The role of corporate social responsibility in the tax avoidance of Palestinian companies

What the paper says

Purpose The purpose of this study is to explore the role of corporate social responsibility (CSR) in tax avoidance in Palestinian companies. These companies exist in an unstable situation and a fluctuating economy. It is worth studying to what extent the role of CSR in Palestinian companies affects their tax avoidance. Design/methodology/approach This study uses primary data from commercial and industrial listed major and top companies in Palestine. Based on purposive sampling, out of 480 questionnaires distributed, 126 valid responses were obtained. This paper uses Spearman’s correlation coefficient to analyze the data and test the hypotheses. Findings The findings reinforce the previous literature on the relationship between CSR and tax avoidance. The results show that CSR is positively correlated to tax avoidance via organizational ethical culture in terms of CSR for the work environment and CSR for the community. However, the CSR for education was found to have no relationship with tax avoidance in Palestinian companies during the sample period. This might be due mainly to the low profitability achieved by the Palestinian companies, along with the unstable political and economic factors. Also, companies would prefer to invest directly in community development projects rather than pay traditional taxes. Yet another reason that compels companies in Palestine to engage in CSR is to regain their reputation and the ability to balance self-interest with social causes. Research limitations/implications This study addresses the relationship between tax avoidance and Environmental, Social, and Governance (ESG) practices in Palestine. It further hypothesizes that a firm may engage in ESG practices to offset aggressive tax practices, thus begging the question as to whether the ESG efforts are legitimate or not to help improve their appearance. This study further supports stakeholder theory, especially in ensuring that a firm that takes into consideration the interest of its stakeholders performs better overall. Following the resource-based and legitimate view of the firm, ESG practices are strategic assets that could be fundamental in managing risk and creating value and innovation in the long term. Regulation can even have a positive effect by reinforcing reputation and helping to develop good relationships with stakeholders. Practical implications The study has several important practical and social implications. The study highlights that sustainable CSR investment plays a crucial role in enhancing an organization’s nonfinancial performance. It contributes to building a strong reputation, increasing brand value, fostering customer loyalty, and improving cost efficiency in palestine. Additionally, CSR serves as a strategic tool for risk management by addressing ESG factors, thereby reducing the likelihood of legal liabilities and reputational damage. Despite the short-term costs associated with CSR initiatives, the long-term benefits—such as improved brand reputation, customer loyalty, and organizational innovation—are evident, particularly in the context of Palestine. Social implications On a broader level, the study underscores the social value of CSR by demonstrating its ability to attract socially responsible investors. Organizations that engage in ethical and sustainable business practices are perceived more favorably in the market of palestine, leading to higher stock prices and easier access to capital. This positive perception not only benefits individual companies but also promotes a more responsible and sustainable business culture. In regions like Palestine, the adoption of CSR can drive socio-economic development by fostering trust, ethical conduct, and long-term investment in community well-being. Originality/value The originality of this paper is that it empirically tests the selected dimensions of CSR and their relationships with tax avoidance in the Palestinian context. This study sheds light on the causes of tax avoidance in Palestine and the relationship between the tax administration and taxpayers. Since it represents a significant advancement and improvement over earlier research. The current study proposes a further examination of the relationship between CSR and tax avoidance by using different and modern techniques.