The Tax Compliance Behavior In Curacao Accounting Essay

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Every citizen is considered since date of birth an Income tax payer. Once you start working, the income tax return forms must be filed and paid within the period determined. According to data of the Inspectorate of Taxes Curacao, only 63% have complied with filing their tax returns forms within the determined period. In this study the main focus is to find out why not all income taxpayers file and pay their taxes on time. And why they do not file the tax return forms correctly. Just like other developing countries is the tax compliance level is low on the Island. A bad tax compliance behavior has consequences for the Government tax revenues and the fiscal deficit. In order to improve the tax compliance behavior, a number of factors, such as demographic variables, cultural variables, non-compliance attitude, the psychological variables and the tax system are identified in the conceptual model that will be studied to find out how those factors influence the compliance behavior. This conceptual model serves as a point of departure for the information to be provided in the later chapters.

Literature that has been studied for this research shows that men, younger people, married couples, self-employed workers and people with a high educational background are the ones that usually evade taxes. In this study the ATO model (Braithwaite, 2007) is used to categorize the local taxpayers' attitude towards compliance. According to this research, the majority of the sample group belongs to the commitment behavior group, which means that they are willing to the right thing.

The opinions of the personal income taxpayers have been collected through questionnaires consisting of structured and open-ended questions. The result of this research shows that 48.0 % of the respondents admit that they do not submit their income tax on time and 52.0 % do it on time. Only 9.6% of the respondents are not aware that they have to file and pay their taxes yearly, thus 90.4 % of the taxpayers of this study are aware that they have to pay their taxes. This makes it easier for the tax department to improve the compliance behavior. In the questionnaire the respondents were also asked what should be changed in the current tax system or structure that could improve the compliance and 60.0 % of the respondents answered that the communication between the tax department and the taxpayers should be changed and 81.8 % agreed that the taxpayers should be informed regularly about tax laws changes with workshops on a regular basis.

In order to improve the tax compliance behavior among the citizens it is recommended that the tax department provided the taxpayers with regularly workshops about tax laws and obligations. This will improve the communication as well as the compliance behavior. Another recommendation is to give the taxation workshops in the language that is easy to understand for the local tax payers.


My special thanks go out to my MBA VII group members who motivated and supported each team member. Also, I would like to thank all my friends and colleagues who helped me with the completion of my questionnaire, because without your help, finalizing this research was not possible. And last but not least, my family and close friends for their patience and support.

Natasja Snijders BSc

List of Tables

List of Figures

Table of abbreviations

CBS: Central Bureau of Statistics Netherlands Antilles

KvK: Chamber of Commerce

NBC: New tax authority

SBAB: Stichting BelastingsaccountantBureau

SIAH: The Inspectorate of Taxes

SPSS: Statistical package for social science


Table of Contents

Chapter 1. General Introduction

§1.1 Introduction

In the Curacao the tax system, to be more specific the personal income tax is characterized as a voluntary reporting system. This group of taxpayers is the largest revenue source for Curacao, because it includes both wage and non wage components. In fact, every citizen must file and pay their taxes at the moment they receive income.

Not surprisingly, not everyone does it. Currently there are approximately 30.000 income tax payers and to the date of this research only 73% of these personal income taxpayers have filed their 2010 income taxes, according to recent data of the tax office. This is a popular indicator of the size of a tax gap; thus the difference between the Government revenues (income taxes) and what the households actually own and/or earn and what they report and voluntarily pay on a yearly basis. Compared to last year, the figures indicate that 75 % paid their income taxes. This percentage indicates that the non-compliance behavior among income tax payers needs to be researched and that there is a need for higher tax compliance. Before coming up with strategies how to tackle this tax gap, research must be done first to find out why people are not willing to pay taxes or why they evade it. Thus the influences on their tax behavior must be studied first.

In the next paragraph the background of this study will be discussed, followed by the research question with its sub problems. Next the purposes of this research then the limitations of the study. Finally in the last paragraph of this chapter the set up of the study.

§1.2 Background of the study

According to the literature studied of Braithwaite (2004), Hasseldine et al. (2007), James and Nobes (2003), Slemrod (2004), Pronk (2004), the Island of Curacao's tax systems, where the notion relies on voluntary compliance by taxpayers, is almost the same in the United States, the Netherlands, Canada and Australia. All these big nations have the same low compliance problems. Just like these nations, the Curacao tax agency performs audits, levy assessments and penalties and still not every taxpayer files their taxes on time or correctly. As mentioned in the previous paragraph, the current tax compliance behavior must be stimulated. According to Brown and Mazur (2003), the word tax compliance is a complex term to define and it is a multi-faceted measure. Theoretically, there are three types of compliance that can be distinguished: payment compliance, reporting compliance and filing compliance. In Curacao, the payment and filing compliance play a big role.

There are different reasons why taxpayers are non or low tax compliant. For example according to Hibbs et al. (2010),The American Journal of Political Science vol 1,"the high tax compliance and positive perceptions of fiscal exchange, regard the tax system, are possible when the system is fair and if it response to the citizen preferences and if the Government delivers personal benefits the taxpayers approve of"(p.18 - 19). In Curacao for example, the current tax laws and regulations cannot be easily accessed and are not easy to understand for all the taxpayers. All these facts about the current tax system could also influence the tax compliances. This could be the reason for a low compliance behavior on the island and therefore it is an urgent need for a tax reform.

In 2011, the "Nieuwe Belasting Dienst" (NBC) business plan was presented to the Parliament. The NBC is an abbreviation in Dutch for the new tax authority on the island of Curaçao. In this business plan, the required changes in the tax system are written as well as the changes in the structure and services of the tax office. This study will evaluate if indeed the NBC will solve the identified non-compliance problems with the new fiscal policy plan.

The proposed tax policy program, which was presented to key government officials on July 14, 2008, states that the income tax is complex and complicated as for the legal part as well as the tax declaration itself for most taxpayers. The premise of the New Tax Authority (NBC) is that all key functions of the entire tax administration are integrated in one entity. The new tax system should be simple and easy to manage for the taxpayers, less cumbersome and fair to them. It is a fact that the service offered at the Tax office and also the structure of the tax system need to be improved in order to stimulate the tax behavior. As mentioned earlier, all these facts about the current tax system and structure could influence the tax compliance. A high level of voluntary tax compliance by taxpayers can be achieved by re-structuring or redesigning this tax system.

According to the NBC-TRA Organization whitepaper document, there are numerous processing methods or programs based on successes in several countries, what the NBC could try to tackle the non-compliance. The yield some countries have is an average of 1:15, that means that for every guilder authorized for these methods or programs, fifteen guilders have been collected in taxes. In other words, the compliance level in Curacao can improve. As stated in the beginning of this chapter, only 63% of the personal income taxpayers have filed their income taxes, compared to last year's figures. This figure indicates that not everybody who is obligated to file their personal income tax return forms is complying. Not paying or filing the personal income taxes at all has consequences for the Government tax revenues.

According to the NBC fiscal whitepaper, the proposed reform of Curacao personal income tax consists of the following changes:

deduction for job related costs to 50% rather than 75%;

unreported income of expatriates;

tax rate decrease on taxable income.

The objective of the proposed reforms in the NBC is to reduce the income tax rates and broaden the tax base, while maintaining the tax burdens to the income taxpayers. The reduction of the income tax is one of the major reforms that are proposed in de Fiscal Policy Whitepaper (2008). The basic change is reducing the structure of the income tax rate, which now ranges from 13 percent for the lowest bracket to 49.4 percent for the top. Further, it is proposed the range from 5 percent to a top rate of 40 percent in the short term and in the medium term to 38 percent. According to the recommendations of the Fiscal Policy Whitepaper, the high rates of taxes are the source of economic inefficiency; low investments and they also discourage tax evasion. This all could contribute to poor tax compliance. The last one, poor tax compliance is the focus of this study. In this study one of the conceptual models that will be used is the Fischer model. The Fischer model indicates that the high tax rates are linked to less compliance according to a study done by (Chau,2009).

As mentioned earlier, the tax agency consisting of the receivers' office, the Inspectorate of taxes (SIAH) and the Stichting Belastingaccountantsbureau (SBAB), have various kinds of strategies to improve or stimulate the compliance behavior. The different strategy the tax agency uses to improve compliance is, for example, the SIAH performs the desk audits and is now up-to-date to levy assessments if the tax payer does not file or pay its taxes on time. It is now also to do online turnover tax filing. The strategy that SBAB uses to improve compliance is increasing its desk audits and offers now assistance for sole proprietors who struggle with their bookkeeping. Furthermore, the SBAB now also provides a guideline or an audit manual so that the tax payer can be informed about the recommendations and tax duties. The receiver's office has changed the payment procedure to be more customer- friendly. It introduced a one-window policy to improve its services for less waiting in lines. The word one-window means that the tax payer can go to one cashier to pay all relevant taxes. The tax payer does not have to go to different cashiers to pay the different taxes separately. Although there are some changes within the tax office, the compliance behavior still needs to be improved. In order to come up with the different strategies, earlier researches will be studied and a conceptual tax model will be used for this thesis to come up with recommendations.

As mentioned above, one of the tax models which will be tested on the local taxpayers is the Fischer tax compliance model. The Fischer tax model provides a framework for understanding the socio economic and psychological components that influence the tax payers' compliance decisions. The Fischer model is one of the few models which discussed these components and could be helpful as starting point in this thesis point of view of this thesis lies on change management, where the approach is to shift individuals and organizations from a current situation to a desired situation. "This is an organizational process aimed at helping change stakeholders to accept and embrace changes in their business environment" stated by Kotter (2011).

§1.3 Research question and sub questions

The thesis statement consists of the following research question and the sub questions:

To what extent do the demographic variables, cultural variables and psychological factors, positively influence the compliance behavior of the personal income taxpayers on the island of Curacao?

The sub questions are as follows:

Sub question 1. How do the demographic variables such as age, gender and education relate to the psychological variables such taxpayers' attitude and perceptions?

Sub question 2. What is the impact of the cultural variables, such as social norms and ethical values on the psychological variables?

Sub question 3. What are the influences of the tax system on the tax compliance behavior?

Sub question 4. How do the non-compliance opportunity variables such as income, occupation and marital status relate to the tax compliance behavior?

Sub question 5. To what extent are the psychological variables related to the tax compliance behavior?

The answers to these five sub questions will lead to the final conclusion and recommendations for the new tax system, which will make the new system more effective, in order to improve the compliance behavior of the taxpayers on the island.

§1.4 Purpose of the study

In this study the emphasis of the research lies on how to improve the tax compliance behavior on the island, and its recommendations must mean a major contribution to the tax administration office which consists of the following entities: Servisio di Impuesto Antillas Hulandes (SIAH), the Receivers' Office, Stichting Belastingaccountants Bureau (SBAB) and its stakeholders, in order to increase the tax revenues and tax compliances on the island.

The primary objective of this study is finding out why tax payers are not always compliant and also to review the tax compliance models that are used in this thesis, to see if indeed these models could promote the tax compliance. As mentioned earlier, tax payers are not compliant - they do not pay or declare all their income taxes - which will lead to lower tax revenues for the Government. In order to improve the government tax revenues, the reason for a non-compliance tax behavior must be studied first to come with recommendations and strategies that will improve and stimulate the tax compliance behavior.

This research involves small business income earners (sole proprietor) who are obligated to file the personal income tax return forms and the income they received of their business and personal income taxpayers and the income taxpayer who do not own their own business.

§1.5 Limitation

This study has some limitations. To indicate what will be excluded in this paper, the focus will be limited to the following points:

Literature before the years 1998 is not used;

The corporate income taxpayers' (profit taxpayers) will be excluded, just as all the other taxes such as: Turnover tax, Inheritance and Gift Tax (successie belasting) that are levied;

The tax compliance behavior of corporations (NV and BV) will not be discussed;

The participants in this study will not be younger than 17 years;

Finally, the non - resident income tax payers are also excluded in this research.

§1.6 Set up of the thesis

The outline of this thesis is as follows. In chapter 2 the literature reviewed will be discussed. Also the different tax compliance models, the conceptual mode land the international best practices of tax reforms will be analyzed in this chapter. In chapter 3 the outline of the methodology will be discussed, thus how the data will be analyzed. The results of the data analyses will be used to improve the compliances. The quantitative analysis will be analyzed in this chapter 4, by studying the compliant behaviors of income taxpayers, which could be used as recommendation in the last chapter. Finally, in the last chapter of this thesis, chapter 5, the conclusion is drawn and the scope of the evaluation is based on the fact if the strategies of the tax administration, indeed will solve the identified non-compliance behavior. Also, the recommendations for the tax administration will be presented in order to adapt their strategies to improve the tax compliance attitude.

Chapter 2 Literature Review

§2.1 Introduction

The first part of the study undertakes an extensive review of the existing literature on compliance and ethics in taxation. This is done to understand why people are not willing to pay or file their taxes, or what researches have done concerning tax compliance, or what tax models have been used in the previous researches. This and comparing existing literature help structuring the research question of this thesis.

Literature about the taxation system of the Netherlands Antilles, the Netherlands and internationally have also been studied. Also journals available from the electronic search engines like Emerald, Google scholar and Ebsco have been used for this research.

The second part reviews the recommendation on best practices in the region, according to (the InterAmerica Development Bank, 2009).Tax avoidance and tax evasion are a burden for modern societies (Braithwaite, 2003). It is a challenge for the tax administration all over the region and in the world, to maintain or improve the compliance behavior of taxpayers. The tax moral of the developing countries is also a lesson from experience (Cummings et al., 2009). "Tax morale is an intrinsic motivation for individuals to pay taxes, which are influenced by cultural norms and values'', according to Alm and Chandler (2012).

On July 14, 2008 a reform program is presented to key government officials, by Bearingpoint management and Technology Consultants. This fiscal reform program is also called the Fiscal Policy White paper. The entire reform program has been empirically making use of models and databases developed to simulate the impact of changes in each tax law. There are not many studies that explain the behavior of tax compliance of the local taxpayers, so most of the information used for the literature reviewed is from the Fiscal Policy Whitepaper. Further, studies about this topic are the various tax compliance studies done in the countries in the region and all over the world, for example, Cummings et al (2001) and Hyun (2005).The tax morale of the developing countries is also a lesson from experience (Cummings et al., 2009). These lessons must be taken into consideration when applying a new tax model in the fiscal reform program. Other literature studied is on tax moral and tax compliance from the firm's perspective by Alm et al.(2010) and Hasseldine (2007).All these resources are used to be able to provide comparisons with and recommendations for the outcome of this study.

For this research, the findings of the sub questions 1, 2, 3, 4 and 5 will be analyzed and compared with the current tax system. The fiscal reform plan will be evaluated to find out if indeed the tax administration will solve the tax compliance problem. Also, for this problem, studying the different whitepaper reports from BearingPoint and CIAT (Centro Interamericano de Administraciones Tributrias), which regard subjects about the tax administration, the fiscal policies, tax compliance and tax reforms in the NBC.

This chapter has the following structure. In the next paragraph the reviews of the theoretical tax model are presented to explain the tax compliance behavior such as the ATO. This is followed by the conceptual model (Fischer tax compliance model) and finally by the conclusion in the last paragraph.

§2.2 Tax compliance models

The taxpayers' attitude towards compliance may be influenced by many factors which will eventually influence taxpayers' attitude according to Barbuta-Misu (2011). Those factors which influence tax compliance or non-compliance behavior differ from one country to another and also from one individual to another (Kirchler, 2007).

A more structured way to understand and improve the tax compliance behavior is the use of a tax compliance model. The first tax compliance model was developed by Allingham and Sandmo in 1972 and later in the 1980s more researchers began to develop multi-period game theoretic models, such as Reiganum and Wilde (1985), Greenberg (1984), Landberger and Melijson (1982). However, in this study the three major tax compliance models such as the Fischer, ATO and BISEP models will be used and compared with the local situation, to come up with recommendations and strategies. The Fischer model will be used as from the earlier researches done by Chau (2009). Before going in depth with the Fischer Model and the other two models, the basic models of taxpayers' compliance or the standard portfolio model of individual compliance implies that compliances is low or seldom falls to a level predicted by the standards of theory. Thus, the two basic models of taxpayers' compliance behavior are according to Alm and Mc Chellan (2012):

The theories of tax compliance

The standard theory of tax compliance, which is based on the work of Allingham and Sandmo (1972).

The other models that are studied in this paper are the ATO model and BISEP model (Braithwaite, 2007).The Australian Taxation Office (ATO) has developed a compliance model in 1996. The reason for developing this model was that large companies in Australia did not pay or very little company taxes. The Australian Taxation Office compliance model is presented as a pyramid with three features, which will be used to suggest regulatory strategies. The first feature is on the left side of the pyramid, which cab be seen in the figure below where the options are for dealing with compliance. At this side of the pyramid are the motivational postures (BISEP).The second feature of the pyramid is on the right side. Beginning at the base to the top is the range from learning, educating and persuading the taxpayer. In between the sides of the pyramid, at the base or front side of the pyramid, all compliance activities are self regulatory. If the sanctions get higher, the self regulation will also increase.

Figure 1 ATO pyramid Braithwaite (2007)

There are different categories and attitudes towards compliances which could be detected with the ATO model. The 3 levels into which the compliance is divided are as follows:

High attitude to compliance: Have decided not to comply or do not want to comply;

Medium attitude to compliance: Try to comply, but do not always succeed;

Low attitude to compliance: Willing to do the right thing.

Further, Braithwaite (2007) developed a theory that describes 5 behaviors towards compliance. These 5 main behaviors or attitudes are outlined as follows:

1 Commitment behavior: willing to do the right thing;

2 Capture behavior: try to comply, but do not always succeed;

Resistance behavior: do not want to comply;

4 Disengagement behavior: have decided not to comply;

5 Game players' behavior: belong anywhere along the left side of the model.

One of the main purposes of the ATO model is to (I) introduce incentives to improve compliance, and (II) to enforce compliance with more and flexible sanctions according to Braithwaite (2003). In other words, this model determines the appropriate strategy to improve the compliance of each category or level and the influence attitude towards compliance must first be understood. Once this is understood, it allows making better strategies. For example, if the majority of the tax compliance is grouped as captured compliance group, then the strategy is to encourage the tax payers by increasing the numbers of advisory offices or improving the information about taxes to the taxpayers. The BISEP model is closely linked with the ATO model and it has a motivational posture. It helps to understand the different factors that influence the taxpayers' behavior, such as the business industry, sociological, economic, and psychological factors. The BISEP compliance model shows the different external factors that influence taxpayers' attitude towards compliance behavior. This model is a structured way of improving and understanding the compliance behavior of taxpayers. This model addresses the different tax decisions that often depend on the situation. Indeed, the behavior of tax compliance may be clear about why people pay taxes, but not why they evade taxes. Because of that, researchers introduced tax morale, for example in the conceptual model, the Fischer model used by Chau (2009).In that model the cultural norms and ethical values determine the tax behavior and this model will be the conceptual model of this thesis.

§2.3 Conceptual model

The primary objective of this study is to review the Fischer tax compliance model and find out if indeed the effectiveness of the tax system is affected by complexity of the tax system, or by the cultural norms and ethical values. It is also to find out if indeed this model promotes tax compliance. However, first of the explanation and the aim of this conceptual model must be discussed. This model provides a framework for understanding the socio-economic (demographic variables, income level and source) and psychological components (peers, fairness of the tax system and culture) that influence a taxpayer's compliance decisions. In the previous chapter it was mentioned that the SBAB increased its desk audits. That means that if there are more audits, the audit probabilities and severe penalties will encourage compliance. According to the Fischer model theory, however, is this only effective if the penalties that are applied rapidly and forcefully. So raising the probability of detecting individuals that evade their taxes is an important factor that affects tax compliance. Further, the demographic variables are part of the socio-economic components that influence the compliance behavior according to Chau (2009).The next model is the conceptual model that will be used for this thesis.



Income Level, Income

Source, Occupation, Marital Status

Psychological variables:

Fairness of the Tax System, Peer Influence. Attitude and perceptions

Demographic Variables:

Age, Gender, Education

Taxpayer Compliance


Tax System/Structure:

Complexity of the tax system, Probability of Detection and

Penalties, Tax Rates

Culture Variables:

Social norms & Ethical values

Figure 2. Tax compliance conceptual model Fischer et al. (1992).

The first parts of the Fischer Model are the socio-economic components, which consist of the following:

demographic variables

cultural variables and

non-compliance opportunity (Income source)

tax structure

The second part of the model (processing) consists of the psychological components:

peer influences, like the attitude of the taxpayers and perceptions

fairness of the tax system

The factors that determine the effectiveness of the tax system structure of any country include probability of detection, penalty, tax rate and complexity of tax system (Fischer et al., 1992). Empirical evidences have linked these factors to compliance behavior according to Alm (2005); Chan et al. (2000); Deskin and McKee (2004); Martinez-Vazquez and Rider (2005);O'Bryan (2000) and have also demonstrated it.

The "Tax fairness seems to involve at least two different dimensions (Jackson and Milliron, 1986): the first relates to the benefits one receives for the tax given; the second dimension involves the perceived equity of the taxpayers' burden in reference to that of other individuals. This second dimension relates to taxpayers' perceptions of the vertical equity of the tax system. If a taxpayer were to feel that they pay more than their fair share of tax when comparing themselves to wealthy taxpayers, they are more likely to see paying tax as a burden than a taxpayer not concerned about these issues." according to Barbuta-Misu (2011, p. 75).

§2.4 Demographic components

Gender is part of the demographic component and has influence on the compliance behavior according to the earlier research done by Chau (2009).Females are more tax compliant than males. On the other hand, the study by Houston and Tran (2001) shows that more women than men evade tax. Another variable that is part of the demographic component is age. According to previous research, age has influences on tax compliance behavior. Younger taxpayers are less complaint and the factor for intentional evaders is higher according to Ritsema et al. (2003).This group is also willing to take risks and is less afraid for sanctions. Education is also a demographic variable. Study shows that those with more fiscal knowledge are considered to have a more positive attitude than those with lower fiscal knowledge according to Groenland and Veldhoven (1983). Chan et al. (2000) finds that the higher the education, the higher the tax compliance is, but in addition to that, the study of Richardson (2006) finds that the general education level significantly related is to the degree of tax evasion. In the study of Torgler et al. (2007) shows that married people evade taxes significantly more than singles. Further, Torgler and Schneider (2002) that married couples have a stronger social network and have higher tax morale than singles.

§2.5 Cultural variables

Social norms and ethical beliefs have influences on compliance according to Blanthorne and Kaplan (2008) and are also taken into consideration in the Fischer tax compliance model. According to the Fischer's model, the tax system structure is considered as major determinant of tax compliance behavior and the tax revenue mobilization in a country depends on the effectiveness and efficiency of the tax system (Fischer et al., 1992). Hyun (2005) explains in his study that tax culture is difficult to measure, because tax culture has not been conceptually organized yet, so there are different expressions what tax culture consists of. In the case study of Torgler and Schneider (2002) they observed Switzerland, Belgium and Spain to find out if cultural differences and variety have an impact on tax moral within each country. They argued that for each country, pride and trust in the legal system have a positive impact on tax moral. What is also remarkable in their study is that in Spain, contrary to Switzerland, more autonomy does not lead to more support for Government taxation. In another variation of cultural argument, Pryadilnikov (2009) argued that negative attitudes held toward tax compliance by the Russian citizens were mirrored by the negative attitudes that were held towards the tax officers. Thus in other words, this tax problem lies also on the tax officials who are responsible for the tax collection. Pryadilnikov also states that the tax compliance problem does not so much related to the cultural or regional factors, but to the incapacity that is afflicting the Russian state and the weakness of the tax administrator to tackle challenges of tax collection in a large and diversified economy.

§2.6 Current tax system

The tax system is based on a number of tax laws. Some of these laws are dating back many years. The current tax system of Curacao is from before the dissolution on October 10th, 2010, and still is complicated. For example, the current tax laws and regulations cannot be easily accessible and are not easy to understand. Furthermore, the taxpayer is obliged to provide the tax Inspector with the necessary tax information. Just like the employees have the same obligations in respect of the payroll tax. The self-employed person or liberal profession also have the obligation to submit accounts and documents to supply all information to the tax Inspector, which may be important for the determination of tax liability of third parties. On the other hand, the tax law allows some lawyers, notaries, members of medical professions to refuse information on the basis of their professional secrecy rules according to Spenke and de Vries (2011). They also stated that tax officials may not publish or pass on any information regarding taxpayer affairs.

This tax structure and the noncompliance opportunity are factors identified in the conceptual model, which have direct influence on taxpayers' compliance behavior. Besides, the best practices in the region show that in countries such as Peru, Colombia and Jamaica, that there is a relatively high level of non-compliance(Bird and Jantscher, 1992). Several other Latin American countries, such as Mexico, use different methods of collecting taxes, detecting unregistered taxpayers and tax evaders. In the study of Hyun (2005), in which two developed countries, Korea and Japan with the same cultural aspect, close geographical location and similar historical background, but with different tax compliance attitude were studied, defines that the tax policy about the tax information disclosure plays a crucial role in the taxpayers' compliance. For instance, in Korea, there is no formal information available about the size of tax evasion after tax audit by the tax authorities available, but in Japan there is a complete tax information disclosure policy. Thus private information about taxes for the group rich of individuals or businesses can be released to the public under their legal basis. According to this study of Hyun (2005), the tax compliance behavior in Japan is better than in Korea, because they do not want their names publicized for tax evasion. Another remark of the same researcher is that if the people distrust the Government, they will easily cheat the taxation. According to Lu et al., (2009), the services offered (frontline service personnel) and the service requested by taxpayers also influence the tax compliance behavior. In the study of Barbuta-Misu (2011) is explained that judging the fairness of the tax system, requires comprehensive knowledge and correct interpretation of the tax laws. She also states that complex tax rate structures are not perfectly understood by taxpayers and that lead to lower tax compliance.

§2.7 Non-compliance opportunity

The non-compliance opportunities are the economic factors that influence the tax compliance. In this category the income level, income source and occupation are related to the attitudes toward taxes. According to Barbuta-Misu (2011) research, because of the level of actual income, self-employed taxpayers have more possibilities to avoid taxes than employed taxpayers. Yet, the self-employed taxpayers have more opportunities for tax evasion and those opportunities might further increase with the number of different income sources. Another study done by Kirchler et al. (2007) is that in their research the participants were less compliant when they reported income earned by low effort, compared to the taxpayers that reported hard earned income. According to the Fischer model, the income level, income source and occupation affect the taxpayer directly. Starting first with the level of income, this is one of the economic factors which influence taxpayers' compliance directly. In their study Housten and Tran (2001) indicate that taxpayers from a lower income group tend to have lower tax compliance compared to the tax payers with a higher income who have high tax compliance. They under report their taxes or over claiming their expenses, because they have to pay higher taxes. In the study of Barbuta - Misu (2011) also indicates that Another factor is the income source. In this same study that is mentioned above, the tax evasion among taxpayers who are self-employed (sole proprietors) taxpayers is higher than non-sole proprietors (employees). Another study done by Richardson (2006) indicates that the income source is an important factor; it reports that the income source is linked to tax evasion. Mostly, the income source that is not subjected to withholding taxes has influence on the tax behavior. The type of occupation is also considered as an influence factor for tax compliance. In addition to the income source, the occupation according to the TCMP data indicates that the sole proprietors involved in sales such as in stores and restaurants, are the ones who under-reports their taxes. Also in the Fischer's model, source of income, level of income and occupation are factors affecting the relationship between noncompliance opportunity and tax compliance behavior. The direct relationship between compliance behavior and the tax system structure, taxpayers' attitude, noncompliance opportunity are not reported in this study as findings on such relationships that had been reported in other previous studies Chan et al (2000) as a result these variables served as control variables similar to what was done by (Chau and Leung, 2010).

§2.8 Psychological influences

In the research of Chau and Leung (2009) they considered that the taxpayers' attitudes and perceptions have influenced the non-compliance behavior. They argued that the peer influence, like that of friends, relatives and colleagues, reflects on the individual expectations in relation to approving or disapproving the non-compliance attitude. The fairness of the tax system also discussed by Chau and Leung (2009) plays a crucial role for increasing the in non-compliance behavior; like for instance the benefits the taxpayer receives from the Government compared to the taxes they paid. If the taxpayers believe that the tax system is unfair, or if they do not know how the Government spends their tax money, they are more likely to be non-compliant.

§2.9 Conclusion

All the literature studied concerning the thesis outlines the relevance of rules to understand tax morale and shows that the same tax rules can have different tax effects. In this thesis the Fischer model will be applied on the tax system and services offered by the tax office of the island and the outcome will be compared.

The Fischer tax model provides a framework for understanding the influences of the socio-economic and psychological components on taxpayers' compliance decision. The basic model of Fischer serves as a point of departure for the analyses of tax compliance behavior in the later chapters. Furthermore the emphasis of the research lies on how to improve the compliance behavior in the new tax system. These are some of the non-economic factors for compliance: age, gender, income, peers and punishment. These factors have indirect influences on the non-compliant behavior of the taxpayer. In the later chapters these relations are discussed.

The conceptual theoretical model of tax compliance suggests the tax administration has the ability to influence taxpayer behavior through the responses and interaction. Thus the first major finding from literature review is that the culture and other powerful environmental factors, social norms and ethical values, affect the taxpayers' compliance. Yet, there is still much to learn about the taxpayers' motivation.

The second study investigates the fairness of the tax system, taking into consideration the effective factors of the tax reforms in the NBC, which impact the tax compliances according the different whitepaper reports from BearingPoint (2008) and CIAT (Centro Interamericano de Administraciones Tributrias) that are studied. Existing research papers that focus on individual non-compliance on the island are not available; there is little research on corporate tax non-compliance, so greater attention should be paid in this paper to income tax compliance on the Island.

Chapter 3 Methodology

§3.1 Introduction

In this chapter the methodologies that will be applied are based on a combination of a qualitative analysis and quantitative analysis research method. This thesis is generally more a quantitative analysis research, because more field and desk research is done to collect more detailed information about tax compliance behavior of the local income tax payers. This is done by a survey for which the taxpayers have randomly been selected, to find out what motivates them not to pay or file the taxes or what their social norms are and how their ethical behavior and beliefs are about tax evasion. Also the socioeconomic background of each participant will be analyzed. In exhibit 1, the questionnaire is presented; it is used for this part of the data analysis.

To acquire better knowledge of the topic for this research, a total of 4 interviews are held with different tax experts, concerning the tax compliance. These interviews consist of open-ended questions (narrative data), that are answered by the respondents.

For this research the descriptive research type is used according to Zikmund (2003, pp 54). It means that"descriptive research seeks to determine the answer to who, what, when and how questions". The instruments used for completing the descriptive research are questionnaires, structured interviews and secondary data available from the academic journals from several databases like Ebsco and Emerald and how the conceptual model is interpreted in the current situation of the local income taxpayers. For the processing and analyzing of the primary data, generated through the survey, the SPSS software is used.

The set-up of this chapter is as follows: in the next paragraph, the procedure of gathering information; followed by the explanation of the selection of the participants in paragraph 3.3; the instruments used for the collecting of the data in paragraph 3.4 and the validity in paragraph 3.5. In paragraph 3.6 the representativeness will be discussed as will the conclusion in the last paragraph.

§3.2 Procedure

The procedures for the data collection phase are as follows: first the generating of primary data by surveys, using questionnaires. This is done by contacting the correspondents personally, by phone or email. Before starting with the questionnaire, just as mentioned above, a pilot study had been done to check if the questionnaire had been formulated correctly. For the pilot study 5 respondents were used for a try-out (pre-testing phase) to minimize errors due to improper design of the questionnaire or to learn if the questionnaire was too long. After that phase the data collection procedure started. When the data was collected, all information was classified and analyzed and the research questions were answered based on statistical methods.

The second method to gather the data is to interact with an interviewer. There is a list with structured questions to be asked. This gathered data consists of narrative data and observations. The preparation of the questionnaire appropriate for this study is done with open-ended questions, concerning tax compliances. The tax experts were interviewed about their tax compliance points of view and then the questionnaire was formulated. All interviews taken were one-on-one.

Another method used to gather information about the compliance behavior is the use of research articles and journals on the internet. According to the findings, the compliance behavior and characteristics of the taxpayers will be analyzed. All the preliminary data were computerized through data coding process for analysis. The SPSS program was used for the data coding process for this research analysis.

§3.3 Participants

The population of the study is the income taxpayers in Curacao. As of January 1st 2010 the number of taxpayers has been 142,180 according to the recent census data of Central Bureau of Statistics Netherlands Antilles (CBS). The sample size is determined using a table to determine it and is carried out in a period of 2 or 3 weeks, in order to demonstrate how the latest taxpayers' attitude influences tax compliance.

The sample size of the target population is 150, with a confidence interval of 8 and the confidence level of 95 %.

The participants are the income taxpayers who may also have their own small business and may be between the ages of 18 and 65 years. These participants will be chosen randomly and are divided into 12 different age groups. The questionnaire will be taken at the tax office waiting hall in order to research the group that complies with its tax duties. This group definitely files and pays its taxes. Perhaps not correctly or on time, but at least this group could be categorized as the group, according to the ATO model, as the "low attitude" category group, thus the group that is willing to do the right thing.

Another location where the researchers will approach their participants is in Marshé, the local marketplace, where vendors come to sell their goods. All respondents involved for this research will remain anonymous and are selected randomly. To get at least 150 completed questionnaires, respondents will also be selected by telephone. The Inspectorate of taxes provides a list with all phone numbers of all sole proprietors registered at the tax office. Every 8 th income taxpayer on the list will be called, until 150 respondents have reached.

In order to answer the research question and the other 5sub questions, 4 interviews were conducted with experts in the field of taxes. The interviews are with the head of Inspectorate of taxes Mrs. Jamila Isenia, and with the head of Fiscal Affairs, Mrs. Clarion Taylor. From the SBAB, Mr. Reijmie de Leeuw, the team leader of the auditing department who is in charge of selecting the audits. Mr. Edsel Jansen, head of the collection department Receivers office was interviewed. The interviews were held face-to-face or by phone or email, using open-ended questions. All questions were prepared ahead, so the interviews were structured. In exhibit 2 the question list used for the interviews will be attached.

§3.4 Instruments

For this part of the thesis the conceptual model that is mentioned in chapter two, is closely linked with the instruments that are used for the data collection. In this case a structured questionnaire is distributed to the income taxpayers.

As shown in table 1 below, a total of 150 survey instruments were distributed.


Amount distributed

Tax office (waiting hall)


Plaza ( Marshé)


Phone ( each 8thperson on the list)




Table 1 Survey Source and opportunity condition.

This survey contains a broad range of measures, such as demographic measures, social norms, compliance measures and the tax culture measures. The questionnaire consists of Likert scale comprising of 5 responses, closed-ended and contingency (nominal and ordinal scale) questions. The questionnaire was divided into the following sections according to the conceptual model:



Q 4, Q5 & Q34

Taxpayer Compliance


Q6 till Q 15, Q17 & Q 18

Tax System/Structure

Complexity of the tax system.

Q 16, Q 24 till Q 28 & Q 33

Culture Variables.

Q 19 - Q21 & Q32

Demographic Variables.

Q 1 till Q 3

Psychological Variables

Q 22 & Q23, Q 29 till Q31

Figure 3. Questionnaire measurements related to the conceptual model.

In the table below the measures of each independent variable according to the conceptual model are presented with the type of measurement scale.

Independent Variables


Scale Type

Demographic profile indicators

Q 1 till Q 3

Nominal scale and Ordinal Scale

Non-compliance opportunity measure

Q4 , Q5 &Q 34

Nominal Scale

Compliance measure

Q 6 till Q 15, Q17 &Q 18

Nominal Scale

Ethical and social norms measure

Q 19 till 21 &Q32

Interval Scale & Ordinal Scale

Psychological measure

Q 22, Q 23, Q 29 till Q 31

Interval Scale

Understanding of the tax system measure

Q 24 &Q 33

Interval Scale

Tax structure/rewarding measure

Q16, Q 25 till Q 28

Interval Scale &Ordinal Scale

Table 2 Variables measures of the participants

The open-ended questions gave the respondents the opportunity to delve more into the answers. The question form used for this survey is attached in exhibit 1.The questionnaire was pre-tested for measuring validity, representativeness and applicability before its final use. For the qualitative analysis, the instruments that will be used for this part are data and statistics obtained from the SIAH, CBS and the Chamber of Commerce (KvK). Another instrument used is the questionnaire list with open questions used for the interviews.

§3.5 Validity

To determine the validity of the information in this research, all the research articles are compared to other similar studies. These studies about tax compliance behavior will help to determine the validity of the overall information about the research question. First of all, before collecting the data, the questionnaire must be approved by the thesis mentor. The questionnaire is divided into five different parts conform the conceptual model. In the following four tables, the questions and related literature are presented. The set-up of the questionnaire is as follows:








Demographic factors


Wenzel M., 2007, Gerxhani K., 2007.



Census CBS, 2011.


Educational level

Census CBS, 2011.



Non-compliance opportunity

Marital Status

Torgler et al 2007, Torgler B., and Schneider F., 2007



Gerxhani K., 2007, Hasseldine et al. 2007.

Table 3 Demographic factors and non-compliance opportunity measurement

In the table above the demographic and non-compliance opportunities are presented together. Monthly income is also an indicator of the non-compliance opportunity, but in this questionnaire, this compliance indicator (income) is placed as the last question. According to O' Rourke (2002), that income is a highly sensitive subject and is related to many behaviors and opinions. That is the reason why it is placed at the end of the questionnaire and not at the beginning of it.

The next table shows how the taxpayer's compliance attitude is measured. In this part the questions are given in 12statements. These statements cover issues that are expected to correlate with tax compliance. The respondents have to indicate whether each statement is true or false.








Tax compliance attitude

Voluntary compliance category

Feld, L. and Frey, B., 2007


Reason for non-compliance

Braitwait et al., 2007


Compliance attitude

Braitwait et al., 2007


Reason for non-compliance

Trivedi, V., Shehata, M., Mestelman, S., 2005.


Intentional non-compliance behavior

Trivedi, V., Shehata, M., Mestelman, S., 2005.


Recognition of good ethics

Gerxhani, K., 2007


Taxpayers rewarding

Trivedi, V., Shehata, M., Mestelman, S., 2005.


Attitude towards taxes

Gerxhani K., 2007


Unintentional non-compliance behavior

Trivedi, V., Shehata, M., Mestelman, S., 2005.


Reason for full compliance toward tax obligations

Torgler et al 2007, Torgler B., and Schneider F., 2007


Tax system

Penalties towards non-compliance behavior

Trivedi, V., Shehata, M., Mestelman, S., 2005.



Tax compliance attitude

Unintentional non-compliance behavior

Trivedi, V., Shehata, M., Mestelman, S., 2005.


Reason for non-compliance

Hasseldine et al. 2007.

Table 4 Reasons for non tax compliance behavior.

This part of the questionnaire consists of three statements that are related to self under reporting and tax evasion. The measures of under reporting ethics are shown below.








Social norms

Guilty feelings towards non-compliance

Blanthore and Kaplan, 2008


Ethical norms

Under reporting feelings towards non-compliance

Blanthore and Kaplan, 2008


Ethical values

Wenzel M., 2007

Table 5 Ethical and social norms measures.








Psychological components

Peer influences

Chau and Leung, 2009


Feelings towards the tax authorities

Field and Frey, 2007



Tax system

Complexity of tax laws

Shahroodi , S., 2010


Tax Efficiency

Service offered

Shahroodi, S., 2010


Rewards and Incentives

Feld, and Frey, 2007


Penalties and punishment

Hyun, J., 2005


Tax information

Wenzel, M., 2007


Psychological components

Attitude towards Government

Shahroodi S., 2010


Trust in the legal system

Hyun, J., 2005


Payment Facilities

Gerxhani, K., 2007


Cultural variable

Ethical norms

Wenzel, M., 2007


Recommended changes

Torgler et al 2007,


Non-compliance opportunity


O'Rourke, D., 2002.

Table 6 The measurement of the independent variables.

Reliability and validity are essential tools in a thesis. The reliability of the questionnaire is that the variable range is the same as the one used in the census done by the CBS. All the Likert -type scale questions will be replaced with other similar questions, in the survey. Thus to measure the beliefs about underreporting or tax evasion by the taxpayers, some of the questions are coded in reverse. That is one of the tests that the survey is valid and reliable. Finally, the representativeness test is done to measure the reliability of the answers. The answers of each of the 5 instruments will be measured by the Cronbach's alpha tool, which is a numerical coefficient of reliability. The range of each instrument that will be measured must be at least between 0.7 and 1.0. Every question with the outcome that is below 0.7 will be excluded. Thus for all the independent variable, all the responses will be tested with a Cronbach's Alpha tool with at least a value of 0.7 till 1. To measure the Cronbach's Alpha or internal consistency the following results are calculated for each independent variable.

Independent Variable

Cronbach's Alpha

Number of questions

Cultural variables



Psychological variables



Tax system



Table 7 Overall reliability statistics test

As the results in the above table show, the overall alpha for cultural variables is 0.806. The outcome is above 0.7 and has a very good strength of association, according the rule of Cronbach's alpha coefficient size (Hair et al., 2003). The psychological variable is 0.616 and there is a moderate strength of association. The internal consistency of the tax system variable is 0.165 the outcome and is below 0.7. These questions should be excluded from the questionnaire. However, these questions are essential to measure the tax system variables and will remain in this research. The demographic and non-compliance opportunity variables are not tested, because only 1 question of the questionnaire measures the variable and the minimum number of questions in a scale to measure should be at least 3.

To analyze the sub questions mentioned in chapter 2, the correlations of these are applied. The correlation applied is the spearman rank order correlation because the data used in the questionnaire are consisting of ordinal scale measures. Another test that is used for this research is the analysis of the chi-square test for goodness of fit, which allows testing for significance. The chi-square test is also used because of the nominal and ordinal scale measurements in order to make comparison.

§3.6 Representativeness

This part will explain how the research or target group is selected. All respondents involved for this research will remain anonymous and are selected randomly. The questionnaires will be held in the marketplace and in the hall of the tax office building in order to get the taxpayers who comply with their obligations and the ones in the marketplace. To get at least 150 completed questionnaires the selection of respondents will be held also by telephone. The Inspectorate of taxes provides a list with phone numbers of all sole proprietors and companies registered at the tax office. Every 8th income taxpayer on the list will be called, and the respondent who answers the phone and is willing to conduct the survey, is selected until 150 respondents have been reached.

To get a broader knowledge of the topic, interviews are held with 4 tax experts. According to Creswell (1998), this study is focused on a grounded theory, so the results could base on a particular situation, in this case the low compliance behavior. Further there is little data or existing theory about the influences for low compliance behavior locally. So there is no really theoretical framework to be followed. This part covers the number of demographic and social characteristics that are also related to patterns of non-compliance. These are formulated in the questionnaire used for the respondents in Marshé, at the Tax office or by phone. The minimum sample size of 150 has been used in order to do the statistical analysis. This is calculated by using the formula due to the population size of 142180.

§3.7 Conclusion

The small business income tax payers are part of the so called 'hard to control' segment. In order to design a series of strategies to ensure that the tax payers are willing to comply, this group must be analyzed first. Since there is little information about the behavior influences of the local income tax payers, a survey among this "hard to control" group must be conducted by handing out questionnaires randomly and taking structured interviews with tax experts. In this part of the study, the best practices in the region, as Theodore (1992) indicates that the experience of Jamaica for regional fiscal harmonizes with regards to CARICOM countries. Academic journals provide a profound explanation about other experiences of several countries with regard to tax compliance and suggest certain guidelines to improve the level of compliance.

The data generated from these tools will help to simplify the formalities and procedures to improve tax compliance. In this chapter, the survey was used for this research. Regarding this part of the analysis, the instrument used to obtain the quantitative data is the questionnaire. This study also uses both primary and secondary data. The opinions of the income taxpayers have been collected through questionnaires consisting of structured and open-ended questions.

To acquire better knowledge of the research topic, personal interviews have been taken from local tax experts to collect information. For both methods the answers of all respondents are confidential. Further, all values of the answers are measurable conform the validity.

In the next chapter this data will be analyzed and the strategies to ensure a better compliance behavior can be formulated.

The focus is on the behavior which could be affected by demographic factors, psychological factors and cultural factors. Also peer influence, which is associated with colleagues, friends and relatives, is measured to understand the tax compliance problem. All these factors are taken into consideration in the formulation of the questionnaire. As mentioned in the previous chapters, increasing the consciousness and willingness of the people about tax payment and filing, will eventually pave the way for establishing an effective and vibrant tax compliance system. Taxpayers will file or pay taxes only if they receive expected services in return. Therefore, it is essential to understand their points of views in this regard. This study has been designed and conducted while keeping this objective in mind.

Chapter 4 Findings of the study

§ 4.1 Introduction

In this part of the thesis the findings of the research data will be analyzed. This includes that the data obtained from the questionnaire and tax information from the SIAH, which will be interpreted, and the effects on compliance will be analyzed. All this information will influence the recommended strategies that will be used to improve the tax compliance behavior.

In paragraph 4.2 the profile of the participants will be discussed and in paragraph 4.3 the analysis of the independent variables of the conceptual model. Paragraph 4.4 the influences of the demographic variables on the psychological variables will be analyzed. The cultural variables analyses are presented in paragraph 4.5 and the influences of the tax system and tax structure on the tax compliance behavior in paragraph 4.6. Paragraph 4.7 presents the non-compliance opportunity variables analyses and paragraph 4.8 the relation of the psychological variables with the tax compliance behavior. The conclusion will be presented in paragraph 4.9 of this chapter.

§ 4.2 Profile of the participants

First the demographic indicators of all the participants will be analyzed. The profile of the participants is as follow: the gender, educational background, marital status, occupation and income and all these aspects will be presented in the following tables and figures below.

Figure 4 Gender participants percentage

Of the total respondents participated in the opinion survey conducted to investigate the tax compliant behavior of the local citizens, 40.6% were male and 59.4% female.

Descriptive analyses reveal that the average age of the respondents is between 25 and 29 years. This will be shown in the table below.





0.0 %



5.4 %

7.3 %


17.9 %

20.7 %


17.9 %



10.7 %



7.1 %

9.8 %


8.9 %

9.8 %


16.1 %

7.3 %