Tax Compliance Literature Research Articles

Factors Influencing Income Tax Compliance Decisions: A Review of the Literature

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.

POWER AND TRUST: A MEDIATOR IN THE RELATIONSHIP BETWEEN PROCEDURAL JUSTICE AND TAX COMPLIANCE IN INDONESIA

This study analyses the connection between procedural justice, trust and power concerning tax compliance in Indonesia and investigates the mediating influence of trust and power tax authorities hold in this relationship. While various factors play a role in tax compliance behaviour in Indonesia, the country still struggles to achieve maximum compliance, falling short of international standards in terms of tax ratio. Only half of Indonesians have confidence in the tax system, and procedural justice is closely linked to power and trust. This study is groundbreaking as it is the first to investigate these three factors simultaneously in Indonesia. A quantitative approach was employed, with data gathered from 371 taxpayers and analyzed using the PLS-SEM method. The findings indicate that legitimate power and trust are positively associated with voluntary tax compliance and function as mediators between procedural justice and tax compliance. However, no correlation was found between procedural justice and tax compliance or between coercive power and tax compliance. To enhance taxpayer compliance in Indonesia, it is recommended to bolster trust in the tax authority and its jurisdictions. This study addresses a gap in the tax compliance literature. It enhances the theoretical framework, providing valuable practical insights for compliance improvement strategies, particularly for the Indonesian Directorate General of Taxes. The findings support developing more effective policies, improving tax education, and promoting transparency to strengthen public trust and compliance.

In All Fairness: A Meta-Analysis of the Tax Fairness–Tax Compliance Literature

ABSTRACT We conduct a meta-analysis of the tax fairness–tax compliance literature from its inception in 1976 through 2021. We use an organizational justice perspective (Colquitt 2001) to differentiate between the dimensions of fairness that dominate tax fairness research. We find that the aggregate effect size of the fairness-compliance association is positive and of medium strength. We also find that distributive fairness has the strongest effect on taxpayers’ compliance and is largely driven by the subdimension of exchange equity. Other dimensions of fairness, namely, interactional (interpersonal and informational) and procedural, have smaller effect sizes. We also find a moderating effect of methodology. Our findings suggest both the importance of ensuring that tax dollars are used in ways that taxpayers value, while downplaying the effect of interactional aspects of tax administration, and the importance of carefully considering methodology when conducting tax fairness research.

Tax education and taxpayer enculturation: Initiatives for South Africa

The South African Revenue Service acknowledges that it faces various risks, such as revenue collection uncertainty, unfavourable public perceptions and low compliance. Despite South Africa’s sophisticated taxation system, improvements to taxpayer education may provide the most comprehensive opportunity to allay these risks. This study examined taxpayer education strategies utilised in foreign countries to identify opportunities for initiatives that could be used to foster compliance-enhancing behaviour. In addition, the South African taxation infrastructure was assessed to determine its ability to integrate foreign compliance strategies. Three taxpayer education themes of enculturation, education and awareness were identified. Using a qualitative research methodology, 15 interviews were conducted with respondents who could provide knowledgeable opinions on the issues raised. The respondents confirmed the importance of these themes and the need to introduce the three tax education initiatives. This study recommends that taxpaying values be enculturated and normalised among future taxpayers before they leave school, that taxpaying aptitude, preparedness and confidence be developed by revising the financial, maths and tax literacy elements introduced throughout the school curriculum, as well as piloting an informative Taxpayers’ Week during Tax Season. The study’s contribution is unique in differentiating taxpaying skill development from taxpayer enculturation within school education. Practical direction is given to South African authorities concerning which tax education initiatives from foreign countries could be adapted and adopted. This study proposes novel initiatives and provides suggestions to optimise the existing taxpayer education and awareness efforts. Lastly, it contributes to the limited tax education and tax compliance literature.

MENYELISIK KEPATUHAN PAJAK PELAKU UMKM DI WILAYAH JABODETABEK DARI PERSPEKTIF CREATIVE TAX MORALE

The reason why people pay taxes is still questionable in various tax compliance literatures. Tax morale is believed to be one of the factors that motivate people to pay taxes. This study aims to analyze the determinants of tax morale in influencing the level of tax compliance. Using a questionnaire survey and a multivariate test procedure, this study shows that tax morale and tax compliance can be increased by decreasing the level of corruption, improving the efficiency of government spending, increasing fairness in the taxation system, reducing tax rates, and addressing financial constraints. In addition, this study also proves that there is significant difference on tax morale between age category, while other socio-demographic and socio-economic categories have no significant difference. The results of this study are expected to add references in the tax compliance literature and become a consideration for tax authorities in improving tax compliance. Keywords: tax morale, tax compliance, MSME.

The Nexus Between Attitude, Social Norms, Intention to Comply, Financial Performance, Mental Accounting and Tax Compliance Behavior

This study empirically investigates the effects of attitudes toward tax compliance, descriptive norms, injunctive norms, subjective norms, personal norms, tax compliance intention, financial performance, and mental accounting on tax compliance. The determinant are largely developed based on the Theory of Planned Behavior (TPB) and social norms. Data collection is carried out through field surveys to obtain a final sample of 209 respondents who are SME owners in 11 regencies/cities in Central Java Province, Indonesia. The data were analyzed using structural equation modeling (SEM). The results show that attitudes toward tax compliance, injunctive norms, subjective norms, personal norms, and financial performance positively affect SME owners’ tax compliance intentions. Furthermore, financial performance and tax compliance intentions have a positive effect on tax compliance behavior. However, we do not find empirical evidence that mental accounting has a role in strengthening the effect of tax compliance intentions on tax compliance behavior. This study contributes to the tax compliance literature through a more comprehensive measure of subjective norms and the use of financial performance as an alternative measure of perceived behavioral control.

Does Compliance Strategy Increase Compliance? Evidence from Malaysia

Due to the significance of tax revenue as the primary source of a country’s income, any leakage due to non-compliance behaviour may impact the country, which will eventually affect citizens. One way to reduce tax non-compliance is through compliance strategies which can be categorised into two; deterrence and accommodative approach. It is advisable that tax authority should not only focus on the deterrent approach (tax audit and penalty), mainly on tax offenders. Instead, tax authority also needs to find ways to preserve good taxpayers’ continuous fulfilment of their tax responsibilities, encourage future taxpayers to commit to tax laws, and transform tax offenders to become good taxpayers using the accommodative approach. This study uses the survey method to determine individual taxpayers’ perception of tax authority’s compliance strategies (threat of punishment, tax education programme, treatment provided by tax authority, special voluntary disclosure programme (SVDP)). This study then investigates the influence of those compliance strategies towards tax compliance behaviour. Our findings indicate that individual taxpayers have a positive perception towards compliance strategies provided by the tax authority in Malaysia (refer to Inland Revenue Board of Malaysia (IRBM)). In addition, the threat of punishment, treatment provided by IRBM and SVDP are significantly proven to have a positive relationship with tax compliance. However, it is suggested that IRBM should improve their tax education programmes as it is found to be insignificant. This study contributes to current tax compliance literature in a relatively important field of compliance strategies by providing comprehensive insights into the influence of both deterrence and accommodative apporaches in influencing tax compliance behaviour, as well as focusing more on an accommodative approach that is receiving attention lately. With both approaches in one study, the results of this study provide a clear, complete and comprehensive understanding since most of previous studies conducted separately. Finally, the findings of this study also provide valuable and significant input to the tax authorities and policymakers, especially IRBM in assessing and making a necessary improvement on their compliance strategies with the mission to enhance tax compliance behaviour, especially among individual taxpayers. Keywords: tax compliance; tax authority; compliance strategy; accommodative approach; deterrence approach

Flying under the Radar: Ghosts and the Income Tax

Abstract The tax compliance literature is primarily focused on taxpayers who fail to accurately report their taxes when they file their returns. In this article, our focus is on ‘ghosts’—individuals who do not even file a tax return. To learn more about this relatively understudied population, we examine a combination of US administrative data and matched Census survey data. Our results indicate that 10–12% of US households with a federal filing requirement fail to file a timely income tax return. Approximately 40% of such households do eventually file a late return. However, the tax gap associated with those who never file is substantial, amounting to an estimated $18–20 billion each year. To gain new insights into what drives individuals to become ghosts, we employ a novel econometric methodology (calibrated probit analysis). We find that the failure to file a timely return is negatively associated with age and income, but positively associated with having a high filing burden and being married. Taxpayers with income near the filing threshold are also less likely to file on time, particularly if they are not eligible for a refundable tax credit. We also find evidence of regional variation in filing compliance.

TARIF PAJAK, PROBABILITAS PEMERIKSAAN PAJAK DAN TINGKAT KEPATUHAN PAJAK: SEBUAH STUDI EKSPERIMEN

This study examines the tax rates and probability of tax examination on taxpayer compliance. Based on experimental 2x2 factorial design data between subjects, participants given low tax rates manipulations tend to be more compliant than participants given high tax rates manipulations, as well as the probability of tax examination, participants tend to be more compliant on high probability of tax examination manipulation than low probability of tax examination manipulation. Lastly, the interaction effect results do not show significant results. It was found that tax compliance can be achieved more effectively when low tax rates combined with high probability of tax examination. This study contributes to the tax compliance literature especially with the specific topic of tax rates and Probability of tax examination.

TARIF PAJAK, PROBABILITAS PEMERIKSAAN PAJAK DAN TINGKAT KEPATUHAN PAJAK: SEBUAH STUDI EKSPERIMEN

This study examines the tax rates and probability of tax examination on taxpayer compliance. Based on experimental 2x2 factorial design data between subjects, par- ticipants given low tax rates manipulations tend to be more compliant than partici- pants given high tax rates manipulations, as well as the probability of tax examina- tion, participants tend to be more compliant on high probability of tax examination manipulation than low probability of tax examination manipulation. Lastly, the inter- action effect results do not show significant results. It was found that tax compliance can be achieved more effectively when low tax rates combined with high probability of tax examination. This study contributes to the tax compliance literature especially with the specific topic of tax rates and Probability of tax examination.

The disconnect between tax laws, public opinion and taxpayer compliance: a study of the taxation of gambling winnings

The taxation of gambling winnings was considered unfair to taxpayers and regressive. The tax reporting intentions of casino patrons are rarely based on legal requirements, but instead on the amount of winnings and perception of tax laws. The underreporting of tax liabilities contribute to the 'tax gap'. This study examines materiality, casino patrons' tax knowledge, perception of taxation and perception of taxation of winnings as predictors of tax reporting intentions. Using regression, these variables contribute to predictive models of tax reporting intentions. The study found that materiality, overall tax perception and tax knowledge were significant predictors. The perception of the taxation of winnings was not a significant to the model. This study adds to tax evasion and compliance literature by providing information about the reporting intentions of casino patrons. A unique dataset using respondents that have not previously been included in tax studies was developed for the study.

The Dynamic Effects of Audits: An Experimental Assessment

Governments and tax administrators around the world rely on the premise that both random and non-random audits will deter tax evasion. This paper is the first in the tax compliance literature to present experimental evidence collected from U.S. residents that this premise may be, at least in part, wrong. Counter-intuitively, I find that random audits encourage taxpayers to cheat more. Where audits were framed as being “random”, participants increased their levels of evasion in the tax periods immediately following the audit. This effect, however, did not plague audits that were framed for participants as being non-random. When a separate group of participants faced audits in which detected evasion could “flag” a participant for one or more future audits, participants cheated less in the periods immediately following the audit. Overall, average compliance in response to non-random audits systematically and significantly dominated average compliance in response to random audits. This result remained robust to the addition of a series of demographic controls as well as the inclusion of participant and time fixed effects. By revealing strong behavioral responses to the way tax audits are presented, this paper (1) opens important new avenues for experimental and controlled field trial research on audit dynamics, and (2) underscores the potential benefits to tax administrators of being more transparent with taxpayers about the nature of audit selection.

Goods and Services Tax (GST) Compliance among Malaysian Consumers: The Influence of Price, Government Subsidies and Income Inequality

Abstract The purpose of this research is to explore the correlation between price, government subsidies and income inequality towards GST compliance. Tax noncompliance remains as global phenomenon that can threaten the integrity of every tax systems hence the understanding of what people want will help to explain public dissatisfaction, heading towards the direction of developing a tax system that stimulate tax compliance in the future. Research findings has revealed that all the selected variables have significant relationship with GST compliance. To conclude, this study has bridged the knowledge in tax compliance literature, providing empirical result on potential determinants of tax non-compliance in Malaysia.

The Effects of a Shared Interest and Regret Salience on Tax Evasion

B rink and White (2015) examine individual tax compliance and whether (1) a shared interest in the consequences of evasion, and (2) regret salience of a potential adverse audit influence tax compliance decisions. Given the vast amount of potential revenue lost each year due to taxpayer noncompliance, understanding the root causes of tax compliance decisions has important practical implications. Extant research on individual tax compliance has examined both economic factors (Allingham and Sandmo 1972), as well as non-economic factors such as ethical decision-making (Alm and Torgler 2011). However, previous research has not examined the effects of a shared interest in the consequences of a tax compliance decision, nor the influence of a shared interest under differing degrees of regret salience. To investigate the influence of a shared interest and regret salience on tax compliance decisions, Brink and White (2015) conduct an experiment using 147 experienced taxpayers as participants. Participants are assigned to conditions with either the presence (partner in a partnership) or absence (sole proprietor) of a shared interest, and either the presence (regret frame) or absence (control frame) of heightened awareness of regret. Results indicate that tax compliance is more likely when a shared interest is presence, as well as when regret salience is primed; however, there is not a significant interaction between the presence/absence of a shared interest and regret salience. Supplemental analysis indicates that tax evasion is judged to be more unethical when a shared interest is present than when it is absent, and that the emotional costs of tax evasion are higher in the presence of a shared interest. Brink and White (2015) contribute to the tax compliance literature in several important ways. Specifically, given the prevalence of a shared interest in the consequences of tax evasion (such as through partnerships and S corporations), surprisingly little is known about how the presence of a shared interest may influence tax compliance decisions. This study provides an excellent first step in

An integrative model in predicting corporate tax fraud

Purpose – This paper aims to present an integrative model in predicting corporate tax fraud. Design/methodology/approach – This paper is grounded on three theories, namely, the theory of reasoned action, theory of planned behaviour and the “Fraud Diamond Theory”. Findings – By integrating these three theories, this paper proposes that individual cognitive factors, fraud diamond factors and organizational factors such as normative and control factors influence managers to commit corporate tax fraud. Practical implications – Practically, the proposed integrative model enables the government and tax authority to understand on why corporate managers engage in corporate tax fraud. It will also allow them to devise practical methods and strategies to prevent the corporate managers to engage in tax fraud. Originality/value – This study has merit that proposed an integrative model in predicting corporate tax fraud. Research on corporate tax fraud has been the subject of limited investigation; hence, this study contributes to the tax compliance literature by proposing an integrative model to study corporate tax fraud in a Malaysian tax setting. Future studies can be conducted to test the proposed integrative model in examining the circumstances of managers’ intention to commit corporate tax fraud.

Improving Use-Tax Compliance by Decreasing Effort and Increasing Knowledge

ABSTRACTWe explore two remedies that could help states improve use-tax compliance. The first remedy is designed to reduce the amount of effort an individual must exert to pay the use tax by having the vendor give the individual an option to pay the use tax online. The second remedy focuses on increasing knowledge about the use tax by providing the individual with information about the use tax during the purchasing process.The results from two states, Florida and Illinois, indicate that providing an individual with the option to pay the use tax increases the likelihood that the person will comply with the use-tax law. Providing information about the use tax, however, increases the likelihood of compliance only in Florida. Finally, there is a marginally significant interaction effect between the two remedies in Illinois.This study makes three important contributions. First, this study offers policy makers two concrete and feasible solutions to the use-tax compliance problems for online transactions. Second, this study contributes to the academic literature by expanding the tax compliance literature into a relatively unexplored area. Finally, this study shows how use-tax compliance decisions and the effectiveness of potential remedies may vary from one state to another.

The impact of tax professionals upon the compliance behavior of Australian individual taxpayers

The tax compliance literature indicates that limited research attention has been given to gauging the influence of tax professionals upon individual taxpayer compliance behaviour. This potential gap in the literature needs to be addressed given that tax professionals not only act as intermediaries between the Australian Taxation Office (ATO) and the majority of individual taxpayers but they can directly influence taxpayers’ ethical behaviour and the level of compliance.This empirical study explored whether or not a relationship exists between the advices provided by tax professionals and the compliance behaviour of Australian individual taxpayers (both evaders and non-evaders) taken from the taxpayers’ perspective. The findings revealed that there was a statistically significant relationship between the need for engaging tax professionals and compliance behaviour generally. There was also evidence of a statistically significant relationship between tax professionals’ aggressive advice and the compliance behaviour of non-evaders. It is envisaged that this study’s results will provide useful information for the Australian Taxation Office and have implications for tax policy development.

Public Governance Quality and Tax Compliance Behavior in Nigeria: The Moderating Role of Financial Condition and Risk Preference

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 />

WILL HEALTH INSURANCE MANDATES INCREASE COVERAGE? SYNTHESIZING PERSPECTIVES FROM HEALTH, TAX, AND BEHAVIORAL ECONOMICS

This paper provides an analytical framework for evaluating the effects of individual health insurance mandates on coverage. That framework draws from three literatures — health economics, tax compliance, and behavioral economics — to identify the factors that affect people's responses to health insurance mandates. The health economics literature explains how people value health insurance and how changes in its costs affect coverage. The tax compliance literature indicates that the probability of detection and peoples attitudes toward risk affect perceptions of those costs. The salience of the mandate and social norms — factors from the behavioral economics literature — also may affect coverage decisions.

An Investigation Into Australian Personal Tax Evaders- Their Attitudes Towards Compliance And The Penalties For Non-Complance

The tax compliance literature indicates that many factors - economic, social, psychological and demographic - impact upon the compliance behaviour of taxpayers. This study investigates the relationship that exists between selected tax compliance variables and the attitudes and behaviour of Australian personal ‘tax evaders’ towards compliance and the penalties. The study employed a survey and interviews. It investigated the deterrent effect of penalties and the probability of detection, and assessed the impact on compliance of the general tax awareness of taxpayers.