Issues, Challenges and Problems with Tax Evasion: The Institutional Factors Approach

Mohd Rizal Palil; Marlin Marissa Malek; Abdul Rahim Jaguli

doi:10.22146/gamaijb.12573

Issues, Challenges and Problems with Tax Evasion: The Institutional Factors Approach

Mohd Rizal Palil, Marlin Marissa Malek, Abdul Rahim Jaguli

(Submitted 10 August 2016)

(Published 10 August 2016)

Abstract

Tax evasion, particularly in developing countries is a debatable issue. Evasion is a disease and needs to be minimized so that the black economy or hidden economy can be mitigated. This paper attempts to reveal the determinants of tax evasion from the institutional perspectives. The objective of this study is to identify the determinants of tax evasion a decade after the introduction of a Self-Assessment System (SAS). Three institutional perspectives of the determinants of tax evasion were examined, namely the probability of being detected, the role of the tax authority and the complexity of the tax system. The results suggested that the complexity of the system, and the probability of being detected had a significant impact on tax evasion. The results of this study could possibly contribute to the body of knowledge in lieu of combating tax evasion, as well as being an input to tax administrators and policymakers into which ways the determinants can affect compliance. The findings also provide an indicator for tax administrators of the relative importance of the tax system in assisting with the design of tax education programs, simplifying tax systems and developing a wider understanding of taxpayers’ behavior.

Full Text: PDF

DOI: 10.22146/gamaijb.12573

References

Aini, A. O., J. Budiman, and P. Wijayanti. 2013. Kepatuhan Wajib Pajak Badan Perusahaan Manufaktur di Semarang dalam Perspektif Tax Profesional. Paper presented at the Proceeding Simposium Nasional Perpajakan 4, Universitas Trunojoyo, Madura. http://asp.trunojoyo.ac.id/wp-content/uploads/2014/03/10-KEPATUHAN-WAJIB-PAJAK-BADAN- PERUSAHAAN-MANUFAKTUR-DI-SEMARANG-DALAM-PERSPEKTIF-TAX-PROFESSIONAL.pdf

Allingham, M.G., and A. Sandmo. 1972. Income tax evasion: A theoretical analysis. Journal of Public Economics 1 (3-4): 323-38.

Alm, J. 1991. A perspective on the experimental analysis of taxpayer reporting. The Accounting Review 66 (3): 577-593.

Alm, J., B. Jackson, and M. McKee. 1992. Institutional uncertainty and taxpayer compliance. American Economic Review 82 (4):1018-1026.

Andreoni, J, B. Erard, and J. Feinstein. 1998. Tax evasion. Journal of Economic Literature 36: 818-860.

Australian Tax Office.2009. Title of article?.Retrieved 10th of November 2009, from http://www.ato.gov.au/corporate/content.asp?doc=/content/00107941.htm

Balafoutas, L., A. Beck, R. Kerschbamer, and M. Sutter. 2015. The hidden costs of tax evasion: Collaborative tax evasion in markets for expert services. Journal of Public Economics 129: 14–25.

Benk, S., T. Budak, S. Püren, and M. Erdem. 2015. Perception of tax evasion as a crime in Turkey. Journal of Money Laundering Control 18 (1): 99 – 111.

Bergman, M. 1998. Criminal law and tax evasion in Argentina: Testing the limits of deterrence. International Journal of the Sociology of Law 26: 55-74.

Bird, R. M. 1998. Administrative constraints on tax policy. In Sandford, C. (ed.), Further Key Issues in Tax Reform. Bath: Fiscal Publications.

Boll , K. 2015. Deciding on tax evasion – front line discretion and constraints. Journal of Organizational Ethnography 4 (2): 193 – 207.

Calvert, P., and A. Pope. 2005. Telephone survey research for library managers. Library Management 26 (3): 139 – 151.

Cachia, C., and L. Millward. 2011. The telephone medium and semi-structured interviews: A complementary fit. Qualitative Research in Organizations and Management: An International Journal 6 (3): 265-277

Forza, C. 2002. Survey research in operations management: A process-based perspective. International Journal of Operations and Production Management 22 (2): 152-194

Clotfelter, C. T. 1983. Tax evasion and tax rates: An analysis of individual returns. The Review of Economics and Statistics LXV (3): 363-73.

Damayanti, T. W., T. Sutrisno, I. Subekti, and Z. Baridwan. 2015. The role of taxpayer’s perception of the government and society to improve tax compliance. Accounting and Finance Research 4 (1): p180.

Dubin, J. A. 2004. Criminal investigation enforcement activities and taxpayer non-compliance. Paper presented at 2004 IRS Research Conference, Washington, June, 1-45.

Eisenhauer, J. G. 2008. Ethical preferences, risk aversion, and taxpayer behavior. The Journal of Socio-Economics 37: 45-63.

Ernawati, W. D., and B. Purnomosidhi. 2011. Pengaruh sikap, norma subjektif, kontrol perilaku yang dipersepsikan dan sunset policy terhadap kepatuhan wajib pajak dengan niat sebagai variabel intervening. Paper presented at the Peran dan Implementasi Statistika dalam Analisis Finansial dan Pengambilan Keputusan Bisnis, Semarang.

Fiege, E. L. 1979. How big is the irregular economy? Challenge 22: 5-13.

Grgiü, R., and S. Terziü. 2014. Tax evasion in Bosnia and Herzegovina and business environment. Procedia - Social and Behavioral Sciences 119: 957 – 966.

Gutmann, P. M. 1977. The subterranean economy. Financial Analysts Journal 33 (Nov – Dec): 26-34.

Harris, T. D. 1989. The effect of type of tax knowledge on individuals’ perceptions of fairness and compliance with the federal income tax system: An empirical study. PhD Thesis, University of South Carolina.

Hasseldine, J. 1993. How do revenue audits affect tax evasion. Bulletin for International Fiscal Documentation 47: 424 – 35.

Hasseldine, J., and Z. Li. 1999. More tax evasion research required in new millennium. Crime, Law and Social Change 31 (1): 91-104.

Inland Revenue Board (IRB) Malaysia (2014). Title of articl?. Retrieved 14th of March 2014, from http://www.hasil.gov.my.

Internal Revenues Services (IRS). 2009. Update on Reducing the Federal Tax Gap and Improving Voluntary Compliance. Retrieved 10th of November 2009, from http://www.irs.gov/pub/newsroom/tax_gap_report_-final_version.pdf

Isa , K. 2014. Tax complexities in the Malaysian corporate tax system: Minimize to maximize. International Journal of Law and Management 56 (1): 50 – 65.

Jackson, B., and P. Jaouen. 1989. Influencing taxpayer compliance through sanction threat or appeals to conscience. Advances in Taxation 2: 131-47.

Jackson. B. R., and V. C. Milliron. 1986. Tax evasion research: Findings, problems, and prospects. Journal of Accounting Literature 5: 125-165.

Kasipillai, J., and J. Baldry. 1998. What do Malaysian taxpayers know? Malaysian Accountant (February): 2-7.

Kirchler, E. 2007. The Economic Psychology of Tax Behaviour. Cambridge: Cambridge University Press.

Konfczynski, G. T., and D. Mundfrom. 2008. Sample sizes when using multiple linear regression for prediction. Educational and Psychological Measurement 68 (3): 431-42.

Lai, M-L., S. Normala, and A. K. Meera. 2005. Towards electronic tax filing: Technology readiness and responses of Malaysian tax practitioners. Tax Nasional (First Quarter): 16-23.

McBarnet, D. 2001. When Compliance Is Not the Solution But the Problem: From Changes in Law to Changes to Attitude. Canberra: Australian National University, Centre for Tax System Integrity.

Mohani, A., and P. Sheehan. 2003. Estimating the extent of income tax non-compliance in Malaysia and Australia using the gap approach (part I). Tax Nasional (4th Quarter): 22- 34.

Mohani, A. 2001. Personal income tax non-compliance in Malaysia. Ph.D. thesis. Victoria University: Melbourne, Australia.

Mohani, A., and P. Sheehan. 2004. Estimating the extent of income tax non-compliance in Malaysia and Australia using the gap approach (part II). Tax Nasional (1st Quarter): 20- 24.

Nor Azrina Mohd Yusof, L. M. Ling, and Y. B. Wah. 2014. Tax non-compliance among SMCs in Malaysia: Tax audit evidence. Journal of Applied Accounting Research 15 (2): 215 – 234

Riahi-Belkaoui, A. 2004. Relationship between tax evasion internationally and selected determinants of tax morale. Journal of International Accounting, Auditing and Taxation 13: 135-143.

Richardson, G. 2008. The relationship between culture and tax evasion across countries: Additional evidence and extensions. Journal of International Accounting, Auditing and Taxation 17 (2): 67-78.

Ritsatos, T. 2014. Tax evasion and compliance; from the neo classical paradigm to behavioral economics, a review. Journal of Accounting and Organizational Change 10 (2): 244 – 262.

Schneider, F., K. Raczkowski, and B. Mróz. 2015. Shadow economy and tax evasion in the EU. Journal of Money Laundering Control 18 (1): 34 – 51.

Sekaran, U. 2000. Research Methods for Business; A Skill Building Approach (3rd ed.). New York: John Wiley and Sons.

Shanmugam, S. 2003. Managing self assessment - an appraisal. Tax Nasional (1st Quarter): 30-32.

Silvani, C., and K. Baer. 1997. Designing a tax administration reform strategy: Experiences and guidelines. Working Paper. International Monetary Funds, Washington DC.

Singh, V. 2003. Malaysian Tax Administration (6th ed.). Kuala Lumpur: Longman.

Slemrod, J. 1989. Complexity, compliance costs, and tax evasion. In Roth, J. A., and J. T. Scholz (eds.), Taxpayer Compliance: Social Perspectives. Philadelphia 2: 156-181.

Slemrod, J., M. Blumenthal, and C. Christian. 1998. The determinants of income tax evasion: Evidence from a control experiment in Minnesota. National Bureau of Economic Research Working Paper no. W6575.

Slemrod, J., M. Blumenthal, and C. Christian. 2001. Taxpayer response to an increased probability of audit: Evidence from a control experiment in Minnesota. Journal of Public Economics 79: 455-483.

Song, Y. D., and T. E. Yarbrough. 1978. Tax ethics and taxpayer attitudes: A survey. Public Administration Review 38 (5): 442-452.

South East Asian Mobile Communications & Mobile Data Markets Report. 2013.

Spicer, M. W., and S. B. Lundstedt. 1976. Understanding tax evasion. Public Finance 31 (2): 295-305.

Stack , G. 2015. Money laundering in Ukraine. Journal of Money Laundering Control 18 (3): 382-394.

Verboon, P., and M. Van Dijke. 2007. A self-interest analysis of justice and compliance: How distributive justice moderates the effect of outcome favorability. Journal of Economic Psychology 28: 704-727.

Wang, C. L., and M. N. K Saunders. 2012. Non-response in cross-cultural surveys: Reflections on telephone survey interviews with Chinese managers. In Catherine L. Wang, David J. Ketchen, Donald D. Bergh (Ed.), West Meets East: Toward Methodological Exchange (Research Methodology in Strategy and Management 7: 213-237). Emerald Group Publishing Limited.

Young, J. C. 1994. Factors associated with non-compliance: Evidence from the Michigan tax amnesty program. Journal of American Taxation Association 16 (2): 82-105.

Refbacks

There are currently no refbacks.

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.