try to evade tax by not disclosing all the revenues he/she received and exaggerating the expenses incurred. Some content creators transfer their revenues from outside of Egypt to companies to trade the currency and then receive the money after so that it is not counted in tax revenues. Some YouTubers also register their YouTube channels in countries that do not impose a tax on content creation. Moreover, some content creation companies register with the tax authority as the natural person to benefit from lower tax treatment for a natural person than companies. Failure to comply with the tax on content creation can lose hundreds of millions of tax revenue. Hence, the quality of the tax audit (TA) is important, which mainly aims to ensure that taxpayers act in accordance with the procedures and principles specified in the tax laws (Koç, 2018). Tax audit has two types of impact. Firstly, the direct effect relates to the additional revenue obtained as a result of the tax audit. Secondly, the indirect effect pertains to the deterrence effect, where the TA is considered to deter potential tax evaders and enhance tax compliance (TC) (Chalu & Mzee, 2018; Wickerson, 1994). In September 2021, Egypt subjected the profits obtained by the creator of the Internet to tax, which is in accordance with the prevailing tax rule in Egypt: “Anyone who earns income from any activity or profession is, by law, subject to tax.” This event leads to the achievement of tax justice and leads to ensuring the provision of satisfactory revenues by taxpayers (content creators), to reduce tax evasion and ensure a high degree of TC, thereby increasing the tax proceeds. This study aims to examine the impact of the quality determinants of tax audits for CCT on TC in Egypt.

The main contribution of this study is that it is the first (to the extent of the researchers’ knowledge) to deal with factors affecting taxpayers’ compliance with the content creation tax from the point of view of tax auditors. Moreover, this study attempts to explore the most important determinants of audit quality on CCT. This study will help us not only to understand the current situation but also to determine the critical factors for the quality of tax audits on content creation. Moreover, researchers measure TC (for the first time to the extent of researchers’ knowledge) through two variables: formal tax compliance (FTC) and actual tax compliance (ATC). In addition, previous studies on the determinants affecting the quality of the TA have not reached a consensus, with different variables expressing the determinants of TA quality (Alao, 2021; Avcı & Demirci, 2021; Chalu & Mzee, 2018; Gökmen, 2012; Mersha et al., 2022; Nugrahanto & Alhadi, 2021; Vierra Gracia Dharmawan, 2019). No study has been conducted on the determinants of TA quality in relation to the tax on content creation. Therefore, there is a need to conduct studies on this topic because the results related to these determinants are still ambiguous. In addition, many studies have examined the relationship between tax auditing and TC, and they have found a positive relationship between tax auditing and TC (e.g., Alm & McKee, 2006; Alshira'h & Abdul-Jabbar, 2020; Feld & Larsen, 2012). By contrast, other studies found a negative relationship between tax auditing and TC (e.g., Feld & Frey, 2007; Mittone, 2006). In the present study, we will examine the direct relationship between the determinants of TA quality and TC with respect to the tax on content creation in Egypt. The rest of the paper is organized as follows. Section 2 presents the background of tax in Egypt. Section 3 reviews the literature and develops hypotheses. Section 4 presents the research design, sample selection and analytical findings, including robustness checks. Section 6 concludes the study and indicates the limitations of the research and future research direction.

Tax in Egypt

General Information About Tax in Egypt

Taxes in Egypt are imposed on individual and corporate income. Egypt is considered one of the first countries to impose taxes in the world since the time of the ancient Egyptians. The tax in Egypt witnessed a quantum leap after the state issued a tax law in 1973 to pave the way for the imposition of a unified tax on income. The law included four specific taxes: movable capital tax, commercial and industrial profits tax, salary tax, and non-commercial professional profit tax. The law cancelled all additional taxes that were imposed in previous periods for specific purposes, such as the defense and national security tax. The 1990s witnessed amendments to direct taxes (amending the income tax law in what is known as the unified tax system) and indirect taxes, amending the consumption tax law issued in 1981, which replaced many taxes and royalties, such as production and consumption fees. In addition, many tax incentives have been introduced to encourage investments. In 1991, the sales tax law was passed to replace the consumption tax. In 2005, Income Tax Law No. 91 was issued and amended by Resolution No. 233 in 2022. This law is considered the basis for imposing income tax in Egypt. Taxes represent the largest percentage of government revenues, which reached 71% in the 2016 to 2017 budget. This percentage trends toward an increase in the draft budget for the fiscal year 2017 to 2018 amidst the conditions of the growing deficit in the public budget, which made the government consider an increase in tax revenue to reduce this deficit. The Egyptian Tax Authority collects taxes in Egypt and reports to the Ministry of Finance. The Tax Authority was established in 2006 by a presidential decree merging the General Tax and Sales Tax Departments. Natural individuals in Egypt are subject to six types of taxes, divided between direct and indirect taxes, and they are held accountable according to the tax bracket system after deducting exemptions. The indirect taxes to which the citizens are subject are divided into two types: the first is value-added taxes on goods and services purchased by the citizen according to tax brackets, and the second type is customs taxes for goods imported from abroad. The direct taxes paid by citizens are divided into four main sections: income tax, profit tax on industrial and commercial activity, employment tax and real estate transaction tax. These four types of tax are calculated according to the tax brackets. Legal persons are subject to one type of tax, which is capital gains taxes at a rate of 22.5% of the net profits of companies and legal persons (Egyptian Tax Authority).

Information About the Tax on Creating Content in Egypt

A content creator is someone who specializes in writing online content that is capable of entertaining and educating the audience. A content creator can be defined as the person responsible for producing content in all its forms, whether written content, such as blogging; visual content, such as videos; or audio content, such as the podcast (Gardiner, 2019; Majali, 2017; Okuonghae, 2021). The report of DIGITAL 2022: GLOBAL OVERVIEW REPORT revealed that the number of social media users in Egypt had grown to approximately 51.45 million users in early January 2022. The number of social media users in Egypt has also reached about 51.45 million users. YouTube has 46.3 million users, Facebook has 44.7 million users, TikTok has 20.3 million users and Instagram has 16 million users (Kemp, 2022). The Egyptian Ministry of Finance has dealt with the content creator on the Internet as one of the professions, and therefore, the Egyptian Tax Authority deals with content creators as those who are subject to tax on non-commercial professions, and the determination of net revenues is based on the income generated from operations. The following is the income from the taxable content creators in Egypt (Egyptian Ministry of Finance, 2022). Table 1 shows taxable revenue from content creators in Egypt.

Table 1.

Taxable Revenue From Content Creators in Egypt.

Revenues	Explanation
Revenue generated from creating audio or visual content	The video industry, audio clips or video broadcasts, whether video or audio, fall under it, which are broadcasted through digital platforms, such as YouTube, Facebook and TikTok, and are watched by the followers. It also includes the ads that the platform puts within the content without the intervention of the content creator itself, for example, ads on the YouTube platform that are linked to the AdSense account
Revenue from advertising goods or services within the content	Advertising within the content of the creator in return for a fee from the beneficiaries (the owner of the advertised activity) or in exchange for free goods or a free service granted by the advertiser (e.g., advertising a mobile device and then obtaining this device)
Revenue from YouTube fund	YouTube fund is a fund dedicated to rewarding the content creator for their dedication to producing videos or short creative content, and if the content creator receives income from this fund, then these amounts are subject to tax.
Marched or merchandise	Some content creators sell products for the T-SHIRT channel or MUG, and these products are promoted through the channel, video, content, link below the content or others. In this case, there is a commercial activity that generates revenue, and a tax is imposed.
Revenue generated from donations collected from followers	The creator of the content can add a link or ICON for the purpose of donating. Thus, followers can donate using the donate button available in the videos, content or in live chat. A donation in favor of the content creator is considered taxable income.
Other cases in which the return is taxable income	Launch a virtual summitSymposium virtual	In the event that revenues are obtained from these virtual seminars or meetings, these revenues are subject to income tax.
Other cases in which the return is taxable income	Podcasts	This audio broadcast is exploited to obtain money through a number of ways, including, but not limited to, the following:A- Sponsorship: It is an advertisement for a company to pay the podcast owner an amount or its equivalent of services and products to promote them amongst podcast listeners and is subject to income tax.B- Subscriptions: It is based on the subscriber paying a certain amount in return for obtaining access to exclusive audio episodes (for members only) and is subject to income tax

From another aspect, the tax law allows determining the net revenue for content creators based on the income generated from various operations after deducting all costs and expenses necessary to practice the profession, as long as it meets the conditions clarified by Article (45) of the executive regulations of the law, which states the following: “To deduct all costs and expenses necessary to generate revenue.”

Taxes Imposed on the Content Creators

The taxes related to the e-commerce activity and the online content creator’s activity are income tax and value-added tax. Income tax is a direct tax imposed on the net income of natural persons or the profits of legal persons following the provisions of the Income Tax Law promulgated by Law No. 91 of 2005. The content creators are also charged with a value-added tax. Value-added tax is an indirect tax imposed on all goods and services, with the exception of goods and services that are exempt from tax in accordance with the provisions of Value Added Tax Law No. 67 of 2016 and its amendments. As content creation may take place from inside the home in which the content creator resided when content creators were working from home, the Egyptian Ministry of Finance has permitted to deduct the following expenses from tax revenues: (A) 25% of the value of the documented lease contract, (B) 75% of Internet bills, (C) 20% of electricity bills (Egyptian Ministry of Finance, 2022). Moreover, subjecting the content creation activity to tax on non-commercial professions creates additional burdens on the content creator. The reason is that there is no union organization for them like in other professions. Moreover, the majority of online content creators are natural individuals rather than companies, and therefore, most of them do not keep regular tax books and records, having to pay higher taxes in the case of tax compliance. From another aspect, the Egyptian Tax Law allows all individuals and legal persons to deduct costs and expenses that are not substantiated by documents, such as tips, within the limit of 7% of the expenses supported by documents, in the case that taxpayers keep regular books and records. However, in the content creation activity, several expenses are spent on activities that are not proven by documents, such as transportation expenses, hospitality expenses, expenses for preparing video and audio episodes on social media and tips. These expenses are much greater than 7% of the documented expenses, which creates additional burdens on taxpayers from the creator of the content in the event of tax compliance.

Literature Review and Hypothesis Development

Tax audit is of particular importance in systems based on tax returns (Avcı & Demirci, 2021). TA is defined as a system for examining the accounting data and information attached to the tax return and the books and records of taxpayers to verify the correctness of the data of tax returns submitted by the taxpayer, expressing the reality of the tax payer’s activity, to reach a fair and objective tax in the light of the tax laws and regulations. TC by taxpayers is an indicator of the effectiveness and TA quality, and therefore, the quality of TA is measured through TC (Ayalew, 2014; Devos, 2013; Evi, 2016; Isa & Pope, 2011; Kastlunger et al., 2009). TC is defined as the compliance of taxpayers in submitting tax returns and reporting the appropriate amount of tax and paid on time (Alshira'h & Abdul-Jabbar, 2020; Jackson & Milliron, 1986; Zainan et al., 2017). ATC is the largest and most important objective of TA. Many taxpayers can do FTC if the taxpayer is convinced that there is a low probability that TA will detect fraud in the tax return. In such a situation, the taxpayer is likely to continue only FTC and actual tax non-compliance, resulting in the loss of a significant portion of tax revenue. Furthermore, actual tax non-compliance leads to unfairness between a content creator who is actually taxed and a content creator who is only officially taxed. Tax compliance in general and TC for content creators in particular can be divided (Avcı & Demirci, 2021; Siti, 2017, pp.193–194) with modifications made by the researcher to suit the tax on content creation as follows:

(A) FTC is the taxpayer’s compliance with the fulfilment of the official provisions of taxes consisting of the following: taxpayer (the content creator) registration of the tax authority and opening a tax file, preparing the tax return according to the form specified by the tax authority and submitting the tax return on time, including the commitment of the content creator and his/her keenness to fulfill all apparent legal obligations, such as speedy response to inquiries and cooperation with the tax authority. Moreover, the taxpayers’ use of an auditor to assist them in preparing tax returns will contribute to improving TA quality and enhance TC (Alm & McKee, 2006; Chalu & Mzee, 2018; Fatt & Ling, 2009; McKerchar, 2005).

(B) ATC is the obligation of taxpayers (content creators) who have FTC with fulfilling the essential tax provisions, such as disclosing actual income and expenses in the tax return without exaggeration or reduction. In addition to paying the tax due in accordance with the tax regulations on the specified dates without delay, taxpayers with TC do not use various methods of tax evasion, such as registering YouTube channels in other tax-exempt content industry countries, including the commitment to the content creator to maintain regular accounting books and records.

Determinants of the Quality of the Tax Audit

Several studies (Alao, 2021; Avcı & Demirci, 2021; Gökmen, 2012; Mersha et al., 2022; Chalu & Mzee, 2018; Nugrahanto & Alhadi, 2021; Vierra Gracia Dharmawan, 2019) found that the quality of a tax audit depends on a wide range of factors. Examples include the ability of the tax auditor to use information and communication technology, the prevailing tax laws and regulations and the availability of a sufficient number of tax auditors. Other factors are the ability of the tax auditor to provide a transparent TA that is accountable and compliant with the law, governance of the tax administration and the quality of the tax information. Therefore, notably, there are mixed results and different variables that express the determinants of the quality of TA. Hence, in this study, we will focus on the three determinants of the tax audit quality for CCT: (1) regulations and laws, (2) the quality of communication between the tax authority and taxpayers and (3) determinants related to the organization. Moreover, the researcher will address the relationship between the three determinants and tax compliance.

Determinants of Regulation and Laws (DRL)

As taxes are imposed only by law, the legislation and tax laws determine the types of taxes and taxpayers and the timing of their entry into force. Thus, tax audits must be transparent, accountable and compliant with the law (Gökmen, 2012). The quality of tax audits is affected by laws, instructions and regulations that determine tax profit, tax base, natural and legal persons subject to taxes and applicable tax rates. Therefore, whenever the tax law and executive regulations are clear and include detailed information regarding taxable persons, tax rates and the rights and obligations of taxpayers and tax auditors, TA is of quality. However, the complexity and continuous changes in tax legislation and executive regulations reduce the effectiveness and quality of tax audits (Drogalas et al., 2015). In addition, any tax system, regardless of how technologically advanced, will fail to positively impact the quality and effectiveness of TA if there is no appropriate tax legislation (Chalu & Mzee, 2018). Therefore, the tax system is based on the fact that the tax authority collects taxes from taxpayers in light of tax laws. When there are disputes between the taxpayer and the tax authorities over the amount of the tax, the judiciary resorts to settling the disputes in light of the prevailing laws in the country.

Figure 1 shows the laws and regulations governing taxes are the heart of the tax system. The conflict of objectives between the taxpayer and the tax auditor appears when there is a large difference in the amount of tax. Taxpayers wish to reduce the taxes paid to a minimum, but this must be within limits permitted by law. Meanwhile, tax auditors aim to increase the proceeds of tax revenue, also within limits permitted by law (Chalu & Mzee, 2018). Therefore, TA needs a legal framework that helps achieve transparency and justice and ensures the protection of taxpayers’ rights. Moreover, the law must give tax auditors the authority to access information, documents and books kept by taxpayers (Muhammad, 2013; OECD, 2006). Akhand (2018) found that conducting tax audits with integrity and objectivity increases respect and trust between taxpayers and tax authorities. Moreover, the study found that taxpayer compliance is affected by penalties, tax audits, criminal prosecution and tax simplification. Bagchi (2022) found that the existence of a unified and clear law that limits the discretion of the government regarding income tax leads to an increase in tax compliance by 13% in Pennsylvania, USA. As for the tax on content creation in Egypt, it does not have an independent law. Rather, the Egyptian Ministry of Finance in September 2021 subjected content makers to taxes according to Income Tax Law 91 of 2005 and its amendments, given that content creation is a taxable professional activity. This procedure led to a lack of clarity, particularly for taxpayers, for the lack of clarity on the tax accounting mechanism. In addition, the Ministry of Finance has issued a guideline for calculating the tax on content creation in March 2022, the period during which the deadline for submitting the tax return for a natural person ends. This will result in the creator of the content submitting a tax return without understanding the rules and instructions that govern the tax calculation process to comply with the deadline for submitting the tax return. In light of the above, the following hypothesis can be derived:

H1: There is an association between determinants of regulation and laws and FTC.

H2: There is an association between determinants of regulation and laws and ATC.

Figure 1.

The relationship amongst tax law, the tax authority, courts and taxpayers.

Quality of Communication Between Tax Authority and Taxpayer (QTT)

Tax administration is the cornerstone of the success of any tax system and the achievement of its objectives through compliance with tax legislation. Taxpayers are the most dynamic group that affects the quality of tax audits and is most affected by the outcome of the tax audit process (Avcı & Demirci, 2021). Understanding the taxpayer’s view from the content creator will help tax authorities to understand the factors related to them, which affect the effectiveness of a tax audit. Tax auditors need to properly understand the business and activities of taxpayers and the source of their revenue to use audit strategies appropriate to the nature of their business. This case will increase FTC and ATC. Muhammad (2013), Chalu and Mzee (2018) and Ayalew (2014) found that good communication with taxpayers by tax authorities is one of the most important factors affecting the quality and effectiveness of tax audits. According to Allingham and Sandmo (1972), the quality of TA is affected by the taxpayer’s business nature. Dubin and Wilde (1988) found that TA for a low-income business is more effective than TA for a high-income business. Therefore, support should be increased for the group responsible for collecting information about taxpayers from the content creator.

Several studies (Akhand, 2018; Onu & Oats, 2015; Yücedoğru & Hasseldine, 2016) found that ATC can be improved by improving the relationship between taxpayers and the services provided to them by tax authorities. Therefore, the tax authorities publish information, reports and recommendations that help content creators identify their rights, obligations, tax imposed on them and the method of submitting a tax return, including information related to the appeal procedures and methods for settling tax disputes. From another aspect, tax authorities should encourage content creators to commit voluntarily by increasing awareness programs and conducting seminars and listening sessions for content creators and accountants working in the tax field.

To monitor the activity of content creators, the Egyptian Tax Authority has established an e-commerce unit to list the local and foreign e-commerce websites and the content creators subject to tax. This unit will be responsible for making intensive efforts to follow up and communicate with everyone involved in content creation on the Internet.

The unit also provides the necessary awareness to content creators and responds to all their inquiries and questions by communicating with the call center or going to the headquarters of the e-commerce unit at the Egyptian Tax Authority or communicating via e-mail at https://eta.gov.eg/. This action is expected to affect the quality of communication between tax authority and taxpayers of the content creator and encourage them to FTC and ATC. In light of the above, the following hypothesis can be derived:

H3: There is an association between the quality of communication between the tax authority and taxpayer and FTC.

H4: There is an association between the quality of communication between the tax authority and taxpayer and ATC

Determinants Related to the Organization (DO)

Regulatory determinants pertain to the tax authorities themselves. The organizational structure of the tax administration is one of the basic operational components of an efficient tax system. According to Gökmen (2012), for TA to be of quality, each group of taxpayers should be examined by different auditors. Moreover, tax audit activities must be planned, organized and coordinated to effectively use the tax workforce. In addition, the tax authorities should use advanced information and control systems (Al Frijat, 2014). In addition to the availability of an adequate financial budget for tax audit units, senior management should be given great importance to TA function, providing support for workers in terms of training and a clear division of work. Chalu and Mzee (2018), Melat (2016), Drogalas et al. (2015), and Ayalew (2014) found that having auditors with education, experience, training and independence has a positive impact on the quality of tax audits. Furthermore, Al Frijat (2014), Melat (2016), and Chalu and Mzee (2018) found that the efficiency of the audit department, administrative support for auditors and the factors related to regulation have a significant positive impact on the effectiveness of tax audits.

The quality of TA is also enhanced by the presence of a strong tax administration that communicates with various relevant authorities. Taxpayers trust a strong administration. Therefore, the Central Bank of Egypt established the Anti-Money Laundering and Terrorist Financing Unit, which is solely concerned with financial investigations. This unit is concerned with examining foreign money entering Egypt. Therefore, in the event of large amounts of money entering and not related to money laundering and terrorist financing but rather belonging to the content makers, it is possible for the Anti-Money Laundering and Terrorist Financing Unit to inform the tax authorities, which enhances the fight against tax evasion. Moreover, this entity will be a reason for TC, particularly for content creators whose taxable revenue comes from outside Egypt. In addition, according to the instructions of the Central Bank of Egypt, for any funds transferred from outside Egypt to the inside, the recipient of the funds must disclose the source of these funds and have documents proving the source of these funds. In light of the above, the following hypothesis can be derived:

H5: There is an association between determinants associated with an organization and FTC.

H6: There is an association between determinants associated with an organization and ATC.

Research Methodology

This section describes the research model, questionnaire development, sample plan, data collection and data analysis.

Research Model

Figure 2 shows the proposed model, which includes innovative DRL, the quality of communication between tax authority and determinants associated with organization.

Figure 2.

The proposed model.

Questionnaire Development

The study used a questionnaire as a tool to obtain data from the respondents. All variables were measured on a five-point Likert scale; From strongly disagree (1) to strongly agree (5), excluding demographic variables measured on a categorical scale. The questionnaire questions were developed based on previous studies, as shown in Table 2. The questionnaire consists of two parts. The first, to measure the demographic characteristics of the study sample (as shown in Table 3). The second: questions regarding the variables of the study. The questionnaire was distributed to a group of statisticians and professionals for final review before distributing it to the respondents. Amendments were made to the questionnaire based on the arbitrators’ suggestions. The data were analyzed by partial least squares (PLS).

Table 2.

Questionnaire List.

No.	Questions	Source
	Determinants of regulation and laws	Adapted from: Muhammad (2013), Chalu and Mzee (2018), Alshira'h and Abdul-Jabbar (2020) with modifications from the researchers
DRL1	Is the tax law clear and specific and limiting the tax authority’s estimates?
DRL2	Is there transparency in TA policies and procedures?
DRL3	Is there sufficient and appropriate legal authority for the tax auditor?
DRL4	Are there real and sufficient legal guarantees for taxpayers during the audit?
DRL5	Does the law contain deterrent penalties to reduce tax evasion?
	The quality of communication between tax authority and taxpayer	Adapted from Chalu and Mzee (2018) with modifications from the researchers
QTT1	Are content creators treated appropriately and assisted?
QTT2	Does the e-commerce unit in the Egyptian Ministry of Finance help content creators tangibly?
QTT3	Are content creators encouraged to voluntarily commit through increasing mentoring and awareness programmes …etc.?
QTT4	Are attention and care given to top content creators?
QTT5	Are complaints submitted by content creators studied and resolved?
	Determinants associated with an organization	Adapted from Chalu and Mzee (2018) with modifications from the researchers
DO1	Is there TA team specialized in CCT?
DO2	Does the organizational structure provide an opportunity for employees to be flexible to adapt to CCT?
DO3	Are there enough employees in the tax audit department?
DO4	Is a sufficient financial budget allocated for TA?
DO5	Does it encourage tax administration by providing adequate support for vocational education and staff training?
	Formal tax compliance	Adapted from Woodward and Tan (2015), Demirci (2021), Siti (2017), Night and Bananuka (2019), Alshira'h and Abdul-Jabbar (2020) and Kasper and Alm (2022) with modifications from the researchers
FTC1	Do content creators register with the tax authorities and open a tax file?
FTC2	Do content creators with tax files file their tax return in a timely manner?
FTC3	Do content creators overspend as much as possible on their tax return?
FTC4	Do content creators reduce revenue as much as possible in the tax return?
FTC5	Are tax returns submitted by content creators according to the forms stipulated in the law in terms of form only?
	Actual tax compliance
ATC1	Do content creators abide by the basic provisions of tax when calculating the tax payable?
ATC2	Do audited content creators show a high level of satisfaction with their tax audit work?
ATC3	Do content creators correctly disclose revenue details?
ATC4	Do content creators correctly disclose expense details?
ATC5	Do content creators keep regular books and accounts?

Table 3.

Demographic Profile of the Respondent.

Items	Description	Frequency	Percentage (%)
Education	Diploma	19	11
	Bachelor	117	65
	MBA	11	6
	Master	20	11
	PHD	5	3
	Others	7	4
Experience in tax audit	Less than 5 years	49	27
	Greater than5 years and less than 10 years	51	29
	Greater than 10 years and less than 15 years	18	10
	Greater than15 years and less than 20 years	30	17
	Greater than 20 years	31	17
Position	Tax officer assistant	17	10
	Tax officer	79	44
	Tax auditor	59	33
	Director of the Department	11	6
	other	13	7
Field of study	law	33	18
	Management	13	7
	Accounting	119	67
	Others	14	8
Gender	Male	113	63
Gender	Female	66	37

Sample Plan and Data Collection

The study sample consisted of tax auditors who participated in the accounting for tax on content creation during the period from 10/10/2022 to 12/1 /2023. Information was collected in two stages. In the first step, the questionnaire was sent to 891 tax auditors randomly through Facebook and WhatsApp, and linkedin, 612 answers were received. A total of 358 tax auditors participated in one way or another in accounting for the content creation tax. In the second stage, the questionnaire was sent to tax auditors who participated in accounting for the content creation tax, and responses were received from 179 tax auditors.

Methodology

The present research utilized the PLS structural analysis technique to examine the proposed hypotheses and to analyze the research model. The advantage of PLS is that it has the ability to deal with small-sized samples whilst achieving high levels of statistical predictive ability, and the data do not need to follow a normal distribution. In addition, the PLS method can deal with multiple variables even in the case of a multiple linear relationship (Chin, 2010; Hair et al., 2014; Sarstedt et al., 2014). Thus, the researchers prefer to use the PLS method to analyze empirical data, including tax compliance (Alshira'h & Abdul-Jabbar, 2020; Farouk et al., 2018).

Assessment of Measurement Model

The variables were measured using a five-point Likert scale. In this study, the content, outer loading, average extracted variance (AVE) and construction validity of the scales were tested as shown in Figure 3 and Tables 4 and 5 . Two coefficients were used to estimate the reliability and validity of the measurement of the search: Cronbach alpha (α) and Composite reliability (CR) (Dijkstra & Henseler, 2015). Table 4 shows that (α) was greater than .70 (ranged from 0.829 to 0.901). This indicates that the scales were internally consistent and reasonably free from measurement errors because all alpha coefficients were greater than .70, including the composite reliability, which must be greater than 0.7 (George & Mallery, 2003). Thus, the results obtained appropriate levels of reliability. For the one-dimensional test, the researcher used external loads whose test value should not be less than 0.4. The results in Table 4 show that all the values of Outer loadings for the variables exceeded 0.40, and ranged between (0.559–0.960). In addition, for the convergent validity test, the researcher used the average extracted variance (AVE), which must be greater than 0.5 (Chin, 2010; Hair et al., 2014; Oyewobi et al., 2017; Tawfik et al., 2022; Tawfik & Elmaasrawy, 2023). The results showed that the AVE exceeded 0.5. The Table 4 shows the results of the validity and reliability tests of the model.

Figure 3.

Different paths in the research model.

Table 4.

Results of Model Validity and Reliability Tests.

Construct	Items	Outer loadings	Cronbach alpha	Composite reliability	AVE
Determinants of regulation and laws (DRL)	DRL1	0.911	.829	0.884	0.625
	DRL2	0.958
	DRL3	0.960
	DRL4	0.881
	DRL5	0.975
Determinants associated with organization (DO)	DO1	0.954	.877	0.914	0.685
	DO2	0.968
	DO3	0.934
	DO4	0.967
	DO5	0.963
The quality of communication between tax authority and taxpayer (QTT)	QTT1	0.950	.894	0.923	0.708
	QTT2	0.937
	QTT3	0.929
	QTT1	0.938
	QTT2	0.933
Formal Tax Compliance (FTC)	FTC1	0.814	.901	0.965	0.848
	FTC2	0.914
	FTC3	0.659
	FTC4	0.879
	FTC5	0.918
Actual tax Compliance (ATC)	ATC1	0.847	.869	0.976	0.891
	ATC2	0.913
	ATC3	0.911
	ATC4	0.919
	ATC5	0.889

Table 5.

Results of Discrimination Validity Tests for the Standard Model Using the Fornell-Larcker Criterion.

	DRL	QTT	DO	FTC	ATC
DRL	0.949
QTT	0.933	0.947
DO	0.909	0.937	0.939
FTC	0.887	0.913	0.881	0.925
ATC	0.889	0.888	0.799	0.863	0.891

The results of the validity and reliability tests of the model shown in Table 4 are compared with the standard measures that the standard model has high validity and reliability and can therefore be relied upon.

After convergent validity was confirmed, the next step involved the examination of the discriminant validity based on the Fornell-Larcker criterion (Alshira'h & Abdul-Jabbar, 2020; Tawfik et al., 2022; Tawfik & Elmaasrawy, 2023). Fornell and Larcker criterion comparing correlations between the square root of AVE and the constructs. The results presented in Table 5 indicate that all constructs had higher construct correlation values than the other constructs; Therefore, the results confirm the sufficient validity of the distinction (Gye-Soo, 2016).

Hence, the researchers see that the standard model has high validity and reliability and can therefore be relied upon. Moreover, the researcher uses the discriminant validity test for cross-loadings, and Table 6 shows the results.

Table 6.

Cross Loadings.

	ATC	QTT	DRL	FTC	DO
ATC1	0.847	0.792	0.828	0.783	0.790
ATC2	0.913	0.827	0.851	0.833	0.793
ATC3	0.911	0.786	0.858	0.882	0.810
ATC4	0.919	0.856	0.918	0.915	0.888
ATC5	0.889	0.776	0.802	0.856	0.732
QTT1	0.907	0.950	0.948	0.946	0.942
QTT2	0.828	0.937	0.794	0.821	0.729
QTT3	0.833	0.929	0.784	0.803	0.715
QTT4	0.856	0.938	0.912	0.901	0.876
QTT5	0.795	0.933	0.825	0.805	0.798
DRL1	0.859	0.857	0.911	0.868	0.833
DRL2	0.922	0.872	0.958	0.908	0.946
DRL3	0.918	0.883	0.960	0.916	0.941
DRL4	0.830	0.768	0.881	0.858	0.824
DRL5	0.927	0.904	0.975	0.919	0.941
FTC1	0.706	0.656	0.722	0.814	0.743
FTC2	0.892	0.817	0.867	0.914	0.843
FTC3	0.536	0.539	0.545	0.559	0.436
FTC4	0.831	0.812	0.848	0.879	0.811
FTC5	0.893	0.784	0.907	0.918	0.911
DO1	0.878	0.915	0.905	0.922	0.954
DO2	0.852	0.858	0.922	0.906	0.968
DO3	0.825	0.717	0.865	0.821	0.934
DO4	0.859	0.855	0.925	0.897	0.967
DO5	0.879	0.813	0.917	0.891	0.963

As shown in Table 6, each indicator in the variance matrix is charged to the latent variable with a value greater than its supposition on the other variables. Hence, the researchers see that the standard model has high validity and reliability and can therefore be relied upon.

Method for Hypothesis Testing

A set of conditions must be met simultaneously to verify the extent to which the hypotheses of this study are accepted:

a- The direct effect should have a significant effect.

b- The path coefficient for the direct effect is within the confidence interval.

c- The confidence interval does not include 0.

d- F-square indicates the practical significance of the path, regardless of whether it is statistically significant or not. The path may be statistically significant, but it is of low practical importance, and the value of the effect size is acceptable as follows: f-square is effect size (≥0.02 is small; ≥0.15 is medium; ≥0.35 is large) (Alshira'h & Abdul-Jabbar, 2020; Hayes, 2009; Tawfik et al., 2022; Tawfik & Elmaasrawy, 2023).

Figure 3 shows the different paths in the research modal.

Table 7 shows the results of testing the hypotheses of this study and the direct effect of the independent variables on official and actual tax compliance.

Table 7.

Direct Effects of Each Variable.

Hypothesis	Regression path	Path coefficient	T statistics (\|O/STDEV\|)	p-Value	Confidence intervals[Minimum, maximum]	F-square	Support for hypothesis
H1	DRL -> FTC	0.525	3.304	.001	[0.214, 0.778]	0.197	Yes
H2	DRL -> ATC	0.940	4.806	.000	[0.472, 1.164]	0.557	Yes
H3	QTT -> FTC	0.191	2.241	.044	[0.019. 0.431]	0.153	Yes
H4	QTT->ATC	−0.163	1.457	.103	[−0.397, 0.129]	0.063	No
H5	DO -> FTC	0.269	3.015	.003	[0.110, 0.542]	0.039	Yes
H6	DO -> ATC	0.183	1.643	.052	[−0.082, 0.312]	0.025	No

Discussion and Finding

This article used a quantitative approach to examine the quality of content creation tax audits on formal and actual CCT compliance in Egypt. The study was based on a sample of 169 tax auditor participants. Results shown there is a significant positive relationship between DRL and FTC (coefficient = .525, sig = .001 < 1%, effect size = 0.197 < 0.35 is medium; the confidence intervals [0.214, 0.778] do not contain zero). Thus, H1 is accepted. Moreover, there is a statistically significant positive relationship between DRL and ATC (coefficient = .525, sig = .000 < 1%, effect size = 0.557 > 0.35 is large; the confidence intervals [0.472, 1.164] do not contain zero). Thus, H2 is accepted. These previous results are consistent with the results of Drogalas et al. (2015), OECD (2006), Chalu and Mzee (2018), and Muhammad (2013). They found that tax audits have a positive impact on TC in the case of an appropriate tax law free of complications and changes. Moreover, regulations and laws should help achieve transparency and fairness to ensure the protection of the rights of taxpayers from content creators and to ensure that tax audits are conducted with integrity and objectivity. This finding is consistent with previous literature indicating that tax auditing plays a critical role in compliance with tax payment (Alshira'h & Abdul-Jabbar, 2020; Chalu & Mzee, 2018; Drogalas et al., 2015; Woodward & Tan, 2015). A reasonable explanation for this finding might be that content creators are comparing the costs of not paying taxes and auditing with the burden of content TC. The results also revealed that imposing a penalty on the taxpayers encourages them to comply with the payment of the tax. Chau and Leung (2009) and Devos (2013) argue that sanctions are one of the most effective ways to increase tax compliance. Several previous studies have come to similar results (Mohdali et al., 2014; Woodward & Tan, 2015). The fear of imposing penalties on content creators in the event of tax evasion is a deterrent to reduce cases of tax non-compliance, in addition, raising fear by increasing the opportunities for TA (Alshira'h & Abdul-Jabbar, 2020). According to the Egyptian tax law, A taxpayer is considered a tax evader when any of the following methods are used:

A. Knowingly submitting the annual tax return based on fake books, records, accounts or documents or including data that contradicts what is established in the books, records, accounts or documents that he/she has hidden.

B. Submitting the annual tax return on the basis that there are no books, records, accounts or documents and that it includes data contrary to the books, records, accounts or documents that he/she has hidden.

C. Intentional destruction of tax-related records or documents before the expiry of the prescribed limitation period for the tax debt.

D. Fabricating or altering purchase or sale invoices or other documents to mislead the authority of lack of profits or increase of losses.

E. Concealing an activity or part of it that is subject to tax.

Any taxpayer evading paying taxes shall be punished by imprisonment for a period of not less than 6 months and not exceeding 5 years and a fine equal to the unpaid tax or one of these two penalties. In the case of recidivism, the ruling is imprisonment and a fine together. In all cases, tax evasion is considered a crime against honor and honesty, depriving the convict of assuming public positions and making him lose confidence and esteem. Therefore, some content creators comply with tax for fear of penalties and tax fines, particularly those with the most popular content on the Internet. This finding is consistent with Akhand (2018), who found that discretionary compliance of large taxpayers is affected by penalties and prosecution, and Bagchi (2022), who found that having a uniform, specific and clear law that limits the discretion of the government leads to increased TC. Also, the use of the Egyptian Tax Authority’s electronic tax return submission system and electronic tax payment has helped reduce the cost of tax compliance, giving taxpayers flexibility and ease in choosing the time to send the tax return electronically to the Egyptian Tax Authority, as well as providing flexibility in paying taxes electronically around the clock at any time. time.

Moving to the impact of the quality of communication between the tax authority and taxpayers and tax compliance, the results showed there is a statistically significant positive relationship between the quality of communication between the tax authority and taxpayer and FTC (coefficient = .191, sig = .044 < 5%, effect size = 0.153 < 0.35 is medium and the confidence intervals [0.019, 0.431] do not contain zero). Thus, H3 is accepted. Moreover, there is a statistically non-significant negative relationship among the quality of communication, tax authority and taxpayer and ATC (coefficient = −.163, sig = .1031 > 10%, effect size = 0.063 < 0.15 is small, and the confidence intervals [−0.397, 0.129] do contain zero). Thus, H4 is rejected. The previous results are confirmed by several studies (Akhand, 2018; Ayalew, 2014; Chalu & Mzee, 2018; Muhammad, 2013; Onu & Oats, 2015; Yücedoğru & Hasseldine, 2016). These studies concluded that understanding the taxpayer’s view (content creators) will help tax authorities understand those factors related to taxpayers. Tax authorities should communicate well with them; improve trust, cooperation and appropriate treatment; expand the scope of tax education and awareness activities by tax authorities; positively affect the effectiveness and quality of tax audits and increase official tax compliance. In addition to the above, the results confirm the effectiveness of the role played by the e-commerce unit in the Egyptian Tax Authority, which works to identify content creators. Moreover, the e-commerce unit is responsible for making intensive efforts to follow up and communicate with everyone who engages in content creation activity on the Internet, to provide the necessary awareness to them and respond to all their inquiries and questions. However, ATC requires more work to communicate with taxpayers from content creators to urge them to ATC and not only FTC. Particularly, the e-commerce unit in the Ministry of Finance requires content creators to register for tax and open a tax file and thus comply with the FTC.

Moving to the relationship between determinants associated with an organization and FTC the results showed there is a statistically significant positive relationship between determinants associated with an organization and FTC (coefficient = .269, sig = .003 < 1%, effect size = 0.025 < 0.15 is small and the confidence intervals [0.110, 0.542] do not contain zero). Thus, H5 is accepted. From another aspect, there is a statistically non-significant positive relationship between determinants associated with an organization and ATC (coefficient = .183, sig = .052 < 10%, effect size = 0.063 < 0.15 is small and the confidence intervals [−0.082, 0.312] do contain zero). Thus, H6 is rejected. These previous results indicate that there is a positive effect of determinants related to the organization on FTC only, whereas there is no effect on ATC. The reason is the fear of large content creators, particularly those who receive funds from outside Egypt, owing to the role played by the anti-laundering unit funds and terrorist financing at the Central Bank of Egypt by examining foreign funds entering Egypt. Therefore, when these funds are large and have nothing to do with money laundering and terrorist financing but belong to the content creators, the unit informs the Egyptian Tax Authority. However, this case is for senior content creators only and not for small content creators. Moreover, content creators, particularly those with taxable revenues from outside Egypt, should sign a form prepared by the Central Bank upon receipt of funds, in which they disclose the reason for sending the funds and documents that prove the reason for sending. Hence, content creators are afraid of being accused of tax evasion, making them formally comply with tax only without actual compliance. Other factors include the limitations of adequate financial budgeting, training processes and a clear division of labor for tax auditors who specialize in CCT. This year is also the first time that content creators submit tax returns, which constituted a new experience and a challenge to the organizational structure of the Egyptian Tax Authority. In addition to that, there is a severe weakness in training programs for tax auditors to audit the tax on creating content, and a lack of experience among tax auditors regarding the nature of revenues and expenses related to the content industry, and a lack of understanding of the philosophy of activity.

Implications

This study’s results could have significant impacts on the users of taxion in Egypt. Because identifying the factors affecting the quality of tax audits for CCT in a comprehensive form helps in the success of implementing CCT. In addition, highlighting these factors provides a better understanding of the circumstances under which CCT can be successfully implemented.

The results of this study are useful for tax law legislators, tax authorities and policymakers, who are responsible for developing and enforcing tax laws and tax law legislators. Firstly, for tax law legislators, there must be independent tax laws and regulations for the tax on content creation, including providing legal validity for the tax treatment of content creation whilst taking advantage of laws and regulations in countries that have adopted taxes on content creation. In addition, tax law legislators should issue legislation that grants the tax auditor immunity, which provides him/her with the freedom to take the appropriate decision without being subject to any external influences and pressures. Secondly, Tax authorities must work on developing scientific and practical qualifications of the tax auditor and work on the availability of an integrated and comprehensive database on the tax community (content creators working from inside Egypt). They must also work on the availability of indicators and technical controls for tax accounting that guide the tax auditor when dealing with content creators during the audit process. Furthermore, tax authorities should work to establish an independent and specialized department within the Egyptian Tax Authority that specializes only in taxing content creation. Thirdly, policymakers they should set certain controls and rules to deduct various expenses, whether the expenses are supported by documents or not, which is amongst the characteristics of the expenses of content creation activity. Finally, there must be continued cooperation between tax authorities and other institutions, such as financial institutions, to detect money transfers coming from outside Egypt related to content creation in The Central Bank of Egypt. In such a case, banks operating in the market and branches of foreign banks can be alerted to investigate the accuracy of the application of anti-money laundering rules. In addition, the data of the sender of money from abroad and the recipient of money inside Egypt need to be verified before allowing the completion of financing. Therefore, the revenues of content creators could be known, particularly those coming from outside Egypt.

The results of this study are also useful for taxpayers. It can help them facilitate their access to information, data and explanations related to the procedures for filing a tax return. In addition to knowing information related to the procedures for submitting an appeal and methods of settling tax disputes. Furthermore, the findings of the study could encourage content makers to voluntarily comply, which increases formal tax compliance and actual tax compliance.

Conclusion

The phenomenon of content creators, such as “Youtubers,” started several years ago, but it has become widespread recently, particularly after the COVID-19 pandemic, as many of them achieved wide fame that guaranteed them large profits. The Egyptian Ministry of Finance announced in September 2021 that content creators would be subject to taxes according to Income Tax Law 91 of 2005 and its amendments, or Law 152 of 2020. The tax base is “everyone who makes income from Any activity or profession is, by law, subject to tax.” The Egyptian Ministry of Finance has dealt with online content creators as a profession. Thus, they are treated like those who are subject to tax on non-commercial professions. However, the Ministry of Finance allowed content creators who do not have an independent headquarters and work from their personal homes to deduct certain percentages from home Internet expenses, household electricity expenses and rent expenses for the house or apartment in which he/she lives and works.

The main contribution of this study is that, to the extent of researchers’ knowledge, this study is the first to deal with the tax on content creation. Moreover, this study attempts to explore the most important determinants of tax audit quality for the tax on online content creation. The researchers measure tax compliance through two variables: formal tax compliance and actual tax compliance. The researchers used the questionnaire tool to collect data for a sample of 179 tax auditors and partial least squares (PLS) to test the hypotheses. This study concluded that each of the regulations and laws, the quality of communication between the tax authority and taxpayers and the determinants associated with organizations have a positive effect on formal tax compliance. Meanwhile, the regulations and laws have a positive effect on actual tax. Also, there is no effect for both the quality of communication between the tax authority and taxpayers and the determinants associated with organizations on actual tax compliance.

The pyramid of TC for content creators in Egypt is considered to be the broad base is tax non-compliance, and the top of the pyramid expresses the few who comply with the tax, and in the middle part of the pyramid expresses the category of taxpayers who need guidance, guidance and communication to ensure their compliance with the tax effectively, and is considered the most important Problems that limit tax compliance for content creators: First, the lack of an independent and comprehensive legal framework for CCT that takes into account the nature of the revenues and expenses related to the nature of the content creation profession. Second: the low level of adequate training for tax auditors to audit CCT. Third, the lack of experience among tax auditors and content creators. Fourth, limited communication by The Ministry of Finance with the creator of the content on the e-commerce platform located in the capital of the country and the great weakness in publishing information and reports that help the content creator to identify their rights and obligations. In addition, the aforementioned factors have led many content creators to adopt methods that help them avoid taxation, such as (1) Some content creators emigrate outside Egypt to work in countries that do not impose a tax on content creation. (2) Some YouTube channels register the names of people working in countries other than Egypt Especially some of their relatives in the Gulf Cooperation Council countries, in which millions of Egyptians work, and then their relatives send them money again. (3) Some content creators register their businesses under individual names, not companies, because Egyptian law gives many advantages and tax exemptions to individual taxpayers

Despite its contributions, this study is not without its limitations. This study focused on the income tax on the profits of content creators. Therefore, future studies can examine the determinants of the quality of the tax audit in relation to the value-added tax on the profits of content creators. Moreover, this study was limited to the opinions of tax auditors. Therefore, future studies can conduct the same study again but from the taxpayers’ perspective. In addition, researchers may be interested in studying the determinants of tax compliance by YouTubers and the determinants of content creators’ demand for tax preparation services.

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research,authorship,and/or publication of this article.

Funding

The author(s) received no financial support for the research,authorship,and/or publication of this article.

Ethical Approval

an ethics statement (including the committee approval number) for animal and human studies. If this is not applicable,please state this instead. NA

If any of these items are missing,your manuscript will be unsubmitted. NO items are missing.

ORCID iD

Omar Ikbal Tawfik

Data Availability Statement

Data sharing not applicable to this article as no datasets were generated or analyzed during the current study.

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