Abstract

The payment of income tax to the state by its citizens who have an income that is liable to tax is a mandatory legal requirement. In every country in the world, however, there exists a phenomenon known as a tax gap; i.e., not all of the people who are supposed to pay tax on their income are doing so. Why some pay taxes while others decide not to comply with the mandatory legal requirements to do so remains a question that has not yet been answered in full. Income tax is multidisciplinary in nature: economics, psychology, law, accounting, political economy, sociology, public sector management, etc; all come into play to explain why some people pay their taxes while others decide not to. The economic approach attempts to understand tax compliance from the perspective of the tax gap, while the psychological approach is based on exploring the citizens’ voluntary willingness to act not only withing the letter of the income tax law but also within its spirit. This paper attempts to provide an overview of the current ‘Tax Compliance’ literature, from the neo-classical economic deterrence models to the behavioural economics models and demonstrate the limitations of the tax compliance literature from the perspective of developing countries.

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