Effects Of Tax Climate On Individual Tax Compliance Quality and Minimisation In Malaysia

by Asst. Prof. Dr. Chong K-Rine

January 2019

Abstract

The tax literature has been developing dynamically by combining the economic and socio-psychological factors in explaining tax compliance behaviour. In that tax legality has not been rigorously studied in the past, plus the perception of the authorities that stringent enforcements will enhance voluntary tax compliance, which contradicts the tax literature, this study extends the slippery slope framework.

It does this by exploring different dimensions of both compliance quality and tax minimisation behaviour, which comprises legal mitigation, as well as illegal avoidance and evasion under different tax climates, while controlling gender and perceived tax cheating as covariates via MANCOVA. Additionally, this study aims to evaluate the extent of tax minimisation (by percentage) before and after the disclosure of enforcement strategies by climate treatment via the Wilcoxon Signed Rank Test. A multi-method design is employed with 102 undergraduate business students under the experimental design; in addition to 101 postgraduate students, 100 employed, and 100 self-employed groups under the survey design.

It is confirmed that enforcement strategies are particularly effective under the synergistic climate. The initial tax minimisation by participants via avoidance or evasion was significantly reduced once they were informed of the probability of being detected and penalised, provided that they perceived a synergistic climate with trust and legitimate power.

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