Financial Awareness, Islamic Business Ethics, and Tax Compliance: Examining the Role of Mental Accounting among Halal SMEs

Fatati Nuryana; Sri Handayani; Mohammad Muhlis Anwar; Ummi Kulsum

doi:10.55980/ebasr.v5i2.469

Authors

Fatati Nuryana Faculty of Islamic Economics and Business, Universitas Islam Negeri Madura, Pamekasan, Indonesia
Sri Handayani Faculty of Islamic Economics and Business, Universitas Islam Negeri Madura, Pamekasan, Indonesia
Mohammad Muhlis Anwar Faculty of Islamic Economics and Business, Universitas Islam Negeri Madura, Pamekasan, Indonesia
Ummi Kulsum Faculty of Islamic Economics and Business, Universitas Islam Negeri Madura, Pamekasan, Indonesia

DOI:

https://doi.org/10.55980/ebasr.v5i2.469

Keywords:

Financial Awareness, Islamic Business Ethics, Mental Accounting, Tax Compliance, Halal SMEs

Abstract

This study examines the influence of financial awareness and Islamic business ethics on tax compliance and mental accounting among Halal Small and Medium Enterprises (SMEs). Drawing on behavioral finance and Islamic ethical perspectives, the study investigates whether mental accounting functions as a behavioral mechanism linking financial awareness and ethical orientation to tax compliance behavior. A quantitative approach was employed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with data collected from 100 Halal SME owners. The findings indicate that financial awareness has a positive and significant effect on mental accounting, suggesting that financially aware entrepreneurs tend to manage financial resources more systematically. Financial awareness also demonstrates a positive effect on tax compliance, although the relationship becomes weaker after model refinement. Islamic business ethics significantly influence tax compliance, indicating that ethical and religious values play an important role in encouraging voluntary tax compliance among Halal SMEs. However, Islamic business ethics do not significantly affect mental accounting. Furthermore, mental accounting shows a positive but statistically marginal effect on tax compliance and fails to mediate the relationships between financial awareness, Islamic business ethics, and tax compliance. These findings contribute to the behavioral taxation and Islamic business literature by highlighting that financial awareness and ethical orientation influence compliance behavior through different behavioral pathways. The study also provides practical implications for policymakers and SME development programs in strengthening financial discipline and voluntary tax compliance among Halal SMEs.

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