In chapter 1, there are seven sections will be illustrated including background of study, problem statements, research objective, research question, significant of study, chapter layout and conclusion. Firstly, background of study outlines the board field of the research study and following by problem statements which described the problems that are found in the research study. To identify the problem statements, researchers have to rise up the research objectives and questions. Thus, hypotheses are developed to test the research questions. Furthermore, significance of study explained the contributions of the research study towards different parties. Lastly, chapter layout outlines the chapters which included in this research study and then conclusion will provide a summary of chapter 1.
1.1 Background of Study
In line with the Malaysian government's initiatives to realize a developed country's status based on transformation and innovation, Inland Revenue Board of Malaysia (IRBM) and the Malaysian public has worked hard to obtain the achievement of the collection of revenues since tax collection is a major contributor towards funding the development of the nation for the benefit of its people. Therefore, tax compliance behavior among individual taxpayer is vital in ensuring the effectiveness of tax collection which assists in funding the development activities to achieve objectives of Vision 2020.
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Tax compliance behavior is defined by several tax authorities like Inland Revenue Service (IRS), Australian Tax Office (ATO), and Inland Revenue Board (IRB) as the ability and willingness of taxpayers to comply with tax laws, declare the correct income in every year, reports and pays the right amount of taxes on time. Tax compliance is likely to gain its significance in the tax policy since most of the old problems still remain while new considerations are being raised by developments such as self-assessment.
Self Assessment System (SAS) was implemented with effect from 2001. Under the new system, the obligation for assessing tax liability is no longer lies with IRB. Instead, the responsibilities have shifted to the taxpayers. This system requires the taxpayers to learn and understand the tax laws thoroughly since they are answerable to the tax authorities in the case of a tax audit. Another implication of SAS is the voluntary compliance, as the tax return submitted by taxpayers is deemed to be their notice of assessment.
Since the full implementation of SAS in 2005, the IRB successfully recorded direct tax collection of RM56.85 billion in the year 2005. This amount recorded 17.6 percent higher than the Government's revised estimation of RM48.35 billion for the year 2005. However, the IRB's report has also documented the 'alarming' statistics relative to the previous year: (1) the IRB visited 1,113 individuals' premises and discovered tax in arrears of RM37.5 million; (2) 9,066 individuals were banned from leaving the country in accordance with Section 104 of the Income Tax Act 1967 (Malaysia) with outstanding tax payments of RM245.09 million; (3) 466 cases filed in the courts for RM30.65 million tax; and (4) 39 bankruptcies were filed for individuals involving RM9.85 million tax (IRBM, 2005).
According to the statistics, it appears that non-compliance behavior is 'alarming' within Malaysia. The discussion provides a clear indication that the taxpayers do not understood well about the existing income tax system under SAS. This is due to low level literacy among taxpayer in Malaysia. In order to accommodate the regular changes in the economy, Malaysian government amends tax laws every year. Hence, tax laws are gaining its complexity as well as less comprehensible to taxpayers and they would feel unwilling to comply with the tax system.
The income tax collected from the individual taxpayers is amounted to RM 15.57 billion. This amount is significant enough to the government because the income tax collected from individual taxpayers is the third largest portion among all the income tax collected. Since the portion from the individual taxpayers contribute much in development plan, which is stated in Vision 2020, therefore the understanding of the causes of the individual taxpayers' tax compliance behavior plays a vital role.
1.2 Problem Statement
There are many factors affecting taxpayers' compliance behavior. In Malaysia context, majority of the researchers focused on the studies of individual taxpayers' compliance behavior included morals; tax competencies; gender and ethnicity. In contrast, researchers excluded the social norms and attitudes which have the potential to explain the tax non-compliance behavior among individual taxpayers. Therefore, the studies on social norms and attitudes are used as variables to examine the tax compliance behavior in this research study.
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Theoretically, social norms consist of descriptive norms, subjective norms and injunctive norms. The popularity of each norm being studied by researchers varies since researchers mainly focused on the research study of descriptive social norms of tax compliance. On the other hand, it has obviously been found that there are fewer research studies conducted by the researchers to examine the relationship of injunctive social norms and tax compliance behavior. Hence, the injunctive social norms will be one of the major issues being concerned in this research study.
However, there is a deficiency in the past study. In the past research studies are reseracher mainly focused their compliance behaviour research on individual taxpayers who are salary and wage earners compare to self-employed. The reasons behind this problem are the self-employed taxpayers unwilling to take part in the compliance research. Besides that, IRB do not allow researchers to access the IRB data which may assist in research due to the privacy problem. Therefore, it may result limitation in the finding of the researchers. Alternatively, IRB may assist researchers to access the data by removing the privacy information of taxpayers. If the IRB allow researchers to access the data it will enable researchers appropriate random sampling of taxpayers would be invaluable to researcher.
1.3 Research Objectives
Generally, this research study aims to empirically study the influence of tax knowledge, attitudes, and social norms on the tax compliance behaviour among the accountants in Malaysia.
The specific objectives include:
To examine the relationship between the tax knowledge and tax compliance behavior.
To gauge the relationship between the attitudes and tax compliance behavior.
To examine the relationship between the social norms and tax compliance behavior.
1.4 Research Questions
Is there a relationship between the variables and tax compliance behavior among individual taxpayers?
Is there a positive relationship between the tax knowledge and tax compliance behavior?
Is there a positive relationship between the attitudes and tax compliance behavior?
Is there a positive relationship between the social norms and tax compliance behavior?
1.5 Significance of Study
One of the missions stated by Malaysian Government is to collect taxes at the minimum costs, to develop tax compliance as well as to set up effective enforcement through obtaining legal procedures. In the process of collecting income tax, IRB has to deal with numerous groups of taxpayers in Malaysia. While the researchers examining the relationship between the independent variables (tax knowledge, attitudes and social norms) and dependent variable (tax compliance behavior), there are some contributions found that can be applicable to IRB in the procedure of collecting income taxes from the individual taxpayers. One of the major contributions of this research study is to assist IRB in emerging their tax education system and tax audit judgments towards individual taxpayers.
The findings of this research study will assist the IRB to achieve the three fold objectives of SAS, including the effects on voluntary compliance among the individual taxpayers. In order to accomplish that mission, the three fold objectives are:
1) To assess and collect the correct amount of revenue as provided under the law in the most effective manner and at a minimum cost;
2) To instill public confidence in the fairness and integrity of the tax system; and
3) To encourage voluntary compliance.
Nevertheless there were wide-ranging studies on these variables, the research study examines how tax knowledge, attitudes and social norms influence tax compliance behavior among the taxpayers that less research studied in Malaysia. Analogically, the information on the current level of tax knowledge among the individual taxpayers, mainly on the dimensions may be helpful in improving the income tax system. The possible effect of tax knowledge, attitudes and social norms in taxpayers' compliance behavior is definitely essential for the tax authorities to plan and develop the relevant and applicable mechanisms to improve compliance.
1.6 Chapter Layout
Chapter 1 elaborates a background for this research study, it includes introduction, research background, problem statements, research objectives, research questions, and significance of study. In chapter 2, which is literature review, the researchers discuss about the factors that will affect the tax compliance behavior of individual taxpayers in self-assessment system in details. Next, the methodology based on a wide survey procedure will be described in chapter 3. Chapter 4 discusses the findings and results. The chapter included the details about survey responses and statistical tests (descriptive analysis, one-way Analysis of Variance (ANOVA), multiple linear regressions, Pearson Correlation, reliability test, and normality test). Lastly, the chapter 5 includes the discussion of major findings, implication of the study, limitations, recommendations, and conclusion.
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This chapter has briefly brought out an introduction of the research topic through the research background and identified the research problems. Besides, it also highlighted the research objectives and questions. Hypotheses which are developed have to be tested. Next chapter will provide further insight and the understanding to research topic through literature review which help to identify the proposed framework for the research study.