UNDERSTANDING THE COMPLIANCE BEHAVIOUR OF MALAYSIAN INDIVIDUAL TAXPAYERS USING A MIXED METHOD APPROACH

Abstract

This article reports on the findings of a mixed method study that was conducted to investigate the impact of the introduction of self assessment on the compliance behaviour of individual taxpayers in Malaysia. The likely impact of this change was uncertain given inconclusive evidence in the literature on the effect of self assessment on compliance behaviour. The findings revealed that the introduction of self assessment had a positive influence on compliance behaviour. In particular, acquiring tax knowledge had significant effects on compliance behaviour. Taxpayers were found to be sensitive to tax audit and penalty. While financial constraints were found to have a more direct and stronger influence on the compliance behaviour of self-employed taxpayers, attitudes towards paying tax appeared to only affect salary and wage earner taxpayers. I INTRODUCTION Self assessment for individual taxpayers was first introduced in Malaysia for income derived in the 2004 year of assessment. Self assessment replaced the former official assessment system and shifted responsibility to individual taxpayers (both salary and wage earners and the self-employed) to file their returns on time, to accurately report all relevant information as required by law, to calculate their own tax liability and to pay any outstanding taxes by the due date. The adoption of self assessment by tax administrations is increasingly a global phenomenon and is evidenced in many jurisdictions including Australia, New Zealand, Canada, United Kingdom, Pakistan and Bangladesh. It is generally favoured as a means of reducing administration costs, improving voluntary compliance rates and facilitating tax collections. 1 However, for voluntary compliance rates to be maximised, taxpayers need to have a positive attitude towards taxation and to both understand, and be able to fulfil, their obligations. To reap the benefits of self assessment, the revenue authority needs to understand the compliance behaviour of its taxpayers. Further, the revenue authority needs to have appropriate systems and strategies in place to support those taxpayers who are willing to comply, to enforce compliance where taxpayers are less willing to comply voluntarily, and to encourage taxpayers to have a positive attitude towards paying taxes. Clearly, self assessment poses considerable challenges for both taxpayers and the revenue authority.