Tax knowledge and tax compliance determinants in self assessment

PART A 3 - PERCEPTION ON EQUITY AND FAIRNESS
Mrs. Maria is a school teacher and has been paying tax for more than ten years. Her work colleague,
Miss Lynn, teaches in the morning, but has been operating a baby care centre at home without a valid
licence for almost five years and has never paid taxes on this income because the IRB never realised
the existence of the centre. From Mrs. Maria observation, Miss Lynn is a wealth-off person due to the
extra non-taxable income from the centre. Mrs. Maria is considering under-declaring her income this
year because of this situation.
If you were in the same situation as Mrs. Maria:
ii) Would your perception of equity and fairness affect your decision to under report your income?
YES ______ NO ________
ii) What is the probability you would under report your income?
Very low probability 1 2 3 4 5 Very high probability
PART A 4 - PENALTY
Mr. Mike is a sales executive who receives basic salary and commissions on top of his sales
performance. The commissions are paid in cash and do not appear on the payslips. He never declares
his commission income in his tax return every year. His commission was RM5,000 in 2005. In the year
assessment 2005 the IRB investigated him and penalised him 10% (RM500) on that under reported
commission.
If you were in the same situation as Mr. Mike:
i) Would the penalty last year will affect your decision to under report the commission next year?
YES ______ NO ________
ii) What is the probability of under reporting commissions?
Very low probability 1 2 3 4 5 Very high probability
PART A 5 - FINANCIAL CONSTRAINT
Miss Lydia has a very good income and lives in a high-class condominium in city centre. Recently, the
company where she works is in trouble and cut off 10% salary. This makes Miss Lydia’s financial
position significantly affected. In the past five years, she easily paid between RM10,000 to RM15,000
of income tax yearly. However in year assessment 2006, due to money constraint, she had completed
the tax return inaccurately by under reporting her income and over claiming child deduction so that
she came up with RM5,000 of income tax liability. By doing this she can compensate the salary
reduction that she suffered for the whole year by tax reduction.
If you were in the same situation as Miss Lydia:
i) Would the financial position will affect your decision to deliberately completed tax return
inaccurately?
YES ______ NO ________
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