Taxpayer behavioural factors influencing entrenched tax gaps

Tax compliance is the willingness of taxpayers to obey tax rules of a nation, whilst tax noncompliance is the unwilling behaviour of citizens to act under tax regulations. Taxpayer compliance enables the government to collect tax revenues, which is one of the most important sources of government income. Altering the non-compliant behaviour of citizens is an important barometer for increasing tax revenues that contribute to the socio-economic development of a nation. Numerous quondam studies have been conducted strikingly in the past few decades on taxpayer compliance. However, there is a dearth of sufficient research currently on tax noncompliance behaviour. Moreover, the phenomenon of tax noncompliance has limited exploration from the vantage point of meta-analysis of primary research studies conducted, focussing on interrogating, and systematically categorising their results. Resultantly, the purpose of this study was to examine the previously related primary studies to determine those factors that have been judged to have influenced the tax compliance behaviour of citizens. This study has adopted the quantitative research approach and followed the preferred reporting items for systematic review (PRISMA) method and meta-analysis to provide an accurate estimate of the relationship that exists in a population of relevant tax noncompliance behavioural studies. The population comprised of 45 international studies conducted between the period 2015 to 2020 is selected for analysis. The study results indicate that the quality of tax administration systems and public trust in institutional governance are factors that have influenced taxpayer compliance positively. Poor government accountability mechanisms entrenched tax gaps, and developing public trust in government institutions were found to be universal to promote voluntary taxpayer compliance. This study has contributed significantly to the open discussion on tax compliance among researchers, governments, and businesses.

Recognition of Taxes and Implementation of Tax Procedures by SMEs in Albania

In Albania, most businesses are classified as SMEs and their importance in the economy has grown exponentially in recent years. As SMEs comprise the majority of businesses, their taxes are crucial for the state budget. The purpose of this paper is to understand the SMEs’ attitude toward tax compliance. The objective of this research is to assess tax knowledge of SMEs as a precondition for tax compliance. Tax noncompliance has been a prevalent issue, and the tax authorities have undertaken a reform in this regard. This paper aims to understand the current situation regarding tax compliance. The current study is based on questionnaires distributed to 348 SMEs. Businesses responded to questions related to the recognition of taxes, duties and procedures. SMEs are separated in two groups, small and medium by annual turnover, in order to achieve the most accurate survey results. The results of the questions were not always the same for both groups. There are more small businesses that are not familiar with taxes, duties and tax procedures, resulting in conclusion that medium businesses are more tax compliant than small businesses. Tax authorities need to know the situation of SMEs, get their opinions on taxes and duties and take them into consideration.

Entity Structure and Taxes: An Analysis of Embedded Pass-Through Entities

We examine the effect of pass-through entities embedded in corporate structures on tax avoidance, tax uncertainty, and tax noncompliance using unique, confidential tax return data that link corporations and pass-through entities together through Schedules K-1. We develop measures of the use of pass-through entities such as the number and "connectedness" of pass-throughs within the structure, the presence of loss pass-throughs or asymmetric allocations of such losses, and connections to entities external to the firm. We predict and find that these features are associated with lower effective tax rates, higher current year additions to tax reserves, and larger amounts of proposed IRS audit adjustments, controlling for probability of audit selection. This large-sample evidence could help the IRS understand how pass-throughs affect compliance and financial statements users anticipate the tax effects related to entity structure

EFFECT OF FOREIGN INVOLVEMENT ON CORPORATE TAX NONCOMPLIANCE

There exists a potential decline in tax revenue to government among firms with foreign involvement. The main aim of the study is to examine the impact of foreign involvement on corporate tax noncompliance. The study focuses on the effects of foreign CEO, the percentage of foreign executive board members, and the ratio of stocks owned by foreign directors on corporate tax noncompliance. Data on manufacturing firms were utilized based on data availability from 2015 to 2019. Generally accepted accounting principle effective tax rate was utilized as a primary measure of tax noncompliance and fixed effect technique of regression analysis. Controlling for profitability, leverage, firm size and board size, the findings of the study revealed a significant negative effect of the percentage of foreign executives’ shareholding on GAAP ETR. Our result is robust to using cash effective tax rate as an alternative proxy for tax noncompliance. The implication of this finding is that an increase in foreign executive shares will reduce tax proceeds. Given the corporate tax implication, regulatory authorities should weigh the cost and benefit of a benchmark for foreign directors’ equity ownership.

Corruption and Tax Noncompliance Variables: An Empirical Investigation From Yemen

Tax revenue is an important source of income for various governments around the world. However, challenges, as a result of corruption and tax noncompliance behaviour among the taxpayers, are hindering the adequate generation of such revenues for the government. The objective of this study is to investigate the effect of corruption and other tax noncompliance variables on tax revenue generation in Yemen. The study used survey research design via a questionnaire to collect data from 264 individual taxpayers in the Hadhramout Governorate. The collected data was analyzed using SPSS to perform reliability test, descriptive statistics, multicollinearity test, and regression analysis. The findings of the study show that corruption and tax rate are positively related to tax noncompliance; income level is negatively related to tax noncompliance; whereas penalty rate and education level are positive but not related to tax noncompliance. The implication of the study is that the government and the tax authority should update and institute new tax laws and policies that could minimize corruption among their officials and create more awareness among the taxpayers on the importance of paying tax to the government, so as to increase their compliance behaviour.

Why information technology is constrained in tackling tax noncompliance in developing countries

Purpose This study aims to investigate the reasons for the large scale tax noncompliance prevalent in underdeveloped countries despite many years of information technology (IT)-led tax administration reforms. Design/methodology/approach The study is based on in-depth interviews with 18 senior tax administration officials. Their experiences were used to construct a grounded theory to explain the constraint of IT in tackling the prevalent tax noncompliance in underdeveloped countries. Findings First, IT is not immune to the systemic corruption prevalent in many developing countries; hence, it is quickly compromised. Second, IT can be efficient in dealing with registered taxpayers but cannot deal with the overwhelming large numbers of operators in the informal sector. Third, E-tax administration, which is a hallmark of IT-led tax administrations in advanced countries, is very slow to catch up in developing countries. A computerized tax administration alone, as currently obtainable in developing countries, is not enough to engender large usage of e-filing. Businesses, especially small and medium-sized enterprises (SMEs), need IT infrastructure as well to align with tax administration. Unfortunately, basic IT infrastructure is yet to be available to a large section of SMEs in developing countries. Research limitations/implications Underdeveloped countries are diverse. This study is from a single country and there may be need to take note of other countries’ peculiarities. However, Nigeria constitutes a good case study. Practical implications There is need to reform the people and systems along with IT originality/value. Originality/value To the authors’ knowledge, this study is the first to explore this very important question and among the first to explore tax administrators’ perspectives.

Do Audits Deter or Provoke Future Tax Noncompliance? Evidence on Self-Employed Taxpayers

This article employs unique tax administrative data and operational audit information, including risk scores used for audit selection, from a sample of approximately 7500 self-employed US taxpayers to investigate the effects of operational tax audits on future reporting behavior. Our estimates indicate that audits can have substantial deterrent or counter-deterrent effects, depending on the audit outcome. In the aggregate, taxable income is estimated to increase by roughly 15% 1 year after an operational audit. However, this figure masks substantial heterogeneity within the population. Among those taxpayers who receive an additional tax assessment, reported taxable income is estimated to be 64% higher in the first year after the audit (44% after 3 years) than it would have been in the absence of the audit. In contrast, among those taxpayers who do not receive an additional tax assessment, reported taxable income is estimated to be approximately 15% lower the year after the audit (21% 3 years later) than it would have been had the audit not taken place. Our results suggest that improved targeting of audits toward noncompliant taxpayers would not only yield more direct audit revenue but also pay dividends in terms of future tax collections.

Do Audits Deter or Provoke Future Tax Noncompliance? Evidence on Self-employed Taxpayers

This paper employs unique tax administrative data and operational audit information from a sample of approximately 7,500 self-employed U.S. taxpayers to investigate the effects of operational tax audits on future reporting behavior. Our estimates indicate that audits can have substantial deterrent or counter-deterrent effects. Among those taxpayers who receive an additional tax assessment, reported taxable income is estimated to be 64% higher in the first year after the audit than it would have been in the absence of the audit. In contrast, among those taxpayers who do not receive an additional tax assessment, reported taxable income is estimated to be approximately 15% lower the year after the audit than it would have been had the audit not taken place. Our results suggest that improved targeting of audits towards noncompliant taxpayers would not only yield more direct audit revenue, it would also pay dividends in terms of future tax collections.