Assessing the Role of Tax Literacy, Tax Audits, and Compliance in Revenue Performance in Somalia using Structural Equation Modeling

Domestic revenue mobilization remains a major challenge in Somalia due to limited tax capacity, informality, and weaknesses in tax administration. This study examines the relationships among Tax Literacy (TL), Tax Audit (TA), Tax Compliance (TC), and Tax Revenue Collection (TRC) in Somalia using Partial Least Squares Structural Equation Modeling (PLS-SEM). Data was collected from 384 tax-experienced respondents in Mogadishu, comprising 115 tax officers/inspectors (30%), 154 accountants/finance professionals (40%), and 115 business owners’/SME operators (30%). A purposive sampling technique was used to ensure that participants had direct or professional experience with taxation, tax administration, accounting, business taxation, or tax audits. The results indicate that none of the five hypothesized direct relationships reached statistical significance at the 5% level. Specifically, Tax Literacy was positively associated with Tax Compliance (β = 0.748, p = 0.062), Tax Audit was positively associated with Tax Compliance (β = 0.155, p = 0.122), and Tax Compliance was positively associated with Tax Revenue Collection (β = 0.520, p = 0.084). Tax Literacy had a negative but statistically non-significant relationship with Tax Revenue Collection (β = −0.370, p = 0.065), while Tax Audit had a positive but statistically non-significant relationship with Tax Revenue Collection (β = 0.890, p = 0.076). However, the mediation analysis showed that Tax Compliance significantly mediated the relationship between Tax Audit and Tax Revenue Collection (β = 0.260, p = 0.009) and between Tax Literacy and Tax Revenue Collection (β = 0.485, p < 0.001). The model explained 68.7% of the variance in Tax Compliance and 87.3% of the variance in Tax Revenue Collection. The findings suggest that taxpayer education and audit enforcement may contribute to revenue mobilization through compliance, but their effectiveness depends on broader improvements in tax administration, institutional capacity, and taxpayer services.