Tax Complexity Research Articles

Analysis of Tax Compliance Intentions amongst Small Business Owners in Kathmandu Valley: An application of the Theory of Planned Behavior

Governments heavily rely on tax revenue, imposing taxes on incomes, assets, and products of individuals and entities. However, tax compliance remains a global challenge due to complexities, systemic flaws, and taxpayer ignorance. In Nepal, particularly among small business owners, there is a lack of research on tax compliance intentions. This study aims to understand taxpayers' intentions regarding tax compliance, focusing on small business owners in Kathmandu Valley. The Theory of Planned Behavior (TPB) was employed to measure intentions using structured questionnaires and structural equation modeling (SEM) with SPSS and AMOS software. The study surveyed 200 small business owners, revealing that only 48.38% were aware of their tax compliance intentions. Additionally, 61.5% reported difficulties in paying taxes and criticized the government for insufficient tax awareness initiatives. Despite this, 74.74% believed that staying updated with changing government regulations could help manage tax challenges. The SEM results showed significant correlations between tax compliance intentions and factors like tax morale, tax complexity, and trust in the government. Most small businesses were registered and filed taxes annually, yet their compliance intentions were largely influenced by fear of fines. Furthermore, variables such as attitudes toward paying and avoiding taxes, belief in government, and the complexity of tax procedures also impacted compliance. The study concludes that improving tax services, enforcing more effective penalties, enhancing tax morale, and ensuring information transparency are crucial to facilitating tax compliance among small business owners in Nepal.

Do tax compliance costs mediate the relationship between the complexity of tax structure and fairness perceptions? Evidence from manufacturers

The phenomenon of tax fairness has been researched in the past with a host of dimensions and determinants. Tax fairness and attitudes towards compliance have majorly been affected by structural factors of taxation, of which a major component is the perceived complexity of the tax system. It has also been revealed by extant literature that compliance costs of taxation are critical indicators of how complex the taxation structure is in an economic system. At the outset, it becomes imperative to understand if the compliance costs of taxation play a role in serving as a causal link between tax compliance costs and fairness perceptions. The study employs a survey approach through a structured questionnaire to elicit responses on tax complexity, compliance costs and tax fairness perceptions. Structural equation modeling shows that there is a significant indirect effect of tax complexity on fairness perceptions through the mediating role of tax compliance costs.

Tax Complexity and Firm Tax Evasion: A Cross-Country Investigation

This paper endeavours to investigate whether a complex tax system influences firms’ propensity toward tax evasion across countries. To achieve the objectives of this study, we utilised the World Bank Enterprise Survey and the World Bank’s Doing Business databases covering more than 46,000 companies from 83 countries. Our study revealed that the increased time required to pay taxes and higher total tax payments were associated with a greater extent and incidence of tax evasion among firms. The consistency of these benchmark regression results was proven through endogeneity analysis and several robustness tests. Furthermore, our heterogeneity analyses showed that the effect of tax complexity on firm tax evasion was more prominent in low- and lower-middle-income countries and also in the primary industry. These findings offer promising evidence for policymakers, particularly in low- and lower-middle-income countries where the majority of companies operate in the primary industry. Addressing the complexity of the tax system could potentially mitigate the adverse impact on tax evasion levels in these countries. Furthermore, our spatial analysis provides valuable insights, emphasising the potential impact of tax complexity in neighbouring countries and underscoring the necessity for policymakers in the home countries to strategise on harmonising and streamlining their tax systems.

The Complex Dynamics of Agricultural Taxation in Developing Countries - Insights from Indonesia

The agricultural sector in Indonesia holds significant importance in the nation's economy, contributing substantially to the Gross Domestic Product (GDP) while facing challenges in tax revenue collection due to the predominance of micro and small-scale players. This paper examines the unique tax approaches in the agricultural sector, considering the complexities of taxation in developing countries. Through a comprehensive literature review, the study explores four key factors influencing tax compliance: economic factors, non-economic factors, tax administration, and perceptions of tax complexity. The research framework incorporates insights from various scholarly sources, including Scopus and Google Scholar, to provide a holistic understanding of agricultural taxation dynamics. The review reveals a nuanced landscape where taxation policies impact market dynamics, welfare outcomes, and historical trends in the agricultural sector. The synthesis highlights the importance of balancing efficiency and equity in tax systems, considering the specific needs of agricultural producers. Furthermore, the study underscores the significance of tax knowledge, effective tax administration, and clear communication in fostering voluntary compliance among farmers. Moreover, the analysis delves into the complexity of tax design, emphasizing the interplay between tax rates, emissions, investment, and perceptions of fairness. The paper identifies opportunities for future research, including exploring regional variations in tax knowledge impact, assessing the effectiveness of tax audit approaches, and examining innovative tax management tools for agricultural enterprises. Overall, the study contributes to understanding agricultural taxation dynamics and provides insights for policymakers seeking to optimize tax policies in developing countries.

Government, taxation and economic complexity

ABSTRACT This paper investigates the relationship between tax complexity, economic complexity, and government size. The findings are obtained through cross-country panel data and two-way fixed effects regressions, and reveal a nuanced connection: under small (large) government scales, increased tax complexity is associated with greater (smaller) economic sophistication. This suggests that tax complexity’s positive and negative aspects vary depending on the government conditions provided to the economy.

Rising Income Tax Complexity

Rising Income Tax Complexity

Auditors’ and Tax Specialists’ Interprofessional Collaboration during Audit Engagements: Implications for Audit Production and Audit Quality

ABSTRACT Tax specialists are often part of interprofessional teams that conduct financial statement audits, yet little is documented about their role and collaboration with auditors during these engagements or their contributions to audit quality. Our interviews with 33 highly experienced audit and tax professionals reveal variation in tax specialists’ roles during audits. Further, we find that auditors and tax specialists perceive a greater need for interdependence of expertise, particularly across different types of tax experts, due to increased tax specialization and global tax complexity. However, our interviewees acknowledge that power dynamics and differing attitudes toward shared goals and partnership affect the collaboration process. Interviewees also report instances where ineffective collaboration impacted audit quality. Collectively, we document how auditor and tax specialists’ collaboration (or lack of) influences both audit production and quality, providing insight for practice, regulators, and research regarding tax specialists’ audit involvement and extending the interprofessional collaboration literature to accounting. JEL Classifications: L84; M40; M42.

Citizen Preferences and Awareness of Tax Revenue Options: Public Opinion on South Carolina’s “Tax Swap”

Tax complexity makes it challenging for citizens to understand how taxes imposed by state and local governments affect their tax bill. This paper considers citizen awareness and preferences for tax revenue options in the presence of tax features that increase complexity. The researchers mailed a survey questionnaire to a random sample of South Carolina voters measuring their level of knowledge and preferences for school tax funding during the last half of 2021. A sizable majority of respondents report the property tax as their least preferred option to fund school operations when compared to sales tax or commercial property tax, with variation in support by ideology, homeownership, and partisanship. However, respondents are broadly uninformed of current school tax funding mechanisms regardless of college degree attainment, ideology, and other important indicators. Most respondents are not aware of the “tax swap” that replaced residential property tax with a one-cent sales tax to fund South Carolina school operations.

Kann die Europäische Union im globalen Steuerwettbewerb um Investitionen bestehen? Bestandsaufnahme und Handlungsempfehlungen

In recent years, the European Union has dedicated itself with great vehemence to the fight against international tax avoidance. The result of this policy is the restriction of tax structuring leeway while at the same time significantly increasing tax complexity, double taxation risks and potential legal uncertainty for companies in the European single market. Tax frictions in the EU therefore continue to exist, while international tax competition is likely to focus increasingly on the real economic activity and substance of companies in the face of declining scope for tax structuring and fundamental changes to the global tax system. This article structures these considerations and makes recommendations for an EU tax policy that meets the current challenges.

Regulatory Burdens and Entrepreneurship: Evidence from Sales Tax Complexity

Regulatory Burdens and Entrepreneurship: Evidence from Sales Tax Complexity

Tax Payers Moral Behavior in Nepal

This study analysis the Tax Payers’ moral behavior In Nepal. Further, the Study attempts to deal in the underlying reasons for non-compliance. Data was gathered through Questioner with four hundred participants, and analyses using thematic analysis. Results suggest those taxpayers have inadequate technical knowledge and perceive VAT system as complex. Tax Knowledge and tax complexity are viewed as contributing factors towards non-compliance behavior among taxpayers. The data are collected through well structured questionnaire. For the Purpose of analysis and interpretation the researcher has used the following statistical tools of SPSS. On the basis of analysis and interpretation the researcher introduces the major findings that the majority of the consumers pay tax but, they are not much aware of the VAT. Due to the High tendency of VAT the consumers try to avoid the payment of tax in Nepal.

Does audit regulation improve corporate decision making? Evidence from the disclosure of tax‐related key audit matters

AbstractOur study examines changes in corporate cash tax savings around the disclosure of tax‐related key audit matters (tax KAMs). We expect publicly disclosed tax KAMs to increase the visibility of a firm's tax complexity and uncertainty, thereby motivating the firm to improve its tax function. In turn, we expect to observe increased cash tax savings as an outcome of improvements to corporate tax functions. As predicted, we document that firms exhibit lower cash effective tax rates in the period after their auditors disclose tax KAMs. Additional tests suggest that disclosure of tax KAMs does not increase the likelihood of firms being aggressive in cash tax planning and increased cash tax savings are primarily driven by firms that adjust toward their optimal levels of cash tax savings. Cross‐sectional analyses support our expectation that post‐disclosure increases in cash tax savings are less pronounced when investors were better informed about firms’ tax strategies in the pre‐disclosure period and when firms faced stronger tax enforcement in the pre‐disclosure period. Collectively, our results highlight the role of KAM disclosure requirements in prompting firms to improve their internal operational decisions.

Does government effectiveness moderate the relationship between regulatory quality and tax complexity?

This research aims to analyze the relationship between regulatory quality and tax complexity worldwide and whether this relationship is moderated by government effectiveness. The hypothesis is that robust regulations would promote simplicity and efficiency in the tax system. This study incorporates 100 countries as a sample, derived from the tax complexity index developed in 2016. Further, a moderated regression using SPSS PROCESS Macro is used to test the hypotheses and generate findings. This study shows that regulatory quality relates to the tax complexity in the countries and the effectiveness of the government indeed moderates this relationship. The tax authority, the Directorate General of Taxes, may use the findings to address the importance of the quality of regulations in shaping an efficient tax system.

Determinants of the Tax Compliance and Fairness Perceptions of Taxpayers on the online Tax System. A Case of Ghana

In the face of the growing digital economy of Ghana, the Ghana revenue authority as part of its goal to increase domestic revenue mobilization has introduced an online tax system. The objective of the study is to determine the determinants of taxpayers’ perception of the fairness of the tax system and the determinants of their tax compliance. Data were collected using questionnaires from 380 respondents and analyzed using Microsoft Excel and Stata version 14. Results showed that there is a negative relationship between tax compliance and tax complexity. Educational level and income levels have a positive relationship with tax compliance. The people of Winneba generally have a poor perception of the fairness of the tax structure. Tax knowledge, compliance cost, and tax usage were significant determinants of the fairness perception of the people of Winneba. In this regard, the study recommends that policymakers should direct policy drafting to ease the resource cost the tax structure poses on the taxpayers, intensify tax education, and also further simplify the tax complexity

Elimination of tax complexity issues through financial literacy

Modern taxation systems often experience complexity and investigations have attempted to define whether the tax complexity has an impact on the compliance of taxpayers. A low level of literacy can be an obstacle in the tax system. This paper will examine the impact of financial literacy on tax revenues to prove the relationship between literacy and taxation. The study will also provide suggestions for developing financial literacy which may reduce the negative influence of tax complexity on tax compliance. The educational systems do not provide taxation as a subject at any stage, however, tax knowledge is required for understanding taxes and for implementation of tax calculations and those skills directly affect the finances of individuals and the performance of businesses. A low level of financial education and tax knowledge in society affects the financial attitude of individuals and households which can lead to lower tax compliance and eventually, create a fertile environment for tax evasion. The tax complexity concerns not only people and businesses but also governments and tax administrations, because it also decreases tax revenues in the end. The study will use a simple regression model as a method in order to find out the relationship between financial literacy and taxation, as well as it will support suggestions to eliminate tax complexity issues. The main tax variables will be taken from the Eurostat database and financial literacy variables will be sourced from the OECD survey of financial competencies. Every individual and country must take financial education into serious consideration to avoid the anticipated consequences in personal life and negative results in economic development.

Effects of Economic Deterrence Theory and Environmental Regulation on Tax Evasion: Evidence from Energy Sector

Environmental regulation is the responsibility of individuals, corporations, and other entities to prevent environmental damage or improve the tarnished environment. The Environmental law of every country works to protect the natural resources of land, water, air, and soil. There are research evidence that environmental regulation influences Corporate taxes. Economic deterrence theory acted as deterrent to threats of punishment for unwanted or illegal behavior. The fundamental concept of the theory is deterring the taxpayers into compliance by the risk of audit, penalty, etc. The objective of the study is to analyze the impact of economic deterrence theory and environmental regulation on corporate tax evasion, particularly petroleum profit taxes in Nigeria. The components of Economic deterrence theory (tax agents, tax complexity, tax knowledge) and environmental regulations are the independent variables and corporate tax evasion particularly PPT is the dependent variable of the study. It is quantitative research based on primary data which was collected from the oil and gas companies’ representatives. Structural Equation Modelling techniques were applied, and the outcome of the research is a positive and significant relationship between tax agents, tax complexity, tax knowledge, and environmental regulations on corporate tax evasion. The result further shows a positive but non-significant relationship between tax audits and perceived petroleum profit tax evasion. The study draws the attention of policymakers to formulate environmental regulations that are more robust, simple, and flexible, to reduce adverse effects of environmental damage on the economic growth and development of oil and gas-producing countries.

Factors Influencing Tax Compliance Among Tiktok Users Engaged in E-Commerce Activities in Malaysia

The Covid-19 pandemic has catalysed the growth of e-commerce, including using social media platforms for business. However, the lack of a physical presence in e-commerce introduces tax issues, potentially risking tax revenue losses. This study aimed to understand tax compliance among e-commerce operators in Malaysia who use TikTok. It examined the level of tax compliance, awareness, knowledge, morale, and complexity among these operators and explored the relationship between these factors and tax compliance. Data were collected via an online questionnaire and analysed from 106 responses using SPSS. The results indicated that TikTok users demonstrated a high level of tax compliance, solid tax knowledge, and strong morale but displayed low levels of tax awareness and complexity. Tax knowledge and morale positively influenced tax compliance among TikTok e-commerce operators in Malaysia, while tax awareness and complexity did not significantly affect compliance. These findings aid in understanding the behaviour of e-commerce operators regarding tax compliance, thereby promoting tax compliance and minimising potential tax revenue losses for the government. Keywords: tax knowledge, tax morale, tax compliance, tax awareness, tax complexity

A Tale of Two Forecasts: An Analysis of Mandatory and Voluntary Effective Tax Rate Forecasts

ABSTRACT Disclosure theory predicts that the likelihood of voluntary disclosures increases with the noise level in mandatory disclosures. We test this prediction by exploiting a unique setting where firms simultaneously provide two forecasts of the same metric—annual effective tax rates (ETRs). We find that managers are more likely to issue voluntary ETR forecasts when mandatory ETR forecasts contain more noise due to tax complexity, suggesting that managers resort to voluntary disclosure when mandatory disclosure constrains their ability to convey private information. Using analysts’ ETR forecast revisions to assess the informativeness of the two ETR forecasts, we find that both forecasts are incrementally informative. In addition, analysts weight voluntary ETR forecasts more heavily, especially when voluntary ETR forecasts are non-GAAP based and when discrete items are present. Overall, we provide evidence on the relation between and the informativeness of voluntary and mandatory disclosures by examining two competing forecasts issued simultaneously.

Determinants of Voluntary Compliance on A Changing Tax Policy

Purpose: This study aims to examine the effect of trust, power, procedural fairness, distributive fairness, tax morale, and tax complexity on voluntary compliance. This study is conducted in an environment where taxpayers have to adopt new practices in tax reporting.Method: This study applied a survey of staff and lecturers in one of the state universities in Semarang, Central Java. The questionnaires were distributed online. The final sample comprised 165 participants. The regression model will be analyzed using SmartPLS.Findings: The results suggested that procedural fairness, distributive fairness, and tax morale had a significant role to achieve voluntary compliance. However, this study failed to provide empirical evidence about the effect of trust, power, and tax complexity on voluntary compliance.Novelty: The dynamic at the organizational level has brought consequences for the members of the organization. The consequence includes a practical change in tax reporting i.e. from zero payment in tax returns to underpayment in tax returns. Under this background, this study investigates voluntary compliance and its determinants. The investigation is important since the practical changes in tax reporting tend to increase the tax burden, which could promote tax evasion.

Enhancing VAT compliance in the retail industry: The role of socio-economic determinants and tax knowledge moderation

Despite tax being a fundamental method to redistribute wealth and achieve a sustainable economic and social system, tax agencies and institutions in most countries are struggling with low tax collections. This issue is often attributed to the level of compliance among taxpayers. To gain more insight into this problem, a study was conducted to examine how socio-economic determinants such as probability of detection, tax complexity, tax penalty, tax sanctions, tax ethics, tax justice, government spending, and tax services quality impact VAT compliance decisions. The study drew a random sample of 770 retail industry participants from Jordan, an Arabic country, for a self-administered survey. Smart-PLS structural equation modeling was used to analyze and estimate the compliance model. The results indicated that all proposed direct relationships were supported, and the interactions between tax knowledge and the socio-economic determinants on VAT compliance were found to be significant. The findings of this research can be useful for policymakers and institutions responsible for taxpayers' communities to understand the role of tax knowledge in VAT compliance in the retail industry. The study emphasizes the significance of instilling tax knowledge, social and moral values among VAT payers, establishing an equitable system, and launching awareness programs in Jordanian society. Additionally, it contributes to existing literature by confirming a practical compliance model rooted in the socio-economic theory of regulatory compliance. This model incorporates the moderating effect of tax knowledge within socio-economic aspects of VAT compliance. By understanding the importance of tax knowledge, policymakers and institutions can develop effective strategies to boost VAT funds and improve compliance in the retail industry. This can ultimately lead to increased government revenues without placing an undue economic burden on lower-income taxpayers.