Voluntary tax compliance behavior of individual taxpayers in Pakistan

Sidra Gulzar,Ibn e Hassan,Ahmed Naeem

doi:10.1186/s40854-021-00234-4

Sidra Gulzar, Ibn e Hassan + Show 1 more

Open Access

https://doi.org/10.1186/s40854-021-00234-4

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Abstract

Governments settle their financial obligations and pay for the public expenditures largely through finances generated from taxes. For many developing countries like Pakistan, the state authorities are still having difficulty to achieve tax compliance. Existing literature has yet to traverse individual's tax compliance behavior on developing countries. The current study, however, explores the relationships among voluntary tax compliance behavior of individual taxpayers with selected economic, social, behavioral and institutional factors. This individual tax compliance behavior is studied through the multi-perspective lenses of the theory of attribution, equity theory, expected utility theory, and social exchange theory. Quantitative design using the survey method was employed to collect data from 435 individual taxpayers through questionnaire. For testing linkage between constructs, through mediation and moderation tests, structural equation modeling technique was used. The results suggest that tax compliance simplicity has a larger impact on tax filing than perception about Government Spending and tax morale. Furthermore, perception of fairness significantly mediates the strengths between morale, simplicity, government spending and compliance behavior.

Highlights

Governments settle their financial obligations and pay for the public expenditures largely through finances generated from taxes
An International Monetary Fund (IMF) working paper (2016) concluded the challenges faced by Pakistan regarding tax compliance; firstly; according to the data compiled by the Federal Board of Revenue (FBR) and the Ministry of Finance, the number of active individual tax filers is 1,156,984, but 5,700,000 people are reportedly earning above the minimum taxable income threshold
First question was designed to know, “How the individual’s attribute towards tax morale, tax compliance simplicity and perception about Govt. spending, influencing the voluntary tax compliance behavior?” The objective was to evaluate the role of these variables in our context as previous researches indicated that these three constructs significantly influenced the tax compliance behavior

Summary

Introduction

Governments settle their financial obligations and pay for the public expenditures largely through finances generated from taxes. Tax authorities are facing the challenges of financial management e Hassan et al Financ Innov (2021) 7:21 pertaining to performance in the collection of tax revenues. One of the factors leading to voluntary compliance in is simplification of tax payments (Saad 2014).In the same vein, authors suggested that voluntary tax compliance will increase, if the national revenue is spent wisely by the government on primary facilities like education, defense, health, and public transportation (Mohd Rizal and Ahmad Fariq 2011). Literature, though very limited on topics about individual tax compliance, draws attention towards the level of tax morale which undermines the high level of tax evasion and creates severe horizontal inequities between compliant taxpayers and tax evaders (Kemal 2003)

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