Does Compliance Strategy Increase Compliance? Evidence from Malaysia

The self-assessment system has become the key administrative approach for personal and corporate taxation in developed and developing countries, including Malaysia, first implemented in 2001 for companies, followed by individual taxpayers in 2004. It is one of the most significant transformations in Malaysia’s taxation, which requires higher tax awareness and improvements in voluntary tax compliance, especially for individual taxpayers. The present paper attempts to uncover the role of compliance strategies in increasing tax compliance and reveal the importance of tax learning and education, one of the central focuses of the tax authority in Malaysia. The study examines three Inland Revenue Board Malaysia’s (IRBM) current strategies: the threat of punishment, tax learning and education, and interaction with the tax authority. From a survey of 501 respondents, the results suggest that IRBM’s two current strategies (threat of punishment and tax learning and education) have a significant positive relationship with tax compliance behaviour among individual taxpayers. In addition, this study proposed enhancing tax learning and education by using current technology in delivering tax knowledge efficiently and embedding tax syllabus in schools and universities. The findings of this study provide significant and valuable input to the tax authorities, particularly IRBM, in evaluating current compliance strategies with the mission to cultivate tax compliance behaviour.

Tax compliance is the extent to which a taxpayer complies or fails to comply with the tax rules of the country. Tax compliance is crucial for the government, as taxes constitute the main source of income. In 2023, the Inland Revenue Board of Malaysia (IRBM) collected RM183.3 billion in tax revenue, representing a substantial increase of RM7.8 billion, or 4.49%, compared to the previous year. The amount collected is the highest by IRBM, which reflects the effective tax collection mechanisms. Small and medium-sized enterprises (SMEs) are the main drivers of economies in emerging nations and in Malaysia, SMEs account for 98.5% of all businesses. Therefore, it is vital for tax authorities to understand the diverse profile of SMEs as part of tax-driven strategies to maximise tax collection. The purpose of this study is to provide insights based on previous studies on determinants of tax compliance among SMEs in Malaysia. The study highlights demographic factors, namely age, gender, education level and income level, that influence the tax compliance behaviour of SMEs. The study can add to the literature on factors influencing tax compliance by highlighting how compliance behaviours differ among various demographics of SME owners and how these differences affect their compliance decisions. The paper might assist tax authorities in dealing with tax compliance issues by gaining a deeper insight into the importance of various demographic characteristics of SMEs.

The study explores the factors influencing tax compliance behaviour among small and medium enterprises (SMEs) in Malaysia. Its main objective is to examine the relationship between psychological empowerment and tax transparency on tax compliance behaviour. Malaysia continues to struggle with issues of under-reporting. Due to limited resources, the Inland Revenue Board of Malaysia (IRB) cannot fully ascertain the underlying causes of non-compliance. This study is novel in that it proposes a different model for measuring tax compliance behaviour, including the variable of psychological empowerment, which has been limited in previous taxation studies. The study employed SPSS and AMOS for data analysis. Responses from 230 SMEs in the manufacturing sector were collected using stratified random sampling. The results indicate that both psychological empowerment and tax transparency have a positive and significant relationship with tax compliance behaviour. These findings will be valuable for tax authorities and administrators by highlighting key areas that can be managed more effectively to reduce the high number of tax compliance issues in the country.

Purpose– This paper aims to examine areas of tax difficulties encountered by corporate taxpayers in complying with tax obligations under the self-assessment system.Design/methodology/approach– A two-phase exploratory mixed methods approach was employed. The first phase involves eight focus group interviews with 60 tax auditors from the Inland Revenue Board of Malaysia (IRBM) and the second phase adopts a mixed-mode survey among selected Malaysian corporate taxpayers. Thematic analysis and descriptive and inferential analysis were used to examine the qualitative and quantitative data in achieving the objective.Findings– Three dimensions of tax complexity encountered by corporate taxpayers were tax computations, record keeping and tax ambiguity. The first two complexity dimensions were faced largely by smaller companies. On the other hand, the least difficult tax-related areas were dealing with tax agents, submitting tax returns within the given time and dealing with the tax authority.Practical implications– In a tax policy context, this study enables international tax authorities in general, and Malaysian tax authority in particular, to have greater confidence in developing and administering tax laws and policies to maintain and/or increase the overall level of corporate tax compliance.Originality/value– Unlike prior studies that mainly used individual taxpayers or students as research participants, this study employed corporate tax auditors from the tax authority and corporate tax officers. Tax auditors and corporate taxpayers provide invaluable insights into the possible determinants of compliance variables. These insights are based on their practical experience in handling corporate tax audits and managing corporate tax matters, respectively.

This study considered the tax system structure into tax penalty, tax rate, and tax audit, and then examined their effects on tax compliance behaviour among small and mediumsized enterprises (SMEs) in the manufacturing sector of Yemen. Also, the tax compliance cost in Yemen was considered as a mediating factor in the tax system structure and tax compliance model. The study used a survey questionnaire to collect data based on previous studies. The study empirically found a strong positive and significant association between the tax rate, tax penalty, and tax audit and manufacturing SME tax compliance behaviour in Yemen. Whereas tax compliance cost is negatively related to tax compliance behaviour. For the mediation effect, only the relationship between two factors, that is tax rate and tax penalty with tax compliance behaviour were mediated by of tax compliance costs. While no evidence for the mediating effect of tax compliance costs on the relationship between tax audit and the tax compliance behaviour is found. By referring to Deterrence Theory, this study has contributed by extending the tax literature through a framework that examined tax compliance cost as a mediator in the association between manufacturing SME tax compliance behavior in Yemen and the structure of the Yemeni tax system.

This study examines the determinants of enforced tax compliance behavior of Malaysian citizens where trust in tax authorities is assumed to be a mediator. Quota sampling method was used to select a sample of 340 participants to participate in a survey. A two-step structural equation modeling (SEM) process was adopted to test a framework comprising 13 hypotheses. Model fit was initially measured using confirmatory factor analysis (CFA) while model specification was applied in the second stage to test the structural relationship. The mediating effects of trust in tax authorities were tested via Baron and Kenny (1986) approach, bootstrapping, and AMOS AxB estimand. The findings confirmed that trust in government, trust in tax administrator, power of Inland Revenue Board of Malaysia, and awareness influence enforced compliance. However, tax morale and tax amoral behaviors do not influence enforced compliance. The findings suggest that citizens would fulfill their tax responsibilities if they believe that tax authorities are effective in tax administration. Trust in government fosters trust in the tax authorities. This study contributes to existing literature by confirming the factors that affect enforced tax compliance.

Purpose—This study aims to analyze determinants of tax compliance intentions and behaviour using constructs derived from the Theory of Planned Behavior, i.e., tax morale, social norms, detection risk, penalty magnitude, and tax complexity, and the Theory of Fiscal Psychology, i.e., perception about the government. Design/methodology/approach —This research was conducted on 120 business actors and independent workers in the Greater Malang region using a survey and partial Least Squares analysis performed in SmartPLS. Findings — This study finds that tax morale, social norms, penalty magnitude, tax complexity, and perception about the government and that tax compliance intention, detection risk, and penalty magnitude influence tax compliance behaviour to determine tax compliance intention. Furthermore, detection risk does not affect tax compliance intention, and tax complexity does not influence tax compliance behaviour. Practical implications —Based on the findings, the government is advised, through the Directorate General of Tax, to develop policies and approaches supporting tax morale, strengthen community bases to create tax-aware environments, maintain law enforcement through investigation and application of penalties, build an easy-to-reach taxation system, and create transparency to enhance taxpayer’s trust to the government that eventually leads to higher tax compliance intention and behaviour. Originality/value—The findings support the inclusion of the Theory of Fiscal Psychology in the development of the Theory of Planned Behavior to explain tax compliance behaviour and provide a new perspective that, in the context of tax compliance, not all aspects of perceived behavioural control have the same effect on both behavioural intention and produced behaviour. Keywords — Tax compliance behaviour; Theory of Planned Behavior; Theory of Fiscal Psychology. Paper type — Positive paradigm

To have better understanding of compliance behavior of individual taxpayers in developing countries especially Nigeria, this study is undertaken primarily to test relationship between taxpayers’ perception<br />about public governance quality and their compliance behavior as well as to<br />determine whether the relationship is moderated by financial condition and risk preference individually and jointly. This study involved a survey of individual taxpayers’ opinion, perception and behavior about public governance quality as well as tax compliance. The major finding of<br />this study is that public governance quality has significant positive relationship with tax compliance behavior. The study also indicates that risk preference has strong negative moderating effect on the relationship between public governance quality and tax compliance behavior. Administration of income tax in Nigeria is characterized by low compliance level and therefore, there is no doubt that improvement in public governance quality would contribute significantly in reawakening the culture of tax compliance among individual taxpayers in Nigeria. Empirically, nothing much is known in tax compliance literature about the influence of<br />public governance quality on tax compliance behavior of individual taxpayers as well as the moderating effect of financial condition and risk preference on tax compliance and its determinants. This study extended tax compliance model to incorporate public governance quality and moderating effects of financial condition and risk preference.<br /><br />

This study explores how different factors affect tax compliance behavior among Romanian individual taxpayers. By unpacking tax compliance into nine drivers—tax system fairness, trust in government and tax authorities, efficiency, and transparency of government spending, knowledge of tax legislation, tax legislation simplicity, personal financial constraints, personal ethics, and moral standards, the social environment, and coercive measures—this study develops clear-cut paths of the drivers of tax compliance from the perspective of a developing country. The proposed research hypotheses were tested with a sample of 402 individual taxpayers and quantitative data analysis was carried out using partial least squares-structural equation modeling. The results showed that seven drivers (tax system fairness, trust in government and tax authorities, knowledge of tax legislation, personal financial constraints, coercive measures, moral standards, and tax legislation simplicity) were significant factors that increase the likelihood of tax compliance among individual taxpayers. Our findings are expected to provide tax authorities and governments new insights on tax compliance behavior that enable them to develop fiscal methods, strategies, policies, and legal measures tailored to local context, and constraints.

Tax revenue is one of important government’s sources of revenue and the taxation system vary across countries. Malaysia went through the paradigm shift by employing the self-assessment system (SAS) on 2001 where responsibility of calculating taxes had shifted successfully from the Inland Revenue Board of Malaysia (IRBM) to taxpayers. Since then, the voluntary tax compliance through SAS in Malaysia has been paying a greater role in meeting the statutory tax obligations and collection, effectively and efficiently. The study is aimed to examine the ethical, moral, religious and cultural background considerations on individual voluntary tax compliance in Malaysia by engaging quantitative research approach by utilising 200 valid questionnaire from respondents who are the individual taxpayer in Malaysia. Multiple regression analysis conducted to identify the effect of ethicality, morality, religiosity and cultural background on the individual voluntary tax compliance in Malaysia. Findings shows that all the variables have significant positive relationship, however the multiple regression analysis proven that ethicality and religiosity have strong significant effect on the individual tax compliance behaviour and on the other hand, morality and cultural background doesn’t have significant effect on individual tax compliance behaviour.

The importance of small and medium enterprises (SMEs) as the backbone in contributing to national income in Malaysia is undoubted. However, the Inland Revenue Board of Malaysia (IRBM) had reported statistical evidences pertaining to tax non-compliance among SMEs’ owners. Despite its importance, their tax non-compliance behaviour has not been given enough attention, particularly on their owners. Therefore, this study empirically investigates the determining factors of SMEs’ owners on their tax non-compliance intention. This study extends the theory of planned behaviour (TPB) model by incorporating the theory of religious commitment in order to determine the relationship between the constructs of TPB and religiosity and tax non-compliance intention as well as to test the moderating effect of religiosity. Employing survey design, questionnaires were randomly distributed to 580 SME owners in Malaysia, with 72.8 percent response rate. The data collected were analysed by using PLS-SEM statistical tool. Findings reveal that attitude towards tax non-compliance and subjective norms positively influence tax non-compliance intention, whereas perceived behavioural control negatively influences tax non-compliance intention. Findings also indicate that the significant positive relationship between attitude towards tax non-compliance with tax non-compliance intention became weaker for highly religious SME owners. Moreover, the significant negative relationship between perceived behavioural control with tax non-compliance intention was stronger for SME owners with higher religiosity. These findings contribute theoretically and practically with imperative implications to academicians, government and tax authorities.

Purpose– The pervasiveness of tax non-compliance remains a serious concern to most tax authorities around the world. The negative impact of tax non-compliance on the economy and the evolving nature of the Malaysian corporate tax system have motivated this study. The purpose of this paper is to examine the determinants of corporate tax non-compliance among small-and-medium-sized corporations (SMCs) in Malaysia.Design/methodology/approach– This study used economic deterrence theory to analyze and test 375 tax-audited cases finalized by the Inland Revenue Board of Malaysia in 2011.Findings– Multiple regression results revealed that marginal tax rate, company size and types of industry exerted significant effects on corporate tax non-compliance. The services and construction industries were noted to be the predominant industries engaged in tax non-compliance. The amount of concealed income unearthed during tax audit indicates clearly that there is widespread tax non-compliance in Malaysia and the quantum of tax lost through tax non-compliance is quite high.Research limitations/implications– This study only sampled SMCs audited in 2011, hence, care has been exercised in generalizing the findings.Practical implications– This study affirms that marginal tax rate, company size and types of industry are the main factors influencing compliance behavior of SMCs. The findings provide important insights not only to the Malaysian tax authority, but also to tax authorities and tax researchers in other parts of the world given that tax non-compliance of SMCs is a prevalent and universal problem. For example, with regard to the finding that marginal tax rate and company size are linked to non-compliance, it can be surmised that tax authorities ought to divert resources to firms with such characteristics when conducting audits.Originality/value– Most tax research tax examining corporate tax non-compliance used financial data from annual reports to predict tax non-compliance, which are not very accurate. This study used actual tax audit cases obtained from the tax authority which are reflective of the actual situation. This study complements the scant existing literature by empirically evaluating the factors that influenced corporate tax non-compliance in a developing country like Malaysia.

Studies relating to tax compliance disclose that there is much likelihood of the corporate tax compliance behaviour getting influenced by the tax compliance behaviour of the in-house tax professionals. However, no studies have investigated the nexus between the personal tax compliance and the corporate tax compliance so far. Therefore, this study aims at investigating the link between the above two tax compliance behaviours and the mediating effect of the personal tax compliance behaviour of the in-house tax professionals on their corporate tax compliance behaviour. A sequential explanatory design is chosen to collect data from 392 in-house tax professionals through a survey questionnaire, and the findings obtained from the survey are supported further by the supplementary findings made by nine (9) tax experts from the tax authority, tax agency, and tax scholars of the institutions in Malaysia. Structural equation modelling is used to analyse the data taken from the findings that reveal that the factors that contribute to the tax compliance behaviour have strong influence on the personal tax compliance of the in-house tax professionals. Interestingly, their tax compliance behaviour strongly influences their corporate tax compliance as well. Further, the bootstrapping test reveals that personal tax compliance behaviour has a significant indirect effect on the corporate tax compliance. The empirical findings give a clue to the tax authorities to identify the root cause for the corporate tax non-compliance by investigating the decision makers’ tax compliance pattern. The researchers of the future studies are encouraged to follow the same method of data collection, along with the sequential explanatory design, and to consider the moderation effect of the financial constraints on the tax compliance behaviour.

The Inland Revenue Board of Malaysia (IRBM) provides a monitoring mechanism of corporate governance through tax audits. However, indicators associated with the tax authority monitoring system remain underexplored due to data confidentiality. This study aims to examine the indicators used by the tax authority in performing tax monitoring where the tax return data of firms that claim reinvestment allowance (RA) were employed alongside the historical audit data of corporate taxpayers of both a tax-monitored firm and an unmonitored tax firm. The results of the analysis reported that the tax authority monitoring system is closely associated with fundamental details disclosed in the tax return namely, assessment year, profitability, scale of operation, firm directorship, tax consultancy and industry type. In contrast, the incidents of tax avoidance and incentive utilisation indicators were not prominent in tax authority monitoring. The investigation of firms that experienced tax monitoring provides insight into indicators which interest tax authorities when it comes to a firm’s tax audit. This research revealed new evidence on IBRM preferred indicators in conducting tax monitoring.

The importance of small and medium enterprises (SMEs) as the backbone in contributing to national income in Malaysia is undoubted. However, the Inland Revenue Board of Malaysia (IRBM) had reported statistical evidences pertaining to tax non-compliance among SMEs’ owners. Despite its importance, their tax non-compliance behaviour has not been given enough attention, particularly on their owners. Therefore, this study empirically investigates the tax literacy of SMEs’ owners on their tax non-compliance intention. This study intends to examine the relationship between the constructs of tax literacy and tax non-compliance intention as well as to test the moderating effect of religiosity. Employing survey design, questionnaires were randomly distributed to 580 SME owners in Malaysia, with 72.8 percent response rate. The data collected were analysed by using PLS-SEM statistical tool. Findings reveal that technical literacy positively influences tax non-compliance intention, whereas religiosity negatively influences tax non-compliance intention. Findings also indicate that the significant negative relationship between general literacy with tax non-compliance intention was stronger for SME owners with higher religiosity. These findings contribute theoretically and practically with imperative implications to academicians, government and tax authorities.