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100 Seiten, Note: 4
ACKNOWLEDGEMENTS TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES GLOSSARY OF TERMS
CHAPTER ONE INTRODUCTION
1.1 Background of the Study
1.2 Problem Statement
1.2.1 Practical Problem Statement
1.2.2 Theoretical Problem Statement
1.3 Research Questions
1.4 Research Objectives
1.5 Significance of the Study
1.6 Scope and Limitations of the Study
1.7 Definition of Key Terms
1.8 Structure of the Thesis 11
CHAPTER TWO LITERATURE REVIEW
2.2 Overview of the Tax System in Somalia
2.3 Tax Compliance
2.4 Determinants of Tax Compliance
2.5 Tax Education
2.5.1 Efforts for Tax learning
2.5.2 Awareness of tax laws
2.5.3 Understanding of Tax laws
2.6 Studies on Tax Education and Tax Compliance
2.7 Theoretical Model on Tax Education
2.8 Summary of the Chapter 33
CHAPTER THREE METHODOLOGY
3.2 Research Framework
3.3 Hypothesis Development
3.3.1 Efforts for Tax Learning and Tax Compliance Behaviour
3.3.2 Awareness of Tax Laws and Tax Compliance Behaviour
3.3.3 Understanding of Tax laws and Tax Compliance Behaviour
3.4 Operational Definitions and Measurement of Variables
3.4.1 Tax Compliance Behaviour
3.4.2 Efforts for Tax Learning
3.4.3 Awareness of tax laws
3.4.4 Understanding of Tax laws
3.5 Research Design
3.6 Population of the Study
3.7 Samples and Sampling Techniques
3.8 Method of Data Collection
3.8.1 Data Collection Procedures
3.8.2 Questionnaire Design
3.8.3 Pilot Test
3.9 Techniques of Data Analysis
3.10 Summary of the Chapter 46
CHAPTER FOUR RESEARCH FINDINGS
4.2 Response Rate
4.3 Pre-Analysis Test
4.3.1 Factor Analysis
4.3.2 Reliability Analysis
4.3.4 Normality test
4.4 Demographic Information of the Respondents
4.5 Descriptive Statistics
4.5.1 Tax Compliance Behaviour
4.5.2 Efforts for Tax Learning
4.5.3 Awareness of Tax Laws
4.5.4 Understanding of Tax laws
4.6 Correlation Analysis
4.7 Multiple Regression Analysis
4.8 Summary of the Chapter 64
CHAPTER FIVE DISCUSSION, RECOMMENDATIONS AND CONCLUSION
5.2 Discussion of Results
5.2.1 Relationship between Tax Education and Tax Compliance Behaviour
5.2.2 Summary of Results
5.3 Implication of the Study
5.3.1 Theoretical Implication
5.3.2 Practical Implementation
5.4 Limitation of the Study
5.5 Recommendation for Further Research
Thesis Submitted to Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia, in Partial Fulfilment of the Requirement for the Award of Master of Science
This study investigates the relationship between tax education dimensions and tax compliance behaviour among salaried taxpayers in Mogadishu, Somalia. This study is motivated by low tax compliance and low tax education in Somalia. Specifically, the objectives of this study were to examine the relationships between efforts for tax learning, awareness of tax laws and understanding of tax laws; and tax compliance behaviour among salaried taxpayers in Mogadishu, Somalia. To achieve the research objectives, primary data were collected through administrating survey questionnaires to salaried taxpayers in Mogadishu, Somalia. The data were analysed using multiple regression analysis. The findings of the study indicate that efforts for tax learning had a negative and significant relationship with tax compliance behaviour, on the other hand, the awareness of tax laws and understanding of tax laws had a positive and insignificant relationship with tax compliance behaviour, efforts for tax learning contributes the most towards tax compliance behaviour, therefore, the policy makers in somalia should focus more on the most important contributing factor, i.e. efforts for tax learning, to enhance tax compliance and ultimately mitigate the problem of noncompliance in Somalia.
Keywords: Tax Compliance Behaviour, Education, Efforts for Learning, Awareness of Tax Laws and Understanding of Tax Laws, Somalia.
Kaj ian ini mengkaji hubungan antara dimensi pendi dikan cūkai dan gelagat kepatuhan cukai di kalangan pembayar cukai bergaji di Mogadishu, Somalia. Kajian ini dimotivasi oleh kadar kepatuhan cukai dan pendi dikan cukai yang rendah di Somalia. Secara khususnya, objektif kajian ini adalah untuk mengkaji hubungan antara usaha untuk pembelajaran percukaian, kesedaran terhadap peraturan percukaian, kefahaman undang-undang percukaian; dan gelagat kepatuhan cukai di kalangan pembayar cukai bergaji di Mogadishu, Somalia. Bagi mencapai objektif kajian, data primer dikumpul melalui kajian soal selidik yang diedarkan kepada pembayar cukai bergaji di Mogadishu, Somalia. Data dianalisis dengan menggunakan analisis regresi berganda. Dapatan kajian menunjukkan bahawa usaha untuk pembelajaran percukaian mempunyai hubungan yang negatif dan signifikan dengan gelagat kepatuhan cukai. Sebaliknya, kesedaran terhadap peraturan percukaian dan kefahaman undang-undang percukaian mempunyai hubungan yang positif dan tidak signifikan dengan gelagat kepatuhan cukai. Usaha untuk pembelajaran percukaian merupakan faktor yang paling penting menyumbang ke arah gelagat kepatuhan cukai. Oleh itu, pembuat dasar di Somalia perlu memberi tumpuan lebih kepada faktor ini, iaitu usaha untuk pembelajaran pencukaian untuk meningkatkan pematuhan cukai dan akhirnya mengurangkan masalah ketidakpatuhan di Somalia.
Kata kunci: Cukai Gelagat Kepatuhan Cukai, Pendi dikan Cukai, Usaha untuk Pembelajaran, Kesedaran terhadap Peraturan dan Kefahaman Undang-Undang, Somalia.
First of all, I would like to thank Allah for the blessing and give me strength of mind, spirit, ability and guidance to go through all the journeys in completing this research paper. The completion of this research has been made possible also with the support, encouragement and inspiration of so many people directly and indirectly.
I would like to extend my heartfelt appreciation and deep gratitude to my research supervisor Dr. Idawati Binti Ibrahim, who had provided continuous guidance, encouragement, support and advice in assisting me to complete this research paper. Her remarkable ways and professionalism in explaining and guiding me throughout the completion of this research has allowed me to see things in a more rational and critical view.
I am also grateful for the encouragement that I received from my family, especially my father, mother, brothers and sisters. Their outstanding patience and unconditional love in supporting my quest and love for education has been extraordinary. Also, I want to thank my dearest friends Omar Nor Mohamed, Mohamed Mahdi Abd Obaid, Isah Gwoza for all their supports and helps.
Lastly, I would love to thank all MSc (International Accounting) lecturers at University Utara Malaysia for outstanding accounting knowledge and for all the assistants.
Table 1.1 Comparison of Somalia with Kenya and Nigeria
Table 1.2 Definition of key Terms
Table 2.1 Somalia Tax Rate System
Table 3.1 Measurement item for Tax Compliance Behaviour
Table 3.2 Measurement item for Efforts for Tax Learning
Table 3.3 Measurement item for Awareness of tax laws
Table 3.4 Measurement item for Understanding of tax laws
Table 3.5 Pilot Study: Reliability Test Result
Table 4.1 Analysis of Response Rate
Table 4.2 KMO and Bartlett’s Test of Sphericity
Table 4.3 Test for Reliability
Table 4.4 Variance Inflation Factor of the Independent Variable
Table 4.5 Testing for Normality
Table 4.6 Demographic Information of the respondents
Table 4.7 Descriptive statistics for Tax Compliance Behaviour
Table 4.8 Descriptive statistics for Efforts for Tax learning
Table 4.9 Descriptive statistics for Awareness of Tax Laws
Table 4.10 Descriptive statistics for Understanding of Tax laws
Table 4.11 Descriptive statistics for Dependent Variable and Independent Variable
Table 4.12 Correlation Between Variables
Table 4.13 Summary of Standard Regression Model
Table 4.14 Coefficient of Standard Regression Model
Table 5.1 Summary of Results
Figure 1.1 Revenue of Somalia Government
Figure 1.2 Tax Gap in Somalia Revenue
Figure 2.1 Taxpayer Compliance (knowledge Based Model)
Figure 3.1 Research Framework
Figure 4.1 Histogram of Dependent Variable
Figure 4.2 Normal P-P Plot of regression Standardized Residual
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Tax education is considered as one of the variables that can influence on tax compliance behaviour (Murphy, 2004). Tax education has been seen as a way to increase a citizen’s capability to grasp taxation laws and to increase their readiness to follow those laws (Kasipillai et ah, 2003). Different researchers have studied the impact of tax education on tax compliance behaviour globally. For instance, Berhane (2011), observed that tax education enhances the tax compliance behaviour of the citizens, as they would be aware of their obligations and punishments for not following tax laws in Ethiopia. In Somalia, however, no studies have been conducted about tax education and tax compliance behaviour.
For many countries, taxes are the major source of income to finance the countries expenses such as providing the basic services for the country like building roads, railways, airports, and seaports and promoting the general welfare (Wonders, 2014). In the case of Somalia, the government is highly dependent on external grants as a source of income in additional to tax revenue because international grants represent 43% of the revenue of Somalia, which makes the government of Somalia highly vulnerable to foreign intervention (MOF, 2015).
The main sources of tax revenue are derived from the Mogadishu port and airport and the Bakara market, which is the biggest market in Somalia (Uluso, 2015). Taxes are imposed on: 1) imports and exports such as food, fuel, pharmaceutical products, petroleum products, livestock and agricultural products; 2) companies, for example Telecommunication and Remittance companies; and 3) the income of individuals (FGS- Act 0005, 2014). Reports have indicated that the level of compliance among taxpayers is very low, and the actual amounts of taxes due have not been collected completely (MOF, 2015). In 2015, The Ministry of Finance of Somalia, MOF reported that the tax gap was 58.4% of the total estimated tax revenues, which indicates the level of compliance is very low. Although many factors that can affect compliance behaviour, tax education is probably the most significant in Somalia (Hussien, 2014).
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Figure 1.1 Revenue of Somalia Government, 2015.
Source: Ministry of Finance, 2015.
Figure 1.1 shows the sources of revenue for the Government of Somalia in 2015, which are revenue from taxes, revenue from grants and non-tax revenue. The main source of revenue for the government is tax revenues, which represents 44% of overall revenue.
The second main source of revenue is grants, which represents 43% of the revenue of the Somalia Government, while the remaining 13% comes from non-tax revenues.
Depending on foreign grants damages developing countries (Reci, 2014). Foreign aid has helped make the economic and political policies of some countries economically unproductive. Less economically developed countries (LEDCs) may become increasingly dependent on donor countries and become heavily indebted. As a result, the donor countries might interfere in the political affairs of the less developed countries and force them to take some unfavourable decisions (Reci, 2014). Although the tax revenue represents a huge percentage of the Somalia revenue, the amounts of tax revenue are small compared with those of other African countries (MOF, 2015).
Table 1.1 shows a comparison of tax revenue, per capita income and the GDP of Somalia, Kenya, and Nigeria respectively. From the table, huge gaps can be seen among Somalia, Kenya, and Nigeria. From an economic viewpoint, the GDP and per capita income of Somalia is less than 1% of Kenya’s GDP and miniscule compared to Nigeria. The tax revenue collected in Somalia was just USD57 Million, while in Kenya it was USD 10,877.14 Million, and in Nigeria it was USD 3.742 Billion in 2015.
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Sources: Ministry of Finance, Somalia, Department of Taxation 2015; World Bank, 2015; Kenya Revenue Analysis 2010-2015; Federal Inland Revenue Service, Tax Revenue Statistics.
From the above discussion, the tax revenue gap in Somalia could be the result of tax non-compliance, which low tax education among taxpayers in Somalia has caused (need reference here. See comment from DR Muzainah). To solve the problem of tax noncompliance, an emphasis should be placed on the relationship between tax education of individual taxpayers and tax compliance behaviour in developing countries like Somalia.
Other countries have done much better in collecting taxes due. For example, the compliance level of Japan is more than 90%. The National Tax Authorities (NAT) of Japan has been successful in promoting voluntary compliance through the four pillars of tax compliance, and one of those pillars is the tax education (Yok, 2009). Other reports by the World Bank also have indicated that taxpayer education has provided a good foundation for tax collection in Tanzania (World Bank, 2017). The observation has been made that taxation education improves tax compliance behaviour of the taxpayers, as they become mindful of their responsibility and penalties for not complying with the taxation laws (Berhane, 2011). Moreover, tax education is considered as one compliance instrument that gives citizens the capacity to grasp taxation laws, which, in turn, increases their readiness to follow these laws (Kasipillai et al., 2003).
This section is divided into two subsections, which are: 1) the practical problem statement and 2) the theoretical problem statement.
Since the fall of Somalia’s Central Government in 1991 that General Mohamed Siad Barre ruled, two decades of civil war, enormous interior relocations, frequent droughts, and frequently inflation have tormented Somalia, transforming the nation into one of the world’s most humanitarian crises areas. In 2012, the government of Somalia has been re-established with a federal system that comprises the central government and several regional administrations. However, the Federal Government is weak, highly corrupt, and dysfunctional and cannot provide basic public services to the people, like building infrastructure and providing public schools (Khalif & Barnes, 2011).
The official report of the Somalia government has indicated that a tax gap exists between the actual figures and the expected figures for the recent years (MOF, 2015). For instance, in the fiscal tax report 2015, the estimated tax revenue was USD 139,221,120 but the actual amount collected was only USD 57,864,793, producing a tax gap of USD 81,356,327. Figure 1.2 shows the details of the tax gap in Somalia.
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Gap in Somalia Revenue.
Source: Ministry of Finance, 2015.
Non-compliance is identified as one of the main reasons causing the tax gap in Somalia (Hussein, 2014). Taxpayer compliance behaviour can be influenced by many factors, and these factors differ from one country to another and from one individual to another (Kirchler, Hoelzl & Wahl, 2007). In the case of Somalia, education is one of these factors, being among the most important due to the low level of tax education in Somalia (Hussien, 2014).
Informing the taxpayers regarding tax laws is a critical element in creating an effective tax framework (Ugwu, 2014). Accomplishing an acceptable amount of compliance may be achieved if citizens can finish an income tax return effectively and pay the suitable amount of tax. To grasp the target of voluntary compliance, citizens must be educated, (especially in tax matters), and their tax proficiency level should be improved relentlessly to keep their data relevant.
Given these facts, this current study investigated the relationship between tax education constructs, namely, efforts for tax learning, awareness of tax laws and understanding of tax laws and tax compliance behaviour among salaried taxpayers in Mogadishu, Somalia.
As far as the author’s knowledge, no published accurate figures of the non-compliance level exist for Somalia, and this deficiency is probably due to the lack of research. Therefore, at the current stage, the actual level of compliance/non-compliance in Somalia is unclear. Low tax education is among the reasons for tax non-compliance, which is a critical issue. Somalia’s tax authority has stated that there is gross underreporting and that tax performance across the board is much less than what it should be (MOF, 2015).
No studies have yet focused specifically on tax compliance behaviour and education constructs in Somalia. The lack of study in Somalia justifies why this study is important, and comprehensive and up-to-date research on the relationship between tax education and tax compliance behaviour is much needed. Less attention has been given to the case of tax compliance in general and tax education in specific, which makes it imperative to undertake a study on taxation in Somalia. Therefore, this study investigated the relationship between tax education and tax compliance among salaried taxpayers in Mogadishu, Somalia.
The following are the research questions for this study.
1. What is the relationship between efforts for tax learning and tax compliance behaviour?
2. What is the relationship between awareness of tax laws and tax compliance behaviour?
3. What is the relationship between understanding of tax laws and tax compliance behaviour?
This study seeks the answers to the following research objectives. They are:
1. To examine the relationship between efforts for tax learning and tax compliance behaviour;
2. To examine the relationship between awareness of tax laws and tax compliance behaviour; and
3. To examine the relationship between understanding of tax laws and tax compliance behaviour.
The significance of the study can be viewed from two points of view - the theoretical viewpoint and the practical viewpoint. From the theoretical viewpoint, this research will fill the gaps left unfilled by other researchers. Specifically, in Somalia, this study will form a basis for other researchers who need to do further investigations in related areas of taxation and will serve as a reference. Furthermore, this work is among the first to be undertaken in the context of Somalia to understand the relationship between tax education dimensions and tax compliance behaviour. Hence, this study adds to existing literature of tax compliance.
This study is concerned with the relationship between tax education and tax compliance behaviour among salaried taxpayers in Mogadishu, Somalia. This topic is highly important as tax education influences the compliance level, which, in turn, can hamper the government’s ability to provide public amenities for its citizens. Therefore, when the problem is checked and monitored, this may help increase revenue. In turn, the provision of social amenities and other infrastructure becomes possible and the dependency on the international grants will be reduced. If the evasive activities continue to be unchecked, sooner or later, the government will collapse.
From the practical viewpoint, the findings of the present study are expected to be useful to relevant stakeholders and key decision makers in the tax system of the country in ensuring the development of appropriate measures for policies related to tax education as a method for diminishing tax non-compliance. In addition, the research findings can be beneficial to researchers, standard-setters and students of accounting and other related fields, such as finance and commerce. Hence, this research makes an important contribution to the body of knowledge for Somalia, in particular, and other similar countries, in general.
The research is designed to determine the relationship between tax education variables and tax compliance behaviour among salaried taxpayers in Mogadishu, Somalia. To consider the country as a whole is not easy due to time constraints, difficulty for reaching people, cost and other determining factors.
The study is limited to the salaried taxpayers of Mogadishu because Mogadishu is the capital city of Somalia and is the largest city in the country. In the pilot test, 30 Somali postgraduate? students of University Utara Malaysia who have experiences in paying Somalian taxes were used. When the study was run, 400 salaried taxpayers participated in the survey of this study. This study was conducted during the period of February - June 2017 using survey questionnaires, no interviews were conducted to verify the results.
The following terms presented in Table 1.2 are the key terms of the study, and they are defined as follows:
Definition of terms
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This study investigates the relationship between tax education variables and tax compliance behaviour among salaried taxpayers in Mogadishu, Somalia. This research is divided into five chapters. Chapter one contains the background of the topic, the problem statement, the research questions and objectives, the significance, and the scope of the study.
Chapter two focuses on the relevant literature reviews in the areas of tax compliance and its relationship with other variables in this study. Also, this chapter presents previous empirical studies and related theories.
Chapter three presents the research methodology used, which includes the research design, population, and sampling of the study, measurement of variables used in this study and data analysis techniques.
Chapter four provides the analysis on findings and interpretation of the data to answer the objectives of the study.
Finally, chapter five presents the discussion, recommendations and finally the need for future studies.
This chapter reviews the related literature important to understanding the theme of the study by reviewing current literature regarding the relationship between tax education dimensions and tax compliance behaviour. This chapter comprises six sections and is organized as follows. The first section gives a brief description of the tax system in Somalia, and this is followed by presenting tax compliance theoretical reviews. Section three presents determinants of tax compliance, section four presents tax education, section five presents previous studies on tax education and tax compliance, section six presents the underpinning model of the study, and the last section concludes the chapter.
Technically, taxation is defined as the process of collecting revenue for the state to enable it to dispense its responsibilities towards its citizens as well as, sometimes, to protect local production from foreign competition (James & Nobes, 1997). To conduct and legitimize taxation, the state promulgates tax laws, which specify rules and regulations that define charges to be levied on property, estates, transactions, income, licensees, and duties on imports and exports. Various levels of governance structures enforce taxation by law. These range from local governments, federal states, national governments, to broader regional entities.
In Somalia, Chapter II, Article 17 of the Financial and Accounting Regulations of 1961 defines revenue as: “all sums that the state has a right to collect, by law, decree, regulation or otherwise. All revenue received shall be receipted and deposited into an appropriate bank account determined by the State” (MOF, 1961, p.29). Government revenue means funds collected by government authorities according to laws and regulations. The Ministry of Finance is the principle revenue collector for the government, mainly in the form of taxes.
In accordance with the article, the main types of revenue include tax payable and personal income tax. Under the tax payable concept, several types of taxes exist, and the first one is the company tax, which is based on compound tax profit as follows for resident companies 10% and for non-resident companies 16.3%.
The second tax is custom duties, and this tax is divided into taxes imposed on imports and taxes imposed on exports. The rate of taxes imposed on imports range from 0% to 55%, with an average of 14%, which is usually product-type dependent. High rates are applied for imported luxury goods such as Khat, cigarettes and perfumes, and lower rates are applied for essential goods. Export duties are generally imposed on the country’s main commodities (agricultural products and livestock). The export tax rates range from 0% to 12%, with an average of 6%, These taxes depend on the classification of the goods.
Third is the capital gains tax. All capital gain taxes are subject to tax at the rate of 10% of the net gain. Fourth is the branch profit tax that a foreign entity pays, which is the same as the tax imposed on non-resident companies (16.3%). Fifth, is the salaried employment income, which is taxed at 6% of the gross annual income.
Sixth are the local taxes that comprise the vehicle road tax, which is 0.5% of the value of the vehicle, the rental income tax which is 10% of the rental income and single business permit that depends on the type of business, and this permit costs a minimum of USD 200 to a maximum of USD 600.
According to the Taxation Guide of Somalia (MOF, 2015), the personal income tax is “a direct tax imposed on accruable income from within and/or outside Somalia in a particular taxable year” (p. 7). Tax is charged at the rate of 6% on the gross income.
Table 2.1 Summary of the tax forms and tax rates for the government of Somalia.
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Source: MOF, 2015.
Note: * rates are on an average basis, but usually depend on the type of item.
Tax compliance can be simply defined as how well taxpayers obey the tax laws without any authority forcing them (Aim, 1991). However, like several such concepts, the meaning of compliance is seen practically as a continuum of definition. This varies from the slender law implementation approach, through additional intensive Monterey definitions and on to additional significant versions concerning citizens’ decisions to adhere to the foremost destinations of society as reflected in tax policy (Brand, 1996).
Taking the restricted end of the continuum first, one suggestion is that the extent of noncompliance may be measured concerning the terms of “Tax Gap” (James & Alley, 2002). This represents the distinction between the revenue gathered and the amount that might be gathered if there were 100% compliance. Tax non-compliance might be found in terms of tax evasion or avoidance. These two activities are usually differentiated in terms of lawfulness, with ranging from lawful measures to diminish tax liability to evasion via outlawed measures. Some observers see non-compliance as an evasion problem; however, this doesn’t seem to capture the complete meaning of the problem. Without a doubt, however, tax evasion is a form of non-compliance. In any case, if citizens go to inordinate lengths to lower their liabilities, these actions could hardly consider “compliance” either. These activities, for example, may incorporate fake transactions to reduce tax liabilities, utilizing postponing strategies or false claims to diminish the stream of tax payments, among others (James & Alley, 2002).
There is also “Tax Exiles” who are people with high income who live in a country with low tax rates, so this group of people appears to want to emigrate to reduce their obligations as a taxpayer (Andreoni, Erard, & Feinstein, 1998). Even if tax exile and tax avoidance are practiced without contravening any law, they are not ethically good. Compliance may be defined in this manner as complying with both ethical and regulatory principles of taxation.
Tax compliance is a varied behavioural issue, and an examination of this issue requires employing a variety of methods and the knowledge of various sources as each instrument has both benefits and shortcomings. Aim (1991) defined tax compliance as the coverage of all income and paying all taxes by fulfilling the provisions of laws, rules, and court judgments. Drawing from this definition, taxpayers must reveal all the pertinent information about their revenue, and, therefore, the form should report actual liabilities in accordance with laws, rules, and court judgments. Abandonment of tax laws deliberately is considered non-compliance.
As Brand (1996) indicated, gathering taxes through voluntary compliance is less expensive than through the use of enforcements. Tax compliance is an ambivalent concept to characterize. In general, no standard accepted definition for compliance exists, but rather the meaning of compliance can be seen as a continuum of definitions (James & Alley, 2002). As indicated by the authors, the scope of compliances stretches from the restricted law authorization approach to extensive economic definitions and onwards to much more exhaustive renditions of the characteristics related to the decisions of citizens to comply with the tax law. James and Alley (2002) considered tax compliance as being related to the tax gap. The tax gap may be defined as the difference between that which is owed and that which is reported and voluntarily paid on a timely basis (Andreoni, Erard, & Feinstein, 1998).
Tax agencies have used different methods to determine the degree of compliance. However, some compliance typically occurs subject to the status of mind and activity elements of citizens (Hasseldine, 2002). Additionally, the degree of non-resistance of a singular citizen relies upon individual components such as trust in government and an assessment by taxpayers of the taxes paid versus the public benefits received, the perceived fairness of the tax system, and ease of complying as well as on a mix of conditions (Andreoni, Erard, & Feinstein, 1998).
Whether deliberate or unintentional non-compliance represents the most comprehensive conceptualization concerning the inability to fulfil tax obligations. Kasipillai et al. (2003) stated that tax non-compliance comprises components of both intentional evasion and unintentional non-compliance, which is due to calculation errors or a misunderstand of the law. Intentional evasion occurs when a citizen purposely hides revenue from a tax authority to pay less that the amount that is actually owed. From the above discussion non-compliance can take several forms, and they include (Kassipilai? Include reference here as requested by Dr Muzainah):
1. Fail to submit the tax form within the required period;
2. Increasing deductions;
3. Reporting less than the actual income; and
4. Fail to pay the assigned taxes by the due date.
Drawing from the above discussion, this study defines tax compliance as the ability to fill and report all the current income taxable items correctly and paying the correct taxable amount within the specified period without waiting for the tax authorities follow up. In the next section the determinants of tax compliance will be discussed.
The readiness of a taxpayer to comply with his or her taxation obligation is explicated in studies conducted on tax compliance (Ugwu, 2014). These factors have been identified to explain why some taxpayers comply with the laws and others do not comply with the same tax laws. Each factor has an influence on a taxpayer’s behaviour towards paying his or her fair share of tax liability when it is due. Kirchler (2007) provided a description of the determinants of tax compliance, dividing them into three categories, namely, 1) economic determinants, 2) socio-psychological determinants, and 3) political determinants. Kirchler (2007) stated that economic determinants included the rational decision-making process and the effects of audits, fines, and tax rates. The socio- psychological determinants comprised attitude, different types of norms, fairness perception, as well as motivational features relating to tax compliance. Political compliance was related to the complexity of laws, tax system or fiscal policy. The Socio-psychological determinants factors pertain to demographic factors, such as gender, age, marital status and education level which relate to individual characteristic also attribute to chances in evading tax, the next section discuss more about tax education.
Ugwu (2014) said that understanding individual income tax laws is the most troublesome thing for the citizens universally. In light of this, education of the younger generation about tax is a method through which income tax laws can be simplified (Misra, 2004). This education will empower citizens to grasp the tax laws, have a positive view about taxation and thereby comply with their obligations (Kasipillai et al., 2003). Tax education plays an essential part in making tax compliance a morale issue by persuading citizens that when they pay taxes, they are paying themselves (Likhovski, 2007). Because of an awareness of how taxation education impacts compliance behaviour, taxation is currently a course in schools in Japan, and not just at the college level (NTA, 2016). Making it a compulsory course of study will provide the younger generation with the basic tax knowledge (Sarker, 2003).
The leading role of tax education is to reveal the fundamental tax collection laws, and the significance of taxation income for economic development to citizens (Berhane, 2011). This includes information about the fines and punishments for non-compliance, which has been distinguished as a deterrence to tax avoidance and evasion. Citizens’ education is a strategy for giving learning about tax laws and why tax payment is basic. Taxpayer education will help citizens in meeting their tax commitments to the government. Educating an individual taxpayer is a method through which the outlook of people can be reoriented toward taxation (Lai et al., 2013). Lai et al. (2013) also stated that the best period in life to learn about tax collection instruction is at the undergraduate level. Given that college students are the future taxpayers, outfitting them with tax learning through education should be effective in diminishing tax non-compliance. Moreover, giving them instructions at the undergraduate level will improve their tax learning.
Taxpayer education is broadly defined as including efforts to show how to pay taxes and to explain why taxes should be paid and the empowerment of citizens to engage in discussions about the use of tax revenue (OECD, 2013). Such education covers a variety of actions, including government income authority programs to improve tax compliance conduct, endeavours by business associations to speak to the interests of their members on tax issues, and common society activities to advance the cooperation via dialogues concerning how taxes are gathered and redistributed (OECD, 2013). Taxation education needs to focus not just on information about taxable incomes, punishments, deductions, relief, and morals. It should also incorporate discussion on the use of tax payments by the administration. Such uses incorporate subsidizing security strengths, building streets, creating development, setting up government-funded schools and medical facilities, among others (Likhovski, 2007).
A white paper of The International Tax Compact (2010) entitled Addressing tax evasion and avoidance in developing countries noted that the end goal was to accomplish compliance with respect to tax collection, and, to do so, general society must have a decent education about the purposes of taxation. Thus, the general population who are required to pay their taxes and comply with their commitments must comprehend the operation of the tax framework and value it before they go along with it completely. Citizens need a decent comprehension of tax assessment laws. A citizen who is tax educated to a higher level will have a higher regard for a tax framework inside his/her zone of residence, and, in this way, the taxpayer will comply with the assessment commitment. By receiving tax assessment education, an individual will be more knowledgeable about tax assessment and how to arrange their instalments (Batiali & Ling, 2009).
Tax education has a relationship with deliberate tax compliance. Obed and Sheikh (2007), said that an expansion of tax education information through training will empower citizens to register their obligations precisely. Thus, with some level of tax education through training, the citizen can record and make correct payments of his/her tax liability.
Tax education has been utilized as an instrument by several nations to assure tax compliance among future taxpayers. An example is Australia, in which the Australian Tax Office created a program called “Teaching Tax with Tax Files” in 1998 to teach 9 to 12-year-old school children (ATO, 2009). The program features a creative sight-and- sound tax education pack, which contains varying media that provides current data on tax collection. The program is relied upon to instruct the school children on the diverse wellsprings of funds of the government and the obligations of a citizen and to build their comprehension of the part that tax assessment plays in a society, including for example, the association between taxation and the provision of public amenities.
Studienarbeit, 39 Seiten
Bachelorarbeit, 64 Seiten
Masterarbeit, 79 Seiten
Studienarbeit, 39 Seiten
Bachelorarbeit, 64 Seiten
Masterarbeit, 79 Seiten
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