Tax Compliance Behavior The Dependent Variable Accounting Essay

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Chapter 3 illustrated research methodology. Its main purpose is to describe the overview on what and how the data is being gathered and types of method used in the analysis. Moreover, it also explained thoroughly how the research study is carrying out in term of research design, sampling design, data collection methods, variable measurement, and data analysis techniques and pilot testing.

3.1 Research Design

The purpose of the research study is to identify the relationship between the independent variables which are tax knowledge, attitudes and social norms, and the tax compliance behavior, the dependent variable.

3.1.1 Data Collection Procedures

In this research study, the self-administered survey questionnaires are distributed where the survey questionnaires are filled by the target respondents which the investigator is absence for the explanation in case the target respondents have any doubt (Mitchell & Jolley, 2010). There are a few main advantages of using the survey questionnaires. First, the survey questionnaires can be distributed easily to a large group of people. Besides, the researchers can collect the primary data at the lowest cost (Athanasiou & Darzi, 2010). In other words, by distributing self-administered survey questionnaires, the researchers can achieve cost effective in contributing to their research studies. The second benefit promoted by the survey questionnaires is the distributor can collect the responses in a shorter time period. This is because mass distribution allows large number of respondents to be involved in the studies faster. Comparing to the interview method, distributing surveys is better in terms of efficiency as interviewing the target respondents is more time consuming. Lastly, the employing of self-administered does often allows anonymity. This is fairly significant to get a more honest result from the target respondents. When the profile of the respondents is being unknown, they will feel more secure to disclosure they opinions towards the topic chosen by the researchers.

3.1.2 Cross Sectional Analysis

This research study is designed as cross sectional study, in which the researchers study a particular phenomenon at a particular time (Saunders, Lewis & Thornhill, 2009). The researchers are studying the factors which significantly influence the tax compliance behavior of the target respondents.

3.1.3 Unit of Analysis

In the research study, the target respondents are individual taxpayers.

3.2 Sampling Design

Sampling is the procedure of using a small of items or parts of a larger population to draw conclusion about the whole population (Zikmund, 2003). There are several persuasive reasons such as lower cost, greater accuracy of results, greater speed of data collection and availability of population elements. It contains economic advantages by taking sample rather than adopting a census which is massive and the quality of study by using sampling is better than using census. Besides that, by using sampling it will speed up the time between recognition of a need for information and the accessibility of the information (Schindler, 2003).

3.2.1 Target Population

The objective of research study is to study the influence of tax knowledge, social norms, and attitudes on tax compliance among individual taxpayers from Selangor.

3.2.2 Sampling Frame

In Malaysia, there are 5.5 million individual taxpayers. In Selangor, there are 2,130,700 of employees (Malaysia statistics, 2010) and this number provides this research study with a sampling frame. Selangor is chosen as sampling frame because employment rate is high. It is believed that collection of tax will be high in Selangor since more employees are entitled to tax payment.

3.2.3 Sampling Element

In the research study, the unit analyses are executives, manager, supervisor, clerk and others who are working in Selangor.

3.2.4 Sampling Technique

The sampling technique used in this research study is the simple random technique. Simple random technique is the simplest form of probability sampling and each population element has a known and equal probability of selection (Schindler, 2003). The researchers apply the method as the sampling frame can be obtained. In other words, the number of cases within the population, which are the individual taxpayers, is known.

3.2.5 Sample Size

By using G*Power 3 as a tool of measurement, the minimum sample size is being calculated (Refer to Appendix 2). The minimal number of responses be collected is 119 copies.

3.3 Data Collection Method

The survey questionnaires prepared are distributed to the taxpayers in Selangor through the internet as a channel, in which e-mail is involved. The second method that the researchers applied is postage. The researchers sent the survey questionnaire to the target respondents through post. The third method is researchers distributed the survey questionnaires to the target respondents on spot. A total of 500 copies of survey questionnaires are distributed to the target respondents. There are total 300 copies of survey questionnaires are collected.

3.4 Variables and Measurement

The three independent variables in this research study are tax knowledge, attitudes, and social norms whereas the dependent variable is tax compliance behavior. Tax knowledge is defined as the taxpayers' ability to report their taxable income correctly, to claim relief and rebates provided and to compute their tax liability (Loo et al., 2009). Tax knowledge is being categorized and the target respondents are tested under three categories which are known as general, legal and technical tax knowledge.

Table 3.1 Statements included testing the variable of tax knowledge.

General Tax Knowledge

Items

Statements

GTK1

The current income tax system is the legitimate technique for the government to collect revenue in order to manage a well economy.

GTK2

To my knowledge, government should impose a single flat rate of income tax for taxpayers with different economic situations.

GTK3

Someone who does not declare cash payments will face a higher probability of being detected.

Legal Tax Knowledge

Items

Statements

LTK1

I know the tax law well enough to prepare my own tax return.

LTK2

The taxation law is straightforward and clear.

LTK3

As far as I am aware, the taxpayers who do not comply the tax rules can be imprisoned, if found guilty of evading tax.

LTK4

Similar to other criminal offences, I believe that individuals can also be prosecuted for not complying with the Income Tax Act.

LTK5

I believe that I do not have to abide by the deadline for the submission of tax return form as the deadline is only a guideline and does not result in penalties.

Technical Tax Knowledge

Items

Statements

TTK1

As far as I concern, people who gain income source in Malaysia need to register with the Inland Revenue Board, in spite of whether that person is resident or not.

TTK2

I know that I do not need to file a tax return on interest income that come from deposit money in a bank account in Malaysia as it will be subject to income tax at source.

TTK3

As I know, I can deduct certain personal expenses in counting my tax liability.

Source: Developed for research.

Table 3.1 shows the items that are being included in the survey questionnaire prepared. Item GTK1 GTK2, LTK3, LTK4, LTK5 and all items under the category of technical tax knowledge are being adopted from the journal with the title of 'Fairness perceptions and compliance behavior: The case of salaried taxpayers in Malaysia after implementation of the SAS' written by Saad (2009). Under the same category, GTK3 has being tested by Verboon and Dijke (2007). Lastly, item LTK1 and LTK2 are being espoused from the journal written by Kirchler, Niemirowski, and Wearing (2006).

Another variable is attitudes of the taxpayers. Attitudes mean a personal opinion based judgments, evaluative such as the tax system is fair or the ATO is the most professional public sector agency (Niemirowski et al., 2003).

Table 3.2 Statements included testing the variable of attitudes.

Affective Attitudes

Items

Statements

AA1

I would be upset if I did not understate my income since it does not really hurt anyone.

AA2

I would not feel guilty to declare less on taxable income since the government spends too much on extravagant project.

AA3

I would feel pleased if I claim the deductions that are not allowed.

AA4

I would feel satisfy to declare my principal income fully, but intentionally not including part time income.

Instrumental Attitudes

Items

Statements

IA1

The probability of being audited is low that it is worthwhile to understate a little on my taxable income.

IA2

Income tax rates are just too high, so it is not really cheating if I pay less than the amount I supposed to pay.

IA3

I would be financially benefited if I declare the extra amount of expenses that I supposed to.

Source: Developed for research.

Table 3.2 shows the items being stated in the designed survey questionnaire. All the items under the category of this variable are being adopted from the journal with the title of 'Gender and ethnicity differences in tax compliance'.

The third independent variable in this research study is social norms. Social norms refer to the socially shared beliefs of the way the people of a group should behave (Fehr et al., 2002; Fehr & Gächter, 1998).

Table 3.3 Statements included testing the variable of social norms.

Injunctive Norms

Items

Statements

IN1

I agree that most people think that they should honestly declare cash earnings on their tax return.

IN2

I agree that most people think that it is acceptable to overstate tax deductions ontheir tax return.

IN3

I agree that most people think that working forcash-in-hand payments without paying tax is a minor offence.

IN4

I agree that most people will do anything to avoid paying taxes.

Subjective Norms

Items

Statements

SN1

If my friends knew I am cheating in tax payment, they would think it was wrong.

SN2

If most people (e.g., family, co-workers) who are important to me knew that I am cheating in paying tax, they would think it was wrong.

Source: Developed for research.

Table 3.3 displays the statements to test the variable of social norms. Item IN1 to IN3 are being adopted from 'Causal relations between ethics, norms and tax compliance', whereas item IN4, SN1 and SN2 are adopted from 'The social norms of tax compliance: Evidence from Australia, Singapore, and the United States'.

Tax compliance can be described as the willingness of the taxpayer to comply 12with the tax rules to achieve the economy equilibrium of a country (Andreoni, Erard & Feinstein, 1998).There are six items tested on the target respondents.

Table 3.4 Statements included testing the dependent variable.

Items

Statements

TCB1

I believe paying tax is a moral obligation.

TCB2

I believe serious enforcement and penalty by the IRB may result if I do not comply to pay tax.

TCB3

I believe if I do not pay the tax, there is high possibility of being detected by IRB for non-payment of tax.

TCB4

I believe everyone pays their fair share of income tax.

Source: Developed for research.

Table 3.4 shows the items tested in this research study. Item TCB1 has being used as the tool to measure the tax compliance behaviour of target respondents by Ho, Loo, and Lim (2006) in their research. From the journal with the title of 'Taxpayers' attitudes and tax compliance behavior in Kenya', some of the items, item TCB2 and TCB3, in the researchers' survey questionnaires are being manipulate in order to suit the Malaysian context. Item TCB4 is being adopted from 'Fairness perceptions and compliance behavior: The case of salaried taxpayers in Malaysia after implementation of the SAS'.

3.4.1 Interval Scale

The researchers use interval scale to perform some arithmetical operations on the data collected from the respondents (Sekaran, 2003). Interval scale is assumed to have equidistant points between each of the scale elements. This means that the distance between the two points on the scale can be interpreted and measured. The researchers apply the technique of 5 point Likert scale to measure the items in the survey questionnaire since it is relatively easy to construct and understand. It is a standard format comprise of a series of statements to which a respondent is to specify an extent of agreement or disagreement ranging from 1 (strongly disagree) to 5 (strongly agree) (Likert, 1932).

3.5 Data Analysis Techniques

For conducting this research study, the statistical Package for the Social Science (SPSS) is being used to examine the data. Before going in depth, there is one assumption testing method are conducted in this research which is normality test to test the normality of sample and the accuracy of variable being measured in survey questionnaire.

3.5.1 Descriptive Analysis

Descriptive analysis is used to compare the factors through calculating mean, mode, median, and standard deviation.

Descriptive analysis is used as a tool to analyze the sample characteristics which are the details of each target respondents. There are a few items to be tested in the survey questionnaire. The gender, ethnicity, education level and nature of occupation are being designed by using the list statements.

Gender:

Male

Female

Ethnicity:

Chinese

Malay

Indian

Others

Highest education completed:

SPM & Below

STPM

Diploma

Bachelor's Degree

Master's Degree

Doctor of Philosophy (PhD)

Nature of Occupation:

Executive

Manager

Supervisor

Clerk

Others

Figure 3.1 Items that portray the sample characteristics.

Source: Developed for research.

Figure 3.1 shows the list statements that are included in the survey questionnaires designed which allow the respondents to tick the one which is relevant.

Furthermore, there are another two items included in the survey questionnaires to describe the profile of the target respondents, which are the age and annual income. These two items are designed as categorical statements.

Age:

Below 30 years old

31-40 years old

41-50 years old

51-60 years old

Above 60 years old

Annual income:

Below RM 40,000

RM 40,001 - RM 50,000

RM 50,001 - RM 60,000

RM 60,001 - RM 70,000

Above RM 70,000

Figure 3.2 Items that capture the profile of respondents.

Source: Developed for research.

Figure 3.2 displays the age and gender in the categorical statements which allows the target respondents to tick the category which is relevant.

3.5.2 Inferential Analysis

The three independent variables and one dependent variable are analyzed by using the interval data measurement scale and therefore, the multiple linear regressions are being chosen as the data analysis technique. Besides, Pearson correlation analysis is chosen to examine the strength level and association of three factors and tax compliance behavior.

3.6 Pilot Testing

40 copies of survey questionnaires are distributed to the individual taxpayers who are working in SJ Grant Thorton. The researchers managed to collect back 35 copies, in which the response rate is particularly high (87.5%).

Table 3.5 Cronbach's alpha of each variable.

Variables

Cronbach's Alpha

Tax knowledge

0.710

Attitudes

0.716

Social norms

0.738

Tax compliance behavior

0.776

Source: Developed for research.

Table 3.5 shows the cronbach's alpha of each variable which includes independent variables and dependent variable. Each figure of the cronbach's alpha for all variables are greater than 0.70.

According to Clark and Watson (1995), the coefficient ranging from 0.60 to 0.70 alphas are consider acceptable. Since the cronbach's alpha of each variable is greater than 0.70, hence the variables have pass the reliability test.

3.7 Conclusion

In chapter 3, researchers have determined on the target respondents, sample size and appropriate method for analyzing the collected data. This is to ensure that researchers have carried out the survey questionnaire and perform data processing with the sufficient time as researchers are able to proceed to the next chapter.

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