The increased emphasis on tax compliance in many countries, especially in Uganda, has led to various strategies to improve taxpayer knowledge and compliance ( Musimenta, 2020 ; Occhiali & Kalyango, 2023 ). However, despite efforts to educate taxpayers about the responsibilities and benefits of tax compliance, there is still a significant gap in the actual observed levels of compliance ( Mascagni et al., 2024 ). This disparity emphasizes the need for a deeper comprehension of other elements that impact taxpayer behavior, especially those of small enterprises (SBEs). Research has shown that knowledge alone may not be sufficient to drive compliance, as underlying personal and cultural values can strongly influence attitudes toward taxation ( Kiconco & Sserwanga, 2019 ; Musimenta et al., 2017 ). Consequently, developing countries such as Uganda have increasingly focused on the role of religiosity, which includes moral values, beliefs, and ethical considerations, as a potentially significant factor in shaping tax compliance ( Agbetunde et al., 2022 ). Tax authorities and policymakers are rethinking their strategies to incorporate a broader understanding of taxpayer behavior, emphasizing the moral and ethical aspects ( Fidiana, 2020 ). Accordingly, in the sociocultural setting of developing nations, religiosity has emerged as a potentially important mediator in the relationship between tax awareness and tax compliance, offering a distinctive strategy for attaining compliance ( Carsamer & Abbam, 2023 ). Accordingly, scholars such as Azmi and Daud (2024) have observed that religiosity significantly influences individuals’ behavior, leading to actions that align with societal expectations and legal norms. Khalil and Sidani (2020) further emphasized that higher levels of religiosity often correlate with ethical decision making and social rules, suggesting that religious individuals are more likely to comply with tax obligations. This indicates that religiosity acts as a catalyst in which the moral and ethical reinforcement of religious beliefs can strengthen the link between knowledge of tax obligations and actual observed compliance behavior.

However, while these theoretical findings highlight the potential role of religiosity in tax compliance, empirical evidence remains scarce, especially in developing countries such as Uganda ( Nazaruddin, 2019 ). This study aims to close this gap by investigating how religiosity influences the relationship between Ugandan taxpayers’ tax compliance and knowledge, especially for SBEs. Understanding the role of religiosity in this context can offer policymakers deeper insights into the drivers of compliance, suggesting that promoting tax education in ways that resonate with individuals’ moral and ethical beliefs could improve levels of compliance. In addition, this study provides a more precise explanation of how religiosity can translate acquired knowledge about tax liabilities into practical compliance outcomes, offering a basis for future tax policy improvements. SBEs are considered for this study because scholars in Uganda, such as Kiconco and Sserwanga (2019) , argue that small business enterprises (SBEs) represent a crucial segment through which governments can raise revenue through taxation. SBEs employ approximately 2.5 million people and comprise almost 90% of the private sector, which supports this claim ( Sebikari, 2019 ). However, some SBEs failed to submit their taxes to the Uganda Revenue Authority (URA) during fiscal years 2022-2023 ( Auditor General Report, 2023 ). This further shows that less than 20% of all businesses, including SBEs, have met their tax obligations to the Uganda Revenue Authority (URA) and local authorities ( Vincent et al., 2023 ). The study focused on Mbarara City because it serves as a hub for micro and small businesses in the region and is ranked as the second-largest city in Uganda for small business enterprises (SBEs). Despite this, the rate of income tax filing compliance among small taxpayers in Mbarara remains low. On average, only 5.84% of the total number of small taxpayers filed returns annually during the period from 2021/2022 to 2023/2024 ( URA, 2024 ; Mwesigye & Kijjambu, 2024 ).

Religiosity is increasingly recognized in the academic literature as a significant factor influencing tax compliance behavior ( Azmi & Daud, 2024 ; Khalil & Sidani, 2020 ; Nazaruddin, 2019 ). Although definitions and frameworks vary across studies, religiosity commonly includes intrapersonal and interpersonal dimensions ( Allen et al., 2005 ; Mokhlis, 2014 ; Sadiq et al., 2020 ; Mat et al., 2023 ). The intrapersonal dimension refers to an individual’s personal beliefs, values, and attitudes, while the interpersonal dimension considers social and relational aspects such as the influence of religious communities and norms ( Mat et al., 2023 ; Sadiq et al., 2020 ). According to these definitions, religiosity can shape taxpayers’ behavior directly by influencing moral and ethical views, or indirectly by promoting social expectations and norms that influence tax compliance ( Agbetunde et al., 2022 ; Carsamer & Abbam, 2023 ).

Tax knowledge is vital for compliance with tax regulations and is often divided into procedural, general, and legal components. Understanding filing, payment, and compliance procedures is referred to as procedural tax knowledge. While legal tax knowledge involves knowledge of legal responsibilities, fines, and exemptions related to tax obligations, general tax knowledge encompasses a comprehensive grasp of tax policy and its role in societal development ( Čechovský, 2018 ; Bornman & Ramutumbu, 2019 ; Dung et al., 2023 ) According to empirical research, people who are more aware of their tax responsibilities are more likely to comply, which implies that greater tax awareness improves compliance ( Bornman & Ramutumbu, 2019 ). Tax compliance is often divided into the dimensions of “payment compliance” and “compliance” ( Sadress et al., 2018 ). Payment compliance refers to paying tax obligations on time and overall, while compliance refers to meeting all filing, reporting, and document submission requirements under tax laws. Both forms are necessary for the optimal functioning of the tax system and contribute to a country’s fiscal health ( Musimenta et al., 2017 ; Sadress et al., 2018 ; Zachary et al., 2017 ). In contrast, non-compliance may result from insufficient tax knowledge or a lack of moral motivation rooted in religiosity ( Sadallah et al., 2023 ; Mat et al., 2023 ; Agbetunde et al., 2022 ; Bornman & Ramutumbu, 2019 ).

The Theory of Reasoned Action (TRA) offers a sound theoretical framework for investigating the relationship between tax compliance, tax knowledge, and religion. The TRA holds that an individual’s behavior is driven by their behavioral intentions, which are influenced by attitudes and subjective norms ( Rachmadana et al., 2024 ). When applied to tax compliance, the TRA suggests that taxpayers’ intentions to comply are influenced by their attitudes toward tax compliance and perceived social pressure to comply ( Soon et al., 2020 ; Damayanti et al., 2015 ). Religiosity as a subjective norm can influence individual perceptions of tax obligations, with religious beliefs advocating honesty, civic responsibility, and ethical behavior ( Alimbudion & Jie, 2024 ; Mohdali & Pope, 2014 ).

According to previous research, the relationship between tax compliance and tax knowledge might be mediated by religiosity, especially when taxpayers feel a moral obligation based on their religious beliefs. For instance, highly intrapersonally religious individuals are more prone to forming personal ethical codes that encourage tax compliance. In contrast, interpersonal religiosity can promote conformity by creating a community norm of lawful behavior ( Jackson & Xing, 2018 ). The ethical and moral guidance of religiosity reinforces civic duty’s value, promoting payment and compliance ( Nazaruddin, 2019 ; Mohdali & Pope, 2014 ). Although considerable research has addressed the relationships among religiosity, tax knowledge, and tax compliance, empirical studies examining the mediating role of religiosity remain limited. In the context of the Ugandan microfinance industry, where religiosity plays a culturally significant role, examining religiosity as a mediating factor could shed light on the unique patterns of tax behavior and compliance motivation ( Azmi & Daud, 2024 ; Bornman & Ramutumbu, 2019 : Soon et al., 2020 ). This study proposes the following hypothesis:

H1: Religiosity and tax knowledge are positively related in Ugandan SBEs.

H2: Tax knowledge and tax compliance are positively related in Ugandan SBEs.

H3: Religiosity mediates the relationship between tax knowledge and tax compliance in Ugandan SBEs.

This study used cross-sectional and quantitative research designs to investigate the hypotheses that were developed. There were 77994 small enterprises in the population that were registered with Mbarara City Business Office (URA Mbarara, 2024). Using Krejcie and Morgan (1970) , a sample size of 384 SBEs was used. Stratified simple random sampling technique was used to select SBEs and purposive sampling was used to select the respondents because they had more explicit knowledge about the SBE’s compliance. The owner or manager of each SBE served as the unit of inquiry.

Respondents returned all the questionnaires, resulting in a 74% response rate. The questionnaire was developed based on the work of earlier researchers, including Sadiq et al. (2020) , Mat et al. (2023) , Bornman and Ramutumbu (2019) , and Sadress et al. (2018) , but it has been adapted to fit the Ugandan context. Religiosity was divided into two dimensions, intrapersonal and interpersonal religiosity, operationalized through six and five items, respectively, to measure the perceptions of owners/managers ( Sadiq et al., 2020 ; Mat et al., 2023 ). Tax knowledge was measured across general, legal, and procedural knowledge and action-taking measures by Bornman and Ramutumbu (2019) . These dimensions included seven, five, and six items to assess owners/managers’ perceptions. Tax compliance was measured by payment and compliance, as adapted from Sadress et al. (2018) . These dimensions were evaluated using six and five items, respectively, to measure the perceptions of owners/managers. A six-point Likert-type scale, with 1 denoting strongly disagree (SD) and 6 denoting strongly agree (SA), served as the anchor for each item. A panel of experts and expert interviews were used to validate the questionnaire, and all variables showed content validity indices over 0.80. To guarantee consistent assessment of the study variables across scales, the instrument’s reliability was further examined using an internal consistency approach ( Anastasi, 1985 ; Nunnally, 1967 ). The scales were deemed valid when Cronbach’s alpha and item-total reliability (a measure of internal consistency) coefficients for each variable were computed and all values were above 0.75.

Standard method bias, which results from using the same scale and single source for all study variables, can be mitigated by avoiding ambiguity in questions and ensuring that they are as simple and specific as possible ( Podsakoff et al., 2003 ). We employed Harman’s one-factor test to statistically assess the possibility of a common technique bias ( Rodríguez-Ardura & Meseguer-Artola, 2020 ). According to our findings, our data had no discernible standard method bias, as only 20.272% of the variance could be explained by a single factor ( Kock, 2021 ). After reviewing the data, the scale items were recorded, cleaned, and reverse-coded with negative wording. A predetermined level of data was then aggregated. Missing values were found in the completed questionnaires, and respondents’ inconsistent responses were further examined. The serial mean replacement method was used to screen the data and find missing values through primary frequency runs ( Field, 2006 ). To determine whether the parametric data assumptions were tenable, the data screening effort sought to determine data distribution.

We employed variance inflation factor (VIF) and tolerance levels to test for multicollinearity. The multicollinearity test yielded a VIF and tolerance values of 1.203 and 831, respectively. All values were below the cutoff value, suggesting no multicollinearity among the predictor variables, following the rule of 10, which indicates a VIF threshold of less than 10 or a tolerance ratio greater than 0.1 ( Kalnins, 2018 ). Mediation experiments were conducted in this study to ascertain the type of mediation and the degree to which competitive advantage affects the relationship between intellectual capital and financial performance. The mediation test was performed using the MedGraph program (Excel version), which is based on Field (2006) and Baron and Kenny (1986) . We included control variables, such as the characteristics of businesses to reduce the risk of reverse causality between variables ( Breunig & Burauel, 2021 ).

All small businesses participated, resulting in a response rate of 100 %. The majority (30.4 percent) of these businesses have been in operation for five or more years. In addition, 44.5 percent of small businesses reported annual sales between UGX 500,000 and UGX 1,500,000. The average composition of these small businesses includes 19.1 percent engaged in general retail merchandise and 18% in wholesale general merchandise. Factor analysis was used to find items with high factor loadings, which helped reduce the data to a manageable level ( Field, 2006 ). Three factors related to tax knowledge explained 54.3 percent of the variance, whereas two factors related to tax compliance and religiosity explained 53.3 percent and 59.6 percent of the variance, respectively. Each variable had a mean score above 3.0, and the standard deviations did not significantly deviate from the mean.

Correlation and regression analyses

The independent, mediating, and dependent variables were tested for relationships using Pearson bivariate correlation coefficients. Table 1 presents the findings of this study. The table supports H2 by demonstrating a strong and significant correlation between tax compliance and knowledge (r = 0.552, p < 0.01). Additionally, there were strong positive correlations between small business religiosity and tax awareness (r = 0.411, p < 0.01), which supports H1.

Note: *Correlation is significant at less than 0.01 level (one-tailed). Source: Primary data.

Testing for mediation

Mediation experiments were conducted to ascertain whether the requirements proposed by Baron and Kenny (1986) were satisfied. The MedGraph tool was used to evaluate the Sobel z-value and the significance of the mediation impact of religiosity on the relationship between tax knowledge and tax compliance, in addition to a modified version of the Sobel test. Figure 1 and Table 2 summarize the findings. The four requirements for mediation outlined by Baron and Kenny (1986) were satisfied, as shown in Table 2 . The first effect that must be mediated was this effect (B = 0.687, p < 0.01). Second, tax knowledge and religiosity (mediator) have a substantial association (B = 0.527, p < 0.000), and third, regression three with tax knowledge and religiosity as predictors shows a significant coefficient of the mediator (religiosity) (B = 0.193, p < 0.000). Finally, model three shows a lower absolute impact of tax knowledge on tax compliance (standardized beta = 0.459, P < 0.000) than regression two (standardized beta = 522). The significance of the mediation effect and type of mediation were also investigated using the MedGraph application to compute the Sobel z-value and ratio index. The findings are presented in Figure 1 . Figure 1 shows the basic correlation between tax compliance and tax knowledge (r = 0.459, p < 0.000), with a recorded p-value of 0.000714 by beta weight and Sobel z-value of 3.38. With a p-value below 0.05 and a large Sobel z-value, these findings demonstrate that religiosity significantly mediates the relationship between tax awareness and tax compliance. Practically speaking, this indicates that the relationship between the predictor variable (tax knowledge) and criterion variable (tax compliance) was considerably reduced from 0.552 to 0.459 when the mediator variable (religiosity) was added to the third regression model. Second, a partial form of mediation was noted when the correlation between the independent and dependent variables decreased significantly (i.e., from 0.552** to 0.459**). Third, according to the ratio index of 16.8%, calculated by multiplying 0.168 by 0.552) * 100, 16.8% of the impact of tax knowledge on tax compliance is attributable to religiosity, with roughly 0.832 percent of the influence being direct. In behavioral studies, mediating factors that account for effects between 10% - 20% are often considered meaningful, especially when supported by strong statistical evidence (e.g., Sobel z-value of 3.38 and p-value < 0.05 in this study). This finding fits within this range, adding credibility ( Mathur & VanderWeele, 2021 ). Furthermore, the study focuses on Uganda, where religiosity is deeply embedded in the sociocultural fabric. In such contexts, even a modest percentage can be considered critical because it aligns with the population’s values and beliefs, potentially amplifying its practical significance beyond numerical metrics.

Notes: n = 283; *p, 0.05; **p, 0.01. Source: Primary data.

According to the findings of this study, which examined and tested the impact of religiosity on the relationship between tax compliance and tax knowledge among small businesses in Mbarara City, Uganda, the two variables satisfy the mediation requirements emphasized by Baron and Kenny (1986) and MedGraph guidelines ( Jose, 2008 ). This may be because people who know more about taxes are also more likely to understand the ethical implications of their financial obligations, which their views on religion reinforce. This synergy between knowledge and religious beliefs may promote more significant commitment to compliance.

This finding is consistent with the theory of reasoned action (TRA) which suggests that tax knowledge (beliefs) and religiosity (social norms) jointly influence small business owners’ tax compliance intentions and attitudes, ultimately promoting compliance. Regulations ( Soon et al., 2020 ). Other researchers with similar findings include Kiconco and Sserwanga (2019) , who noted that religious beliefs influence taxpayers’ attitudes and intentions, suggesting that religiosity may mediate the link between tax knowledge and compliance. Abdullah et al. (2022) also find that positive attitudes toward tax obligations, often shaped by religious teachings, strengthen business owners’ intentions to comply. This conversation demonstrates that religiosity serves as a mediator between tax compliance and tax understanding. Therefore, H3 is supported because religiosity is a real mediator in the relationship between tax knowledge and tax compliance.

A substantial Sobel z-value of 3.38 (p < 0.05) further supports the mediating role of religiosity in the connection between tax knowledge and tax compliance, as illustrated in Figure 1 . The ratio index of 16.8%, which lies at the core of these findings, indicates that religiosity partially moderates the relationship between tax compliance and tax knowledge, while the remaining 83.2 percent represents a direct proportion.

In conclusion, religion increases the relationship between tax awareness and tax compliance by 16.8% among small businesses in Mbarara City, Uganda. There is a partial rather than a complete type of mediation between tax knowledge, religiosity, and tax compliance, as evidenced by the ratio index not being equal to zero, and the effect of tax knowledge on tax compliance not being reduced to zero when religiosity is included in the model ( Jose, 2008 ; Baron and Kenny, 1986 ). H3 is, therefore, supported.

The findings raise several points that academics and managers should consider. The involvement of third variables in the relationships between the variables under investigation must be evaluated to obtain a coherent interpretation of these interactions. According to Fernandes (2017) , relationship research that ignores mediating mechanisms may produce data, but results in an incomplete understanding. Furthermore, research that ignores the possibility of mediator effects might not provide sufficient justification for the findings ( Zuo et al., 2024 ). The associations between the studied variables can be estimated more precisely using a model that incorporates mediation effects ( Kamukama, 2020 ) and ensures that valid judgments and conclusions are reached. Therefore, these findings can assist management in stepping up efforts to improve comprehension and acceptance of tax knowledge, which supports the ethical implications of taxpayers’ tax responsibilities and, ultimately, increases small business tax compliance. Furthermore, emphasize ethical values such as honesty and civic responsibility derived from religious teachings to encourage tax compliance. Messages could include religious quotes or parables that highlight the importance of fulfilling societal obligations. Such as “give what belongs Caesar to Caesar (provided public services) and Give what belongs to God to God”. Additionally, partnering with religious leaders to advocate for tax compliance during sermons or community events. Religious leaders are often trusted figures who can influence their congregations by framing tax compliance as a moral and ethical duty aligned with their faith. Lastly, organize tax education workshops at religious centers, targeting both individual taxpayers and small business owners. These workshops could address specific tax knowledge needs (e.g., filing, payment procedures) while linking them to religious principles of fairness and societal contribution.

However, this study had certain drawbacks. First, given that the study’s findings are cross-sectional, further investigation is necessary to evaluate the mediation effects examined in this study over time. Second, although the constructs have been expertly defined and substantiated by pertinent research, they might only be proxies for an underlying phenomenon that is not entirely observable in itself. Finally, a single methodological technique was applied, and triangulation using interviews could be performed in future studies.

Each author contributed appropriately to every aspect of the work

Mr. Tamale Francis oversaw the overall management of the manuscript, developed the research topic, wrote the introduction, conducted the literature review, and performed the statistical analysis. Dr. Violah Mpangwire and Dr. Benjamin Musiita refined the manuscript’s language and contributed to the acquisition and analysis of quantitative data. Prof. Orobia Laura organized the discussion section. Additionally, Mr. Thomas Kisaalita, Mr. Ssembatya Brian, Ms. Kabasinguzi Brenda, Kalimu Ndaazano, and Mr. Mwesige Richard made significant contributions to the study’s conception, execution, and evaluation, as well as addressing some of the grammatical errors. All authors affirm their accountability for every aspect of this work.

The work was not supported by an external source of funding

Data can be accessed upon reasonable request from the corresponding author Francis Tamale.