Tax knowledge and tax compliance determinants in self assessment

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Table 2.13: SAS for individual in OECD countries and tax administration OECD countries Compulsory filing annual returns? arrangements Type of revenue body Australia Yes Unified semi autonomous body Canada Yes Unified semi autonomous body with board Hungary Yes Unified semi autonomous body Ireland No Unified semi autonomous body Italy No (if only in Semi autonomous receipt of employment income and no deductions) body Japan No Unified semi autonomous body Korea No Unified semi autonomous body Mexico No (if Unified semi income is less than $300,000 and interest less than $100,000) autonomous body New No Unified semi Zealand autonomous body Poland Yes Multiple directorate in MOF Slovak Rep. No Unified semi autonomous body Spain Yes Unified semi autonomous body UK No Unified semi autonomous body USA Yes Unified semi autonomous body with board * MOF – Ministry of Finance Source: OECD (2007) pag. 28. 76 Collect most social security Not applic. Performs custom function Performs other non-tax role No Yes Yes No Yes Yes No Yes Yes Yes Yes Yes No No No No Yes No No No No Yes No Not applic. No Yes No Yes No No No Yes No Yes Yes Yes Yes Yes Yes No Yes
In terms of personal income tax, the vast majority of countries rely on ‘withholding at source’ arrangement for the collection of tax revenue, in respect of salary and wages. Taxpayers are also required to file their tax returns annually under the self assessment system, so the filing methods vary across countries. The period of time taken to finalise tax liabilities and make a final payment (if total tax payable is more than total tax credits (deductions at source) also varies across countries from as low as three months up to eleven months from the date the tax returns are due (refer Table 13 in OECD, 2007: 67). The implementation of SAS in more than 60% of the OECD countries has produced significant reforming of the tax administration of these countries especially in terms of improving overall taxpayer compliance with tax laws and efficiency (early collection of tax revenue, an expanded and better targeted audit programme and through reducing the incidence of disputed assessment) (OECD, 2007). In order to further improve their SAS, some OECD countries encourage tax authorities to pre-fill tax returns to assist taxpayers in meeting their return filing obligations. This pre-filled tax return programme has been implemented in the Nordic region (i.e. Denmark, Estonia, Finland, Norway, and Sweden) and more recently in Chile and Spain (OECD 2007: 61) and has shown benefits for both taxpayers and tax revenue bodies including a substantial reduction in taxpayers’ burden; greater certainty for taxpayers in claiming their deductions and calculating their tax liabilities; an improved image of revenue bodies; faster processing of the tax returns; quicker refunds and minimised unintended errors made by honest taxpayers (OECD, 2007). 77
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TAX KNOWLEDGE AND TAX COMPLIANCE DE
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ABSTRACT Self assessment system (SA
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DEDICATION To my late father, fathe
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TABLE OF CONTENTS Abstract ii Dedic
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2.6 SELF ASSESSMENT SYSTEM - A CONC
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4.3.5.1 Age 214 4.3.5.2 Income leve
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6.3 RESPONDENT BACKGROUND 288 6.4 I
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TO TAX ADMINISTRATORS 392 8.4 LIMIT
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LIST OF TABLES Table 2.1: SAS intro
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independent variables. Table 6.14:
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1.1 INTRODUCTION CHAPTER 1 INTRODUC
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Efficiency refers to how the tax au
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(US) and the United Kingdom (UK) we
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and Lundstedt, 1976), gender (Vogel
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Revenue Board Malaysia (IRB). The s
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constitutional elective monarchy (f
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countries. Despite similar capitali
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development on tax compliance resea
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conclusions about what the Malaysia
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could provide new insights to the I
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ecome more aware of their tax oblig
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“ future research can explicitly
Page 45 and 46: The result of this study will contr
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Page 49 and 50: CHAPTER 2 SELF ASSESSMENT SYSTEMS-
Page 51 and 52: Table 2.1: SAS introduction in coun
Page 53 and 54: with postwar democratic thought (Ki
Page 55 and 56: Formal System. Table 2.2 summarises
Page 57 and 58: To reduce the possibility of taxpay
Page 59 and 60: This could be aided through continu
Page 61 and 62: of the tax system (Eriksen and Fall
Page 63 and 64: have a good and reasonable knowledg
Page 65 and 66: compliance, many taxpayers perceive
Page 67 and 68: had a low significant impact on com
Page 69 and 70: 2.4 HOW SELF ASSESSMENT IS OPERATED
Page 71 and 72: keeping as well as the perceived le
Page 73 and 74: issues still remain important and c
Page 75 and 76: Table 2.4: United States’ complia
Page 77 and 78: In 1944 a new income tax system was
Page 79 and 80: assessment system, to overcome thes
Page 81 and 82: of the amounts deducted by employer
Page 83 and 84: Notes: Table 2.9 - United Kingdom-
Page 85 and 86: were quite difficult to complete. M
Page 87 and 88: In conclusion, tax development in t
Page 89 and 90: • Individual income tax has a min
Page 91 and 92: 2008). E-Tax (e-filing) was also in
Page 93 and 94: Self-assessment in Japan has gradua
Page 95: administrations and their perceptio
Page 99 and 100: Although more operations are becomi
Page 101 and 102: Table 2.16: OECD Self-assessed Coun
Page 103 and 104: it is acknowledged that wide variet
Page 105 and 106: deemed to be the amount of tax liab
Page 107 and 108: Tax and compliance costs remain a c
Page 109 and 110: ) Sri Lanka Income tax in Sri Lanka
Page 111 and 112: Table 2.21: Tax development in Sri
Page 113 and 114: Table 2.23: Sri Lanka - Tax revenue
Page 115 and 116: information which is related to tax
Page 117 and 118: assessed, they represented only 67
Page 119 and 120: (d) applicable to ‘white return
Page 121 and 122: Sources: OECD (2007:124) (OECD in F
Page 123 and 124: COUNTRY Table 2.27: Aggregate Admin
Page 125 and 126: United States Table 2.28: Enforceme
Page 127 and 128: Malaysia impose a penalty percentag
Page 129 and 130: 2.5.5.3 Electronic filing Table 2.3
Page 131 and 132: Table 2.31: SAS - Tax Education in
Page 133 and 134: and to speed up tax collections tha
Page 135 and 136: Peninsular Malaysia is separated fr
Page 137 and 138: ITA consolidated the three acts of
Page 139 and 140: 3.4 PERSONAL INCOME TAXES IN MALAYS
Page 141 and 142: 3.4.4 Basis year Section 2 of the I
Page 143 and 144: eturn (refer Appendix 4). A separat
Page 145 and 146: Table 3.1: List of deductions for Y
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c) Amount of zakat 61 payment. The
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Having discussed how personal incom
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A new system, known as the Self Ass
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igger increase in 2006 too), a sign
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1) Married woman were required to f
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Table 3.6: A brief comparison on th
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impact upon total revenue. Table 3.
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(STD) 67 audits and 4) investigatio
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Centres (RSCs) in Perak, Selangor,
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planned and implemented special tra
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sufficiently ‘educate’ taxpayer
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which netted RM226.05 million in ta
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In the next chapter, I will discuss
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compliance including age, gender, l
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isks of non-compliant behaviour the
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The wider perspective of tax compli
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Table 4.1: Approach to tax complian
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Figure 4.1: Compliance Index in Ind
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Table 4.2: Tax compliance index int
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Table 4.3: Tax compliance in transi
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Kasipillai et. al. (2003), Lewis (1
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7. GDP per capita, 8. tax system, 9
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Singapore 6.00 8.18 Slovakia 2.62 2
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Given evidence that tax knowledge a
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The result of the study suggested t
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there is insufficient knowledge abo
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taxpayers who read an objectively p
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In conclusion, after taking into co
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4.3.1.1 Tax rates This subsection d
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2008) and increasing tax rates will
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The result also evidenced that the
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4.3.1.4 Summary This subsection dis
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Roth et. al. (1989) suggested that
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simplified the range of guidance th
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potentially could help taxpayers to
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probability) using three major data
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whole population of North Carolina,
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factors in taxpayer compliance, nam
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likely to occur (Allingham and Sand
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y the government and the prices reg
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4.3.3.4 Referents groups (family an
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and referent groups. In the followi
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Table 4.5: Relationship between fin
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evading tax and the consequences of
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Table 4.6: Some previous studies on
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4.3.5.2 Income level Jackson and Mi
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Table 4.7 : Some previous studies o
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4.3.5.3 Culture Chan et. al. (2000)
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avoidance (UA) and masculinity (MAS
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are not aiming to become accountant
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2003 Hasseldine and Hite Female tax
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eferent groups) because these facto
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5.1 INTRODUCTION CHAPTER 5 RESEARCH
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Using a sample from a telephone dir
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income. However, the total of indiv
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taxpayers had gone through filing p
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2004 Ming Ling, Obid and Meera 2003
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5.2.2 The respondents Like Spicer a
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independence particularly from any
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X be chosen. Respondents are asked
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probability’ to ‘very high prob
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Loo (2006) used a mixed method appr
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questions’ approach was based on
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‘extremely good’, ‘good’,
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5.4.1.2 Data analysis technique T-t
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5.4.2.2 Hypotheses development for
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The association between tax knowled
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TNAWARE i - Tax knowledge about awa
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A. Demographics control variables (
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B. Tax background control variables
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5.4.3.3 Data analysis techniques In
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The role of Inland Revenue Board (E
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H4B- Positive perception of governm
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Besley, Preston and Ridge (1997) re
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In agreement with Spicer and Lundst
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improved through better tax knowled
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EQUITY i - Perception on equity and
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H5B - With regard to other tax comp
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used. A wider coverage of tax knowl
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6.1 INTRODUCTION CHAPTER 6 ANALYSIS
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total population of Malaysia, parti
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300 250 200 150 100 50 0 128 252 Fi
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500 400 300 200 100 0 333 1,001- 2,
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to better argue that a relationship
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6.5.1 T-tests, Mann-Whitney U. and
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familiarity with employment income
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no significant mean difference betw
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6.5.2 One-way ANOVA, post hoc test
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Non-parametric test, KW and median
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(B6) (F= 3.1113, p < 0.01) and reba
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IV IV A5 (RM) 10000 A5 (RM) 10000 A
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tax knowledge (p
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KW tests also suggested that there
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Figure 6.6 illustrates the results
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Table 6.12: Summary and relationshi
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Table 6.13: Stage 2 -Pearson correl
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Table 6.14 : Stepwise multiple regr
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The estimated coefficient of correl
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low correlation (p
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A. Dependent variable TCHYP Table 6
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TCHYP 40:60 = α + β1TNRESi + β2T
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B. Dependent variable TCDIR Table 6
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TCDIR 0 = α + β1TNRESi + β2TNEMP
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EQUITY and TOTAL were significantly
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6.8.2 Factors affecting tax complia
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GROUP i - Referent group ROLEi i -
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6.8.4 Summary results of Stage 4 Ta
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Table 6.25: Stage 5 -Pearson correl
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Note: Panel B: (Constant) 20.773 9.
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6.9.2 Dependent variable - TCDIR Ta
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Table 6.28 (Panel B) suggests that
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Notes: *** Significant at 0.01 leve
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subject matter. Most researchers vi
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ANOVA test results were sufficientl
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Table 6.33: Tax compliance direct -
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Table 6.35: Tax compliance hypothet
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Table 6.37: Results summary Results
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7.1 INTRODUCTION CHAPTER 7 DISCUSSI
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eason why the CRA emphasised the
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As this study suggested that tax kn
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and Hudson, 2002; Wearing and Heade
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up with education programmes that c
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of being audited, perceptions of go
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Braithwaite et. al. (2009). In addi
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In relation to this finding (financ
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cultivating personal awareness of c
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With regard to age, this result sup
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CHAPTER 8 CONCLUSIONS Self assessme
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This study seeks to contribute to t
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Like many countries, implementing a
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identified the tax compliance deter
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Further analysis (refer to section
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middle income earners) for tax admi
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latest information on tax regulatio
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8.4 LIMITATIONS It is acknowledged
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espondents regarding tax compliance
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Bank Negara Malaysia (2006). Annual
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Chow, C.Y. (2004). Gearing up for t
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Fishbein, M., and Ajzen, I. (1975).
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Inland Revenue Board (IRB) Malaysia
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Lempert, R. (1988). Internal Revenu
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Moriaryty, S. (1998). Tax complianc
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Shoven, J. (1989). The Japanese tax
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Vogel. J. (1974). Taxation and publ
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APPENDIX 1 Section 13. General prov
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shall be deemed to be derived from
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year of assessment (the responsibil
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APPENDIX 4 FORM BE 2007 FOR INDIVID
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Name Tax Reference No. PART C : STA
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Name Tax Reference No. PART F: STAT
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for for for for for reference refer
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GENERAL INSTRUCTION. This survey is
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ii) What is the probability of comp
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The following income MUST BE INCLUD
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SECTION C (TAX COMPLIANCE) Please s
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D11. Designation (Grade for governm
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