Last but not least tax compliance. It refers to the willingness of taxpayers to comply with the tax regulations in their country (Marziana et.al, 2010). It has also been similarly defined by many other authorities including the Malaysian tax authority “as the ability and willingness of taxpayers to comply with tax laws, declares their correct income each year and also pays the right amount of taxes on time” (Inland Revenue Board, 2009). Another basic definition of tax compliance by Singh (2001) defined it as an individual’s act of filing their tax returns, declaring all their taxable income accurately, and paying out all due taxes within a specific period of time without a follow-up from the authority. Tax compliance has never been an easy job for the tax authorities as it is not easy to convince taxpayers to comply with their duty or tax requirement. Due to that, the self-assessment system (SAS) were introduced in many developed and developing countries including Malaysia to ensure greater compliance from individuals.
In the taxation system, there are two principal approaches to comprehend tax compliance issues: the economic approach and behavioral approach. The economic approach is based on the concept of economic rationality which includes enforcement activities such as tax audits, penalties and probabilities of detection and tax rate, while the behavioral approach is the socio-psychological factors like having tax knowledge, demographic variables, and perception of tax fairness. Understanding these two approaches and their relationships is very important as it not only extend knowledge on improving tax compliance but as well as providing useful information for tax authorities to come up with better tax policies. Nevertheless, both approaches have contributed to the understanding of tax compliance behavior.
As mentioned above, tax compliance is comprised of two approaches and these approaches are subdivided into four main determinants which are affecting individuals’ tax compliance behavior (SIA, 2008) and (Jackson and Milliron, 1986).
1. Demographic determinants
2. Economic determinants
· Probability of detection and perceived probability of detection
· Tax audit, probability of audit and prior audit
· Tax rates
· Income level
3. Behavioural determinants
· Peer influence
· Ethics/tax morale and ethical decision making
4. Non-compliance opportunity
· Income source
· Types of reporting
In short, all these factors influence either intentionally or unintentionally the individuals’ taxpayers to comply with their taxation system. However, by educating and making the tax system less complex, taxpayers will be happy to comply with their duty. In Malaysia, although many studies have touched upon these factors, many still remain unexplored and some others are examined in isolation.
To conclude, this study here discussed the factors affecting tax non-compliance and as well as the steps to minimize the level tax-compliance among Malaysian taxpayers. From this research, it is known that in Malaysian three main factors are affecting taxpayers’ non-compliance. Among them, we have tax knowledge which is an essential element in a voluntary tax system. Having to know what to do can easily allow taxpayers to comply. The non-compliance with the tax system by taxpayers can either be intentional or intentional. Besides, tax knowledge, tax complexity is another factor that has disrupted individuals. Tax complexity leads to non-compliance because people do not understand well of the tax system. Lastly, tax compliance is the factor that is either economical or behavioral. With all of these burdens, measuring tax non-compliance can sometimes be difficult if a proper program is not put into place to guide the tax authorities and at the same time to educate and simplify the tax system for taxpayers to pay their tax on time without the application of any enforcement activity.