Higher Tax Compliance Research Articles

Peran Mediasi Tax Knowledge dalam Hubungan Tax Education dan Tax Compliance

This research examines tax education which influences tax knowledge with the mediation of tax knowledge. Data from a survey of 130 individual taxpayers in Samarinda who had taken taxation courses through formal tertiary level education were analyzed using smartPLS, which produces findings that tax education and tax knowledge have a significant and positive effect on tax compliance, tax education has a significant and positive effect on tax knowledge, and tax education has a significant and positive effect on tax compliance through tax knowledge which is partial mediation. This research results in empirical evidence regarding the importance of tax education in increasing tax compliance. High tax compliance will help the government in terms of funding to carry out work programs that can ultimately improve people’s lives.

Self-Concept Priming and Message Framing As Strategies for Improving Individuals’ Compliance: A Case Study of Bicultural Taxpayers’ Tip Reporting

ABSTRACT This study investigates the efficacy of two strategies, active self-concept priming and message framing, designed to encourage standard-compliant behavior. We prime 82 bicultural U.S. taxpayers from a collectivist culture through informational videos to activate either an individualist or collectivist self-concept. The message is framed to match (versus not match) the primed self-concept. Results reveal an ordinal interaction where participants primed with a collectivist self-concept have higher tax compliance than those primed with an individualist self-concept, and the highest compliance occurs when the message has a relational focus (i.e., collectivist prime match) compared to a self-focus (i.e., individualist prime match). Supplemental analysis suggests that raising the salience of the collectivist-self over the individualist-self indirectly affects taxpayers’ intentions to comply through the mediator of taxpayers’ attitudes. The findings highlight the potential of behavioral priming as a low-cost strategy for boosting tax revenues that fund services that benefit the public interest at large. Data Availability: Data are available from the authors upon request.

Moderating Effect of Financial Condition on the Influence of Tax Knowledge on Tax Compliance Behaviour among SMEs in Tanzania

This paper examines the moderating effect of financial conditions on the influence of tax knowledge on tax compliance behaviour among SMEs in Tanzania. A cross-section survey of 377 SMEs-Owners was conducted in three regions of Tanzania - Dar es Salaam, Morogoro and Mbeya. Descriptive and partial least square path modelling were used for data analysis, with the aid of SPSS and SmartPLS3.0. The findings of the study supported the hypothesised direct relationship that tax knowledge has a significant positive influence on tax compliance behaviour among SMEs in Tanzania. The findings imply that SME-Owner managers who possess greater tax knowledge demonstrate high tax compliance behaviour compared to those with less tax knowledge. Moreover, the financial condition of SMEs was found to have a positive significant moderating effect between tax knowledge and tax compliance behaviour among SMEs in Tanzania, implying that the existence of strong financial stability among SME-owners combined with tax knowledge increases SMEs tax compliance behaviour compared to those with limited financial resources. Thus, the government, through the Tanzania Revenue Authority, is advised to enhance taxpayer education initiatives, especially for SMEs, which may result in improving the level of tax compliance behaviour and institute generous compliance measures during difficulty financial conditions.

E-Taxation and Tax Compliance in Nigeria: Periscoping Change Perspectives

This study examined the issue of e-taxation and improved tax compliance in Nigeria. The study adopted ex-post facto research design. Analysis conducted in the study made use of secondary quantitative data collated from the Federal Inland Revenue Services (FIRS), National Bureau of Statistics (NBS) and Enugu State Internal Revenue Service (ESIRS). The study revealed that e-taxation has significant positive effect on tax evasion in Nigeria. The study revealed higher mean value for tax revenue after the adoption of e-taxation when compared with the mean value before the adoption of the e-taxation system, it also revealed that e-taxation has significantly helped in stemming the tide of tax avoidance to a large extent in Nigeria. The analysis of the data indicated higher mean value for tax revenue after the adoption of e-taxation when compared with the mean value before the adoption of the e-taxation system. The study made some vital recommendations which include the need for FIRS to create an electronic tax payment system mobile applicaion which will serve as a means of creating more awareness and simplification of the e-tax system in the country. It was concluded that the e-taxation system commands high tax compliance than the manual system era in Nigeria.

Temperature and corporate tax avoidance: Evidence from Chinese manufacturing firms

This study estimates the effects of temperature on corporate tax avoidance in the context of climate change, using data from Chinese manufacturing firms. The firms exhibit increases in tax avoidance activities in response to high temperatures. We find that an additional day with temperature above 90 °F results in a 0.097 percentage-points decrease in effective tax rate (ETR), or 0.67% evaluated at the mean level, with effects concentrated on labor-intensive firms. We also find evidence that higher tax compliance can be a cover for tax avoidance activities in the previous year. This provides a possible way for tax authorities to detect tax noncompliance. In addition, we offer a comparatively new perspective to understand the undesirable impacts of climate change, that is, high temperatures can lead to opportunistic behaviors of firms. Using temperature, which is exogenous to the firms' policies, we also draw a more reliable causal inference regarding the effect of negative shocks on corporate tax avoidance.

Tax Compliance Is Influenced By Provision Of Quality Services And Good Governance By The Government: Lessons From Tanzania

The motive of this paper was to establish the existing relationship between the perceived factors that impact tax compliance in Tanzania using SMES at Babati town council Manyara, as a case study, and develop the best ways to promote high tax compliance level in our economy.

A self-employed taxpayer experimental study on trust, power, and tax compliance in eleven countries

The slippery slope framework explains tax compliance along two main dimensions, trust in authorities and power of authorities, which influence taxpayers’ compliance attitudes. Through frequentist and Bayesian analyses, we investigated the framework’s assumptions on a sample of 2786 self-employed taxpayers from eleven post-communist and non-post-communist countries doing business in five economic branches. After using scenarios that experimentally manipulated trust and power, our results confirmed the framework’s assumptions regarding the attitudes of the self-employed taxpayers; trust and power fostered intended tax compliance and diminished tax evasion, trust boosted voluntary tax compliance, whereas power increased enforced tax compliance. Additionally, self-employed taxpayers from post-communist countries reported higher intended tax compliance and lower tax evasion than those from non-post-communist countries. Our results offer tax authorities insights into how trust and power may contribute to obtaining and maintaining high tax compliance levels amid global economic challenges, downturns, and increasing tax compliance costs.

Investment incentives and the relative demand for skilled labor: Evidence from accelerated depreciation policies in China

This study evaluates the effects of China's 2014 and 2015 accelerated depreciation policies on the relative demand of firms for skilled labor. We develop a simple model to explore how the policies affect the relative demand of firms for skilled labor and illustrate the roles of financing constraints and tax compliance in mediating the policy effects. We then employ a firm-level dataset from China's A-share listed companies and use a quasi-experimental design to examine the model predictions. We find that the policies significantly increase the relative demand of firms for skilled labor. The channels underlying the policy effects are that the policies generate additional cash flow for firms, stimulate investment and, thus, raise the demand of firms for skilled labor with the presence of capital–skill complementarity. We also find that the positive effects of the policies on the relative demand for skilled labor are primarily significant for firms with strong financing constraints and high tax compliance. Moreover, we document the positive effects of the policies on R&D investment, firm value added, productivity, workers' benefits, and corporate social responsibility performance, which further corroborate our main results.

How can tax compliance be incentivized? An experimental examination of voice and empathy

PurposeTax evasion is an economic crime that nearly all world countries suffer from. Its consequences are countless, including poor public spending on infrastructure projects and social welfare programs, low economic growth and development, institutional mistrust and fiscal deficits. For developing countries in particular, targeting development programs and infrastructural investments requires an efficient tax collection policy to generate sufficient funds for such purposes. This makes the tax evasion problem a critical one and countering it extremely policy relevant. Based on evidence that shows how the understanding of taxpayers' behavior is an essential factor in fighting evasion, this paper aims to test different factors that might incentivize citizens using a behavioral and experimental approach, in non-Western educated industrialized rich democracies (non-WEIRD) countries, to comply more.Design/methodology/approachThis paper uses a survey experiment to examine the impact of different behavioral primes on tax compliance behavior. Specifically, it observes subjects' compliance behavior in two contexts: voice and empathy. A total of 273 students from a big public university in Egypt were randomly selected to participate in this study.FindingsIn the “Voice” treatment, the explanatory variable (VOICE) was found statistically significant, thus confirming the hypothesis that democracy, through having a voice in the decision-making process, affects compliance positively. As for the “Empathy” treatment, the explanatory variable (EMPATHY) was also found significant. This confirms the second hypothesis that triggering feelings of empathy, through highlighting the good cause behind public spending that uses taxpayers' money, affects compliance behavior positively.Research limitations/implicationsDespite the fact that the experimental methodology is a methodology with high internal validity, examining the impact of a specific intervention on behavior, a replication of the experiment in other contexts might be useful in increasing the external validity of the findings. Specifically, conducting this experiment on a nonstudent sample might lead to even more powerful results by increasing the ecological validity of the results.Practical implicationsThis study advocates a more behaviorally informed public policy. Specifically, Egyptian policymakers are recommended to adopt behavioral nudges as a complement to existing policies. The authors believe the findings, if confirmed by repeated experiments (lab, lab-in-the-field and rational choice theories on both student and non-student samples) in a number of Arab countries, might also help in offering cost-effective nudges for the Arab world policymakers, where culture and the political context are to a great extent similar.Social implicationsThe findings of the study have a number of social implications. Higher tax compliance will enable higher levels of public spending on a number of social targets such as education, health and welfare programs.Originality/valueWhile the study builds on recent research examining how to incentivize tax compliance, it simultaneously seeks to make three contributions. First, the study design aims to apply recent advances in behavioral sciences (impact of voice and empathy) in a policy area that has not seen much use of such interventions in the Egyptian context (i.e. tax compliance). Second, the study is policy relevant in the sense that it aims to increase the effectiveness of existing government policies by complementing them with behavioral primes. Third, there is nearly no literature found applying this topic in a non-WEIRD country such as Egypt.

Predatory Rulers, Credible Commitment and Tax Compliance: How War Does Not Make the State Under Weak Rule of Law

This paper explores an underappreciated factor which can be necessary for warfare to strengthen fiscal capacity. It argues that in contexts with lower respect for the rule of law and worse private property rights, rulers' predatory behavior should incline wealth holders to shelter their wealth and therefore tax compliance should be lower. This will make it unlikely that during armed warfare, when rulers engage in more predatory behavior such as confiscation, there will be any property or income to be taxed and hence states will be unlikely to invest in fiscal capacity. Under stronger rule of law and better private property rights, the constraints on the rulers' predatory behavior should provide higher security for wealth holders and they should be less likely to shelter wealth, bringing higher tax compliance. Such compliance makes it more likely that states can increase fiscal revenues during war and therefore will be more likely to invest in fiscal capacity. These expectations are tested with an original dataset of Ottoman waqfs in modern-day Greece between 1600 and 1912 in addition to annual Ottoman fiscal revenue data. Results indicate that wars increase wealth sheltering under lower rule of law, while it does not under higher rule of law. Furthermore, while wars do not increase fiscal revenues under lower rule of law, they increase fiscal revenues under higher rule of law.

Response Times and Tax Compliance

Inspired by the work of Rubinstein, this study revisits data from a previous lab experiment to explore the relation between response times and tax compliance and understand the potential non-linearity between them by classifying decisions and individuals into compliance types. We find that individuals’ decision response time is related to their compliance decisions. Full-non compliant individuals (those who did not declare any earned income) have shorter response times than those who fully or partially complied. Full-compliant individuals also tend to declare income faster than partially compliant subjects. Such results are robust throughout time and when controlling for contextual characteristics of experimental design. We find non-linearity via an inverted U-shape function that reaches its maximum declaration time around a compliance rate of 60%, even after controlling for contextual experimental design factors. In addition, we observe a non-linear relation between cognitive skills, response time, and tax compliance. Participants with relatively high cognitive skills and very low or very high tax compliance level have low response times, while subjects with relatively lower cognitive skills tend to report higher decision times for higher compliance levels.

Obedience Pressure and Tax Sanction: An Experimental Study on Tax Compliance

This research aims to test the influence of tax sanction and obedience pressure on tax compliance. By applying a 2x2 between-subject factorial experiment method, this research has found the empirical evidence that taxpayers tend to be more tax-compliant when the tax sanction is high rather than low. Next, when taxpayers tend to be more non-compliant when they receive obedience pressure from their superior rather than not. Lastly, from the interaction test between tax sanction and obedience pressure variables, the researcher found empirical evidence that shows that, when given high tax sanctions, a taxpayer will have higher tax compliance rate when they do not receive obedience pressure compared with when they receive obedience pressure. This research has a practical implication that obedience pressure from a superior is a key that could potentially reduce tax compliance rate because, although there are low or high sanctions, if there are any obedience pressure, then the tax compliance rate will be low.

Does VAT have higher tax compliance than a turnover tax? Evidence from China

We study the tax compliance effects of value-added tax (VAT) by exploiting the reform replacing business tax (BT) with VAT in China beginning in 2012. We find that replacing the BT with VAT significantly increases reported sales and reported cost for treated firms, and the impact is much stronger among business-to-business (B2B) transactions than business-to-consumer (B2C) transactions. Buyers in B2B transactions have stronger incentives to claim invoices to credit their output VAT and reduce their tax liabilities. In B2C transactions, individual consumers do not need VAT credit, so the reform has little impact. Moreover, firms report higher costs after the reform to offset their tax liability. The results indicate that VAT has higher tax compliance than a turnover tax and the VAT system has self-enforcing properties in B2B transactions.

Impact of Tax Administration Towards Government Revenue in Tanzania- Case of Dar-es Salaam Region

Purpose of this study was to assess the impacts of tax administration on government revenue in Tanzania- case of Dar es Salaam region. This study is more scientific and effective, whereby questionnaires have been used to access the required information. Researcher has been able to collect information from 85 respondents out of 100 targeted respondents from the area of the study. Findings of this study have been analyzed and reveal that, Good tax design, Effective tax policy and laws, Tax administrative structure, Tax collection methods, Proper use of computerized system of maintaining taxpayer Register, Outsourcing revenue collections to private tax collectors, Internal and external capacity building, Intensive coordination with other entities and Proper maintenance of taxpayer’s records are the main factors that enhance effective tax administration in Tanzania. It is concluded that Corruption practices on taxation issues, lack of awareness of Local Tax payers, political pressure to relax tax collections, ineffective tax laws and policies, Insufficient budget or funds, High rate of Tax evasion and avoidance, Outsourced revenue retained by Revenue collectors, lack of tax compliance, are the challenges facing tax administration in Tanzania. Also concluded that eradication of the mentioned challenges above effects/results to, Adequate tax collections, Efficient tax system, High tax compliance by tax payers, Attainment of revenue targets, Increase in tax bases and declined cost of revenue collection, Minimum Tax evasion and avoidance, and High service delivery capability are the impacts that result from Tax administration. Researcher has recommended for the following to be done on the way forward:-Emphasis has to be put on the tax laws and policies mechanism to be reviewed time to time in order to save the purpose due to the prevailing situation, international tax environments, and the changes on the technology on tax administration. Efforts should be put on improving the tax payer’s convenience in the assessment and payment process whilst at the same time entrenching effective and modern human resource management practices in the tax authorities in respect to vetting, recruitment and selection of employees. Tax collection Authorities should ensure that all revenue receivables are paid promptly into designated bank accounts and failure to do so within the stipulated period of time should attract to the severe penalties to the officers concerned.

The Dealing at Arm’s Length Fallacy: A Way Forward to a Formula-Based Transactional Profit Split?

The dealing at arm’s length principle (ALP) should ensure the allocation of profits to be aligned with the economic activity that produced the profits. On the one hand, it is, however, a fallacy to compare the conditions in a controlled transaction with the conditions that would have been agreed upon between independent enterprises. On the other hand, there is no economic consistent theory within the ALP to align value creation properly and unambiguous to companies of a multinational group. Instead, the ALP creates possibilities for international tax planning, risks of double taxation, a potential for high tax compliance costs and administration costs. At least the results of the G20/OECD BEPS-Project seem to reduce the international tax planning possibilities in this area. However, the results create new difficulties like the assessment of arm’s length behaviour and the (expected) increasing usage of the transactional based profit split method. Considering this, this article introduces a formulary and transaction based profit split method. This method will not avoid all disadvantages of the ALP. However, it could help to establish an international consistent application in order to minimize profit shifting, to enhance tax certainty for taxpayers and to reduce tax compliance costs and administration costs.

Microfoundations of Small Business Tax Behaviour: A Capability Perspective

AbstractSmall business tax behaviour has received surprisingly little attention. We argue that an organizational capability perspective using microfoundations will allow us to better understand the relationships between different drivers and the dynamics of small business tax behaviour. This study draws on in‐depth interviews with 42 small business owners who are matched with the firms’ factual tax compliance status. Using grounded theory, we build a framework that (a) identifies different microfoundations of small business capability to manage tax and (b) explains the dynamic nature of the relationship between organizational capability and compliance. Findings suggest that high capability does not necessarily translate into high tax compliance and this relationship is mediated by the owner‐managers’ perceptions of taxation as well changes in the economic and regulatory environment.

The Right Kind of Help? Tax Incentives for Staying Small

Some countries support smaller firms through tax incentives in an effort to stimulate job creation and startups, or alleviate specific distortions, such as financial constraints or high regulatory or tax compliance costs. In addition to fiscal costs, tax incentives that discriminate by firm size without specifically targeting R&D investment can create disincentives for firms to invest and grow, negatively affecting firm productivity and growth. This paper analyzes the relationship between size-related corporate income tax incentives and firm productivity and growth, controlling for other policy and firm-level factors, including product market regulation, financial constraints and innovation. Using firm level data from four European economies over 2001–13, we find evidence that size-related tax incentives that do not specifically target R&D investment can weigh on firm productivity and growth. These results suggest that when designing size-based tax incentives, it is important to address their potential disincentive effects, including by making them temporary and targeting young and innovative firms, and R&D investment explicitly.

Work performance and tax compliance in flat and progressive tax systems

Different tax systems, and their impact on work motivation and tax compliance are significant issues in contemporary political and economic debates. The proportional feature of a flat tax system is assumed to lead to higher performance, while the fairness of the redistributive progressive tax system is assumed to result in higher tax compliance. However, empirical findings on the topic are inconclusive. Both work performance and tax compliance under different tax systems were examined in an experiment, with special attention devoted to the effect of a change in tax systems. A flat tax system was supposed to induce greater work performance, whereas a progressive tax system was expected to increase tax compliance based on fairness perceptions, allowing for the opposite effect due to higher complexity. Furthermore, it was assumed that performance and tax payments would be influenced by motives of self-interest. The design included 20 rounds with a real-effort task in each round, determining participants’ experimental income. Participants (N=191) made decisions about their tax payments from round-to-round in four different experimental conditions: (1) a flat tax system, (2) a progressive tax system, (3) starting with a flat and changing to a progressive, and (4) starting with a progressive and changing to a flat tax system. Results indicate higher work performance in a progressive system. However, a change from a progressive tax system to a flat system led to increased tax compliance.

Mental Accounting and Tax Compliance

Taxes are a burdensome and tedious issue for self-employed who have just started their business. The present research suggests mental accounting as a measure for self-employed to keep track of their financial activities. Based on prospect theory, we argue that the mental segregation of taxes due from net income affects a taxpayer’s reference point in the compliance decision and results in higher tax compliance. Findings from a laboratory experiment confirm this prediction. Further, we show that relevance of mental tax accounting is higher when the tax due is not specified externally as it is the case in pay slips provided to employees. The individual tendency toward mental segregation of tax due and net income is positively related to the sex and age of respondents, their attitudes toward taxpaying, and their experiences gathered in the course of the experiment.

Delayed feedback on tax audits affects compliance and fairness perceptions

In the present study we explore the conflicting finding that delayed feedback on tax audits apparently results in higher tax compliance, although delaying feedback is associated with lower perceptions of procedural fairness. In a repeated rounds design the timing of feedback (delayed vs. immediate) is investigated in combination with a reduction of wealth in some periods, presented either as a rather unfair intervention of the authorities, or due to a comparatively neutral manipulation. The results reveal a strong impact of timing of feedback on tax compliance: participants in conditions of delayed feedback show significantly higher compliance than those in conditions of immediate feedback. In addition, participants receiving delayed feedback are more likely to state that the probability of audit is high as well as that fines in case of detection are severe, but on the other hand perceive the timing of feedback and the authorities as more unfair. No main effect of the reason for the wealth reduction could be identified. The finding that the difference in compliance between delayed and immediate feedback on tax audits develops over time supports the assumption that in decisions based on experience the probabilities of rare events are underweighted, while in decisions based on descriptions people make choices as if they overweight probabilities of rare events.