DETERMINANTS OF TAX COMPLIANCE INTENTION:
EVIDENCE FROM FUTURE TAXPAYERS IN MALAYSIA
LIEW WEI LEE
A dissertation submitted in partial fulfilment of the requirement for the degree of Master of Science
Kulliyyah of Economics and Management Sciences International Islamic University Malaysia
Tax non-compliance is a subject that has attracted substantial discussion not only within policy circles but also within the academia. The non-compliance issue is very important as the compliance rate will affect the revenue collection from taxpayers of a country. In view of the importance of tax compliance behaviour, the present study aims at (1) examining the level of tax knowledge, attitudes and subjective norms, and intention towards tax compliance, (2) comparing the level of tax knowledge and the intention towards tax compliance between those with tax knowledge via formal tax education and those without formal tax education, and (3) investigating factors influencing tax compliance intention based on Theory of Reasoned Action. The study adopts a survey methodology and gathers a sample of diploma and undergraduate students from fourteen higher institutions of learning in Malaysia, a total of 417 were received and usable (92% response rate). In order to achieve the research objective, T-test, Pearson‟s correlation analysis and multiple regression analysis were performed.
The findings suggest that the level of tax knowledge among the students is moderate and those who have been exposed to formal tax education possess more tax knowledge. Similarly, those who have been exposed to formal tax education have higher intention towards tax compliance. The findings further reveal that tax knowledge, attitudes and subjective norms are significantly and positively correlated with intention toward tax compliance. It is further noted that, while tax knowledge is positively correlated with intention towards tax compliance, it lacks significance once the roles of attitudes and subjective norms are analysed in the multiple regression setting. Perhaps, tax knowledge plays an indirect role in shaping attitudes of the future taxpayers towards tax compliance intention. Instead, attitudes and subjective norms are found to be most influential and to have predictive ability for intention toward tax compliance. The result of the current study may contribute to policy makers, academics and tax administrators especially in developing tax education programmes to increase the awareness and tax knowledge among students (future taxpayers) and consequently, to enhance tax compliance rate and to reduce compliance cost.
ABSTRACT IN ARABIC
إ لخاد لب بسحف ةيسايسلا رئاودلا لخاد سيل ،يارهوج اشاقن راثتسا عوضوم بييرضلا مازتللاا مدع ن طاسولأا
يعفاد نم ةلصلمحا تاداريلإا ليصتح ىلع رثؤي مازتللاا لدعم نإ ثيح ادج ةمهم ةلأسم مازتللاا مدع نإ .ةييمداكلأا في بئارضلا ى إ دهد ةيلاحاا ةساردلا ننف ،بييرضلا مازتللاا ولس ةيميي ى إ ررظلالو .دلب يي
1 ةفرعلما ىوتسم ةسارد )
،بييرضلا مازتللاا هاتج يااوظلاو ةيتاذلا يرياعلماو فقاولماو ةيبيرضلا 2
بئارضلا هاتج يااوظلاو ةيبيرضلا ةفرعلما ىوتسم ةنراقم )
عم مهيدل نيذلا ينب مازتللااو ،يسمر بييرض ميلعت مهيدل سيل نيذلاو يسمرلا بييرضلا ميلعتلا قيرط نع ةيبيرض ةفر
.بسسلما لمعلا ةيررن ىلع اداظتسا بييرضلا مازتللاا ةين ىلع رثؤت تيلا لماوعلا صحف و
تمو يحسلما جهظلما ةساردلا تظبت
ةسسؤم ةرشع عبري نم ينيعمالجا ةبلطلاو مولبدلا ةبلط نم ةظيع رايتخا تمو ،يازيلام في لياعلا ميلعتلا تاسسؤم نم
ملاتسا 414 ةبسظب مادختسلال ةحااص ةباجتسا 22
دقف ،ثحبلا ده قيقتح لجي نمو .)تالاجتسلاا نم %
.ددعتلما رادنحلااو ،نوسيرب طابترا ليلتحو ،تي رابتخا ءارجإ تم
ةبلطلا ينب ةيبيرضلا ةفرعلما ىوتسم ني ى إ جئاتظلا يرشتو
تعم ايبيرض اميلعت اوقلت نيذلا ننف ،لثلمالو .ةيبيرضلا ةفرعلما نم اديزم نوكلتيم ايسمر ايبيرض اميلعت اوقلت نيذلا نيو لد طبترت ةيتاذلا يرياعلماو فقاولماو ةيبيرضلا ةفرعلما ني اضيي جئاتظلا فشكتو .بييرضلا مازتللاا ونح ىلعي ةين مهيدل ايسمر
ايبايجإو ايربك اطابترا لا عم
بييرضلا مازتللاا هاتج ةيظ ايبايجإ اطابترا طبترت ةيبيرضلا ةفرعلما ني نم مغرلا ىلع هني ظحول امك .
رادنحلاا راطإ في ةيصخشلا يرياعلماو فقاولما راودي ليلتح دظع ةيميلأا ى إ رقتفت انهي لاإ ،بييرضلا مازتللاا ونح ةيظلال يرغ ارود ةيبيرضلا ةفرعلما بعلت ابمرو .ددعتلما مازتللاا ةين هاتج لبقتسلما في بئارضلا يعفاد فقاوم ليكشت في رشابم
ؤبظتلا ىلع ةردقلا اهيدل نيو ايرثتأ رثكلأا يه ةيصخشلا يرياعلماو فقاولما ني ينبتي ،كلذ نم سكعلا ىلعو .بييرضلا كلأاو تاسايسلا يعناص عم مهست دق ةيلاحاا ةساردلا ةجيتن .بييرضلا مازتللاا هاتج ةيظلال في بئارضلا يريدمو ينييمدا
زيزعتل ،لياتلالو )لبقتسلما في بئارضلا يعفاد بلاطلا ينب ةيبيرضلا ةفرعلماو يعولا ةديازل بييرضلا ميلعتلا جمارب ريوطت
.مازتللاا فيلاكت ضفخو بييرضلا مازتللاا لدعم
I certify that I have supervised and read this study and that in my opinion, it conforms to acceptable standards of scholarly presentation and is fully adequate, in scope and quality, as a thesis for the degree of Master of Science (Accounting).
Khadijah Mohd Isa Supervisor
Salwa Hana Yussof Co-Supervisor
I certify that I have read this study and that in my opinion it conforms to acceptable standards of scholarly presentation and is fully adequate, in scope and quality, as a thesis for the degree of Master of Science (Accounting).
Maslina Ahmad Internal Examiner
Suhaiza Ismail Internal Examiner
This thesis was submitted to the Department of Accounting and is accepted as a fulfilment of the requirement for the degree of Master of Science (Accounting).
Muslim Har Sani Mohamad Head, Department of Accounting This thesis was submitted to the Kulliyyah of Economics and Management Science and is accepted as a fulfilment of the requirement for the degree of Master of Science (Accounting).
Dean, Kulliyyah of Economics and Management Science
I hereby declare that this dissertation is the result of my own investigations, except where otherwise stated. I also declare that it has not been previously or concurrently submitted as a whole for any other degrees at IIUM or other institutions.
Liew Wei Lee
Signature ... Date ...
INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA
DECLARATION OF COPYRIGHT AND AFFIRMATION OF FAIR USE OF UNPUBLISHED RESEARCH
DETERMINANTS OF TAX COMPLIANCE INTENTIONS:
EVIDENCE FROM FUTURE TAXPAYERS IN MALAYSIA
I declare that the copyright holders of this dissertation are jointly owned by the student and IIUM.
Copyright © 2017 Liew Wei Lee and International Islamic University Malaysia. All rights reserved.
No part of this unpublished research may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the copyright holder except as provided below:
1. Any material contained in or derived from this unpublished research may be used by others in their writing with due acknowledgement.
2. IIUM or its library will have the right to make and transmit copies (print or electronic) for institutional and academic purposes.
3. The IIUM library will have the right to make, store in a retrieved system and supply copies of this unpublished research if requested by other universities and research libraries.
By signing this form, I acknowledged that I have read and understand the IIUM Intellectual Property Right and Commercialization policy.
Affirmed by Liew Wei Lee
To my loving family My Mother: Lock Kam Tack My Sisters: Wee Lean and Wei Gaik My Brothers: Yang Sei and Soon Tak
With love and respect
My Aunties: Liew Kiew Mooi and Suzanne Liew
My Relatives: “Liew Family”, “Lok Family”, “Tham Family” and “Cheong Family”
In loving memories My Father: Liew Poh Lim
My Grandparents: Liew Sian Thin and Ho See
My Primary School Headmaster: S‟ng Swee Leng @ Soon Swee Loong
Firstly, it is my utmost pleasure to dedicate this work to my family: my late father, Liew Poh Lim, mother Lock Kam Tack and my lovely siblings Wee Lean, Wei Gaik, Yang Sei and Soon Tak. I am very blessed to have their unwavering belief in my ability to accomplish this goal. Thank you for your support and patience.
My heartfelt thanks also goes to my supervisor Dr Khadijah Mohd Isa, for her much-appreciated support, encouragement, continuous interest in my research topic, and thoughtful comments on my various drafts of my dissertation throughout the completion of this dissertation, and for that, I will be forever grateful.
I would also like to express my gratitude to my co-supervisor, Dr Salwa Hana Yussof and my ex-supervisor, Associate Prof. Dr. Siti Normala Sheikh Obid (who has retired from IIUM). Their constructive suggestions, comments, encouragement and dedication throughout this dissertation journey are indeed highly appreciated.
Last but not least, I wish to express my appreciation and thanks to all my lecturers in IIUM, especially Associate Prof. Dr Fatima Abdul Hamid, my colleagues in TARUC, my classmates and friends who have been spending their precious time and effort in guiding me directly and indirectly during the courses. I would also like to acknowledge my two examiners Dr Maslina Ahmad and Associate Prof. Dr. Suhaiza Ismail for their valuable comments and the editor, Ms Sharlet for assisting in proofreading and editing services. To the above mentioned people and to whom I am indebted, but are too numerous to be named, thank you very much. This accomplishment would not have been possible without all of you.
TABLE OF CONTENT
Abstract ... ii
Abstract in Arabic ...iii
Approval Page ... iv
Declaration ... v
Copyright Page ... vi
Dedication ... vii
List of Tables ... xii
List of Figures ... xiv
Key Glossary ... xv
List of Abbreviations ... xvii
CHAPTER ONE: INTRODUCTION ... 1
1.1Background of the Study ... 1
1.2Problem Statements ... 4
1.3Research Objectives ... 5
1.4Research Questions ... 6
1.5Significance of the Study ... 6
1.6Structure of the Study ... 7
1.7Chapter Summary ... 8
CHAPTER TWO: LITERATURE REVIEW ... 9
2.1Introduction ... 9
2.2Tax System in Malaysia ... 9
2.3Official Assessment System (OAS) ... 10
2.4Self-Assessment System (SAS) ... 11
2.5Tax Compliance ... 14
2.5.1 Definition of Tax Compliance ... 15
2.5.2 Theoretical Approaches ... 17
2.5.3 Branches of Tax Compliance ... 18
2.6Determinants of Tax Compliance ... 23
2.7Tax Knowledge and Tax Education ... 26
2.8Attitudes toward Taxation ... 28
2.9Peer Influence ... 28
2.10Gap In the Literature ... 29
2.11Chapter Summary ... 31
CHAPTER THREE: THEORETICAL FRAMEWORK AND HYPOTHESES DEVELOPMENT ... 33
3.1Introduction ... 33
3.2Theory of Reasoned Action ... 33
3.2.1 Behavioural Intention ... 35
3.2.2 Attitudes toward Behaviour ... 36
3.2.3 Subjective Norms of Behaviour ... 36
3.2.4 TRA and Tax Compliance Intention ... 37
3.3Research/Theoretical Framework of this Study ... 38
3.4Hypotheses Development ... 39
3.5Control Variables ... 43
3.6Chapter Summary ... 44
CHAPTER FOUR: RESEARCH METHODOLOGY ... 46
4.1Introduction ... 46
4.2Research Design ... 46
4.3Questionnaire Design and Validation ... 47
4.3.1 Questionnaire Design ... 47
4.3.2 Questionnaire Validation ... 49
4.4Sampling and Data Collection ... 50
4.4.1 Sampling ... 50
4.4.2 Data Collection ... 52
4.5Preliminary Data Analysis ... 55
4.5.1 Accuracy and Data Entry ... 55
4.5.2 Reliability Test ... 56
4.5.3 Normality Test ... 57
4.5.4 Testing the Assumption Of Multiple Regression Analysis ... 58
4.6Statistical Tests ... 59
4.7Chapter Summary ... 62
CHAPTER FIVE: RESEARCH FINDINGS AND DISCUSSION ... 63
5.1Introduction ... 63
5.2The Response Rate ... 64
5.3Respondents‟ Profile ... 64
5.4The Level of Tax Knowledge, Attitudes, Subjective Norms and Intention towards Tax Compliance ... 69
5.4.1 Tax Knowledge ... 69
5.4.2 Attitudes toward Behaviour ... 79
5.4.3 Subjective Norms ... 81
5.4.4 Intention to Comply ... 82
5.5Tax Knowledge, Tax Education and Tax Compliance Intention ... 83
5.5.1 Tax Knowledge between Students who have/have not attended Tax Courses ... 84
5.5.2 Intention towards Tax Compliance between those Students who have/have not attended Tax Courses ... 87
5.6Tax Knowledge, Attitudes towards Behaviour, Subjective Norms and their Contribution to Tax Compliance Intention ... 89
5.6.1 Correlation Analysis and Multiple Regression Analysis ... 89
5.7Summary of Hypotheses Testing ... 93
5.8Discusssion ... 95
5.8.1 The Level of Tax Knowledge ... 95
5.8.2 Attitudes, Subjective Norms and Intention towards Tax Compliance ... 96
5.8.3 Tax Knowledge, Tax Education and Tax Compliance Intention .... 96
5.8.4 Tax Knowledge, Attitudes Towards Behaviour, Subjective Norms and their Contribution to Tax Compliance Intention ... 98
5.9Chapter Summary ... 101
CHAPTER SIX: CONCLUSION ... 103
6.1Introduction ... 103
6.2Summary of the Study ... 103
6.3Implications of Study ... 104
6.4Limitations of Study ... 106
6.5Direction for Future Research ... 107
6.6Concluding Remarks ... 108
REFERENCES ... 110
APPENDIX 1: COVER LETTER FOR DISTRIBUTION OF QUESTIONNAIRES117 APPENDIX 2: QUESTIONNAIRE ... 118
APPENDIX 3: FULL RESULT OF THE T-TEST ANALYSIS BETWEEN STUDENTS WHO HAD AND HAD NOT ATTENDED TAX COURSE TOWARD TAX KNOWLEDGE ... 122
APPENDIX 4: FULL RESULT OF THE T-TEST ANALYSIS BETWEEN STUDENTS WHO HAD AND HAD NOT ATTENDED TAX COURSE TOWARD INTENTION BEHAVIOUR ... 123 APPENDIX 5: FULL RESULT OF THE MULTIPLE REGRESSION ANALYSIS 124
LIST OF TABLES
Table No. Page No.
2.1 The Compliance Variables 25
3.1 Summary of the Hypothesis 43
4.1 The Summary of the Questionnaires Distributed and Received 54
4.2 Reliability Analysis 57
4.3 Normality Test using the Skewness and Kurtosis 58
5.1 Summary of the Questionnaire Distribution Methods 64
5.2 Demographic Profile of Respondents 66
5.3 Education Programmes/Courses 68
5.4 Have You Taken Any Taxation Course? Cross tabulation 69
5.5 Descriptive on Tax Knowledge 72
5.6 Descriptive Statistics on Summary of Tax Knowledge Scores for Seven
Tax Topics 77
5.7 Summary of Tax Knowledge Scores of the Respondents 78
5.8 Level of Tax Knowledge 79
5.9 Descriptive Statistics on Attitudes toward Behaviour 81
5.10 Descriptive Statistics on Subjective Norms 82
5.11 Descriptive Statistics on Intention to Comply 83
5.12 Level of Tax Knowledge for Those Had/Had Not Taken Taxation Course 85
5.13 Descriptive Statistics on Tax Knowledge Topic 86
5.14 Independent samples t-test Analysis between Students Attended/Not
Attended Tax Course toward Tax Knowledge 87
5.15 Summary of Intention to Comply, Attitudes toward Behaviour and Subjective Norms of Respondents Who Had/Had Not Attended Tax
5.16 Independent samples t-test Analysis between Students Attended/Not
Attended Tax Course towards Intention Behaviour 89
5.17 Correlation among Study Variables 91
5.18 Summary of the Result of Multiple Regression Analysis 93
5.19 Summary of the Results of Hypothesis Testing 94
LIST OF FIGURES
Figure No. Page No.
2.1 Branches of Tax Compliance ... 23 3.1 Theory of Reasoned Action ... 34 3.2 Research Framework of This Study ... 39
Attitudes toward Behaviour : The attitudes toward the behaviour refer to the degree to which a person has a favourable or unfavourable evaluation or appraisal of the behaviour in question (Ajzen and Fishbein, 1980). In this study, attitudes toward behaviour refer to attitudes toward taxation. The words attitudes toward behaviour, attitudes toward taxation and attitudes are used interchangeably in the study. They refer to the settled opinions or ways of thinking, judgment or evaluation of a particular matter (Isa, 2012) by the students (respondents) who will pay income tax in near future.
Tax Compliance Intention : Intention captures the motivational factors that influence behaviour. It indicates how hard individuals are willing to try or how much effort they would exert to perform the behaviour. As a general rule, the stronger the intention to engage in a behavior, the more likely should be its performance (Ajzen, 1991).
By applying the TRA, this study focuses on behavioural intention as antecedent to actual behaviour. As such, when tax compliance intention/intention toward tax compliance are strong, it is a manifestation of the tax compliance or vice versa.
Tax Non-compliance : Tax compliance takes place when a taxpayer timely files all required returns and accurately reports tax liability in accordance with the tax law applicable at the time the returns are filed (Roth, Scholz, and Witte, 1989). Based on that note, tax non-compliance can be, on the other hand, defined as unwillingness to act in accordance with the tax law and administration applicable at one particular time (Saad, 2012).
In this study, tax non-compliance (compliance) is based on perception of the students (future taxpayers) from higher education in Malaysia.
Tax Compliance Behaviour : Typical and repeated ways a taxpayer behaves towards tax compliance (Isa, 2012). In this study, tax compliance behaviour is mainly examined from students‟ perspective (future taxpayers).
Subjective Norms : Subjective norms refer to social pressures perceived to direct individuals to act or not to act (Ajzen, 1991). The belief that underlies subjective norms is referred to as normative belief. Normative belief is influenced by one‟s belief toward a referent other or referent group.
This means that an individual attempts to carry out an action when he/she believes that other people think it is important for them to carry out the action. This study uses influence of peer groups as subjective norms. In other words, the normative belief is influenced by peer group i.e.
family members, relatives and friends of the respondents in this study.
LIST OF ABBREVIATIONS
ACCA The Association of Chartered Certified Accountants ATO Australian Tax Office
CAT Certified Accounting Technician DGIR Director General of Inland Revenue GST Good and Service Tax
IIUM International Islamic University Malaysia IRBM Inland Revenue Board of Malaysia IRS Inland Revenue Service of USA
IPTA Institut Pengajian Tinggi Awam (Public Universities) IPTS Institut Pengajian Tinggi Swasta (Private Universities)
ITA Income Tax Act
KDU KDU University College MMU Multimedia University OAS Official Assessment System
OECD Organization for Economic Cooperation and Development SAS Self-Assessment System
SEGi SEGi University
SPSS Statistical Programme for Social Sciences SUNWAY Sunway University
TARUC Tunku Abdul Rahman University College TPB Theory of Planned Behaviour
TRA Theory of Reasoned Action UKM Universiti Kebangsaan Malaysia
UM University of Malaya
UPM Universiti Putra Malaysia USIM Universiti Sains Islam Malaysia UTAR Universiti Tunku Abdul Rahman UTM University of Technology
UUM Universiti Utara Malaysia
CHAPTER ONE INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Tax compliance takes place when a taxpayer timely files all required returns and accurately reports tax liability in accordance with the tax law applicable at the time the returns are filed (Roth, Scholz, and Witte, 1989). Based on that note, tax non- compliance can be, on the other hand, defined as unwillingness to act in accordance with the tax law and administration applicable at one particular time (Saad, 2012).
Taxpayers‟ non-compliance behaviour has attracted enormous attention from both tax authorities and researchers ever since the existence of tax system. This is importance as the purpose to implement of tax system is to collect tax revenue, and the tax collection is depending to the compliance rate of the taxpayers. The non- compliance behaviour will reduce the compliance rate and give rise to unreported income and subsequently revenue loss for the nation. While tax non-compliance can be intentional, a major part of the non-compliance is unintentional. Full compliance requires positive actions on the part of the taxpayers to discharge their legal duties in full. Thus, unintentional non-compliance may be due to the fact that the taxpayers fail to complete their tax returns correctly or are unaware of, or misunderstand, various provisions of the tax system, or for similar reasons (James and Alley, 2002).
The unintentional non-compliance is even more likely under the Self- Assessment System (SAS), which has been in place in Malaysia since 2005. Under SAS, the Inland Revenue Board of Malaysia (IRBM) has shifted their responsibilities
to compute tax payable to the taxpayers; i.e. the taxpayers are required to have adequate understanding of the tax law and the changes of tax law to enable them to discharge their responsibilities for filing tax returns correctly and timely (Saad, 2014).
In addition to tax knowledge being not easily comprehensible, the high frequency of tax laws being amended has made it difficult for taxpayers to keep abreast of the changes. Consequently, this may lead to unintentional non-compliance (Loo, McKerchar, and Hansford, 2009).
Given its tax revenue implications, tax non-compliance obviously must be mitigated. In the literature, there are theoretically two approaches to address tax non- compliance, i.e. the economic deterrence approach and the behavioural approach. The economic deterrence approach refers to detection and punishment to enforce tax compliance. Meanwhile, the behavioural approach is related to influencing the behaviour of taxpayers to comply with their tax duties. According to Devos (2014) and Isa (2012), the strength of the economic deterrence (detection and punishment) and behavioural approaches (tax education) should be integrated and employed simultaneously in order to better understand the taxpayers‟ compliance behaviour.
However, as far as the unintentional non-compliance is concerned, the behaviour approach to tax compliance would be more relevant. In the literature, it has been well noted that tax knowledge is one of the important factors that encourage tax compliance (Loo et al., 2009; Saad, 2014). According to Loo et al. (2009), taxpayers need to obtain basic tax knowledge i.e. understand tax laws and regulations to enable taxpayers to discharge their responsibility for filing tax returns correctly and timely under the SAS. This means that tax education is fundamentally important for proper understanding of laws and regulations related to taxation (Eriksen and Fallan, 1996).
In other words, one of the best ways to increase voluntary compliance is to educate students through education system as they are future taxpayers from every source of income (Lee, 2009). Various prior studies have provided support for the importance of tax knowledge in improving taxpayers‟ compliance behaviour (Bărbuţă-Mişu, 2011; Eriksen and Fallan, 1996; Kirchler, Hoelzl, and Wahl, 2008;
Palil, 2010; Palil, Md Akir, and Wan Ahmad, 2013; Saad, 2014).
Besides, based on the theory of reasoned action (TRA)(Ajzen and Fishbein, 1980), it is acknowledged that attitudes toward behaviour and subjective norms are factors in motivating tax compliance intention. According to TRA, a person‟s intention is a function of two basic determinants; first being the attitudes toward behaviour which is personal in nature and the second is the subjective norms which reflect social influence.
The attitudes toward the behaviour refer to the degree to which a person has a favourable (positive) or unfavourable (negative) evaluation or appraisal of the behaviour in question (Ajzen and Fishbein, 1980). In this study, attitudes toward behaviour refer to the settled opinions or ways of thinking, judgment or evaluation of a particular matter (Isa, 2012) by the students (respondents) who will pay income tax in near future.
The subjective norms refer to social pressures perceived to direct individuals to act or not to act (Ajzen, 1991). This study uses influence of peer groups as subjective norms. This means that the normative belief is influenced by peer groups i.e. family members, relatives and friends of the students (future taxpayers) (Chau and Leung, 2009; Devos, 2014; Jackson and Milliron, 1986).
Thus, this study attempts to examine the determinant factors, tax knowledge (via formal tax education), attitudes toward behaviour and subjective norms that influence students‟ (future taxpayers) tax compliance intention based on TRA.
1.2 PROBLEM STATEMENTS
Tax non-compliance is a major problem in many countries and Malaysia is no exception to this problem. Despite the long aged (more than a decade) of the implementation of SAS in Malaysia and number of empirical studies on the determinants of tax compliance among taxpayers in Malaysia that have been conducted, the tax authority is still facing the non-compliance issue among their taxpayers. This is supported by statement made by the chief executive officer of the Inland Revenue Board of Malaysia (IRBM), Datuk Sabin Samitah, who mentioned that tax collection consistently fell short of the targeted level by 20% in recent years.
In 2015, the IRBM received RM121 billion out of its projected RM145.2 billion.
Likewise, the tax collection in 2016 was RM114 billion, which was below its targeted level of 136.8 billion. The shortfall of RM47 billion over the two years, which is viewed to be unacceptable, is attributed to under-reporting or failure to declare income by taxpayers (Bernama, 2017). In other words, it is the direct result of tax non- compliance by the taxpayers. It may be due to unintentional non-compliance resulting from low tax knowledge among taxpayers.
In the Malaysian context, tax education has not been formally introduced at tertiary education in all disciplines (Kasipillai, Aripin, and Amran, 2003; Mat Bahari, Anis Barieyah and Lai, 2009; Palil et al., 2013). Moreover, at present, it remains unclear as to what extent tax knowledge (via tax education) contributes to tax compliance intention under the SAS for the case of Malaysia. It is noted that empirical
studies are limited to the direct connection between tax knowledge (via formal tax education) and tax compliance intention.
In addition, from the behavioural perspective, attitudes toward behaviour and subjective norms are factors in motivating tax compliance intention. However, there is lack of empirical study on the relationship between the two variables and tax compliance intention among students (future taxpayers). Thus, it is important to study the attitudes and subjective norms (peers) of the students (future taxpayers) in relation to the tax compliance intention. These are various aspects that require analysis to determine to what extent the two variables had the greatest influence in shaping taxpayers‟ compliance intention.
1.3 RESEARCH OBJECTIVES
In light of the problem of tax non-compliance as stated above, this study aims at examining the relationship between tax knowledge, attitudes, subjective norms, and tax compliance intention under the Self-Assessment System (SAS). The specific objectives of the study are:
1) To examine the level of tax knowledge, attitudes toward behaviour, subjective norms and intention towards tax compliance among students of higher learning institutions.
2) To compare the (i) level of tax knowledge and (ii) intention towards tax compliance between those with tax knowledge via formal tax education and those without formal tax education; and
3) To investigate factors influencing tax compliance intention based on the Theory of Reasoned Action.
6 1.4 RESEARCH QUESTIONS
The above-stated objectives are formulated in terms of the following research questions:
1) What is the level of tax knowledge, attitudes toward behaviour, subjective norms and intention towards tax compliance among students?
2) Is there any significant difference between those students with tax knowledge via formal tax education and those without formal tax education in (i) the level of tax knowledge and (ii) intention towards tax compliance?
3) What is the relationship of (i) tax knowledge, (ii) attitudes toward behaviour (iii) subjective norms and the intention towards tax compliance?
1.5 SIGNIFICANCE OF THE STUDY
Answers to the above research questions bear significant implications for various parties particularly the government, tax educators and tax authority.
Tax non-compliance leads directly to tax revenue shortfall. This means that, in order to reduce the tax gap and to maximize tax revenue, a proper mechanism needs to be formulated to encourage compliance. Thus, findings of the present study may enhance government‟s understanding on tax compliance intention among students (future taxpayers). Consequently, relevant strategies may be developed to improve overall tax compliance intention of future taxpayers (students).
For tax educators, the results of the study may assist them in developing tax education programmes or tax syllabus (in academic) that is required in educating and communicating to future taxpayers (students)/taxpayers in order for them to file tax
return correctly and reduce the unintentional tax non-compliance under SAS.
The findings of the study are also important to the tax authority, the Inland Revenue Board of Malaysia (IRBM). For instance, based on the feedback of the students‟ (future taxpayers) level of tax knowledge, a better tax return form (more simplified) and instructions (easy to understand) can be designed in order to file tax returns under SAS with minimised errors.
Last but not least, the result of the study is expected to contribute to the literature on compliance behaviour at large. The findings from this study for Malaysia may be compared to those of other countries with difference tax systems and culture.
1.6 STRUCTURE OF THE STUDY
The dissertation is organised into 6 chapters. Chapter 1 is the introduction. It provides the background of the study, problem statements to the issue under investigation, research objectives, research questions, the significance of the study and the organisation of the study. Chapter 2 provides the background and development of tax system of Malaysia and reviews of the literature on tax compliance. Chapter 3 discusses the theoretical framework and hypothesis development. Chapter 4 elaborates on the research methodology. The result findings and discussion are presented in Chapter 5. Finally, Chapter 6 concludes the study with a summary, implication of the study, highlights the limitations and suggests directions for further research.