Introduction Objective Tax compliance Compliance issues Challenges Conclusion
On 2004, the Inland Revenue Board Malaysia (the
IRBM) has implemented the self-assessment tax system (the SAS) on individual taxpayers in order to promote voluntary tax compliance. Under the SAS, individual who has income accruing in or derived from Malaysia are required to disclose taxable income honestly, compute tax payable correctly, file tax return form and pay tax on a timely manner.
To encourage voluntary compliance and efficient tax
administration and to make the tax system simpler and fairer. To assess and collect the correct amount of revenue as provided under the law in the most effective manner and at a minimum cost To instil public confidence in the fairness and integrity of the tax system
Defined as taxpayers’ ability and willingness to comply
with tax laws which are determined by ethics, legal environment and other situational factors at a particular time and place. In SAS, taxpayers are responsible to compute their tax liability and submit their tax returns according to the governing tax law and policy statements issued by the tax authorities.
Impact of the introduction of SA on compliance behavior of individual taxpayers
evasion behavior increase in tax rates tax audits as an enforcement strategy threat of penalties understanding and acceptance of tax law level of education
Source: EC Loo, M McKerchar and A Hansford, 2010. “Findings on The Impact of Self-Assessment on The Compliance Behaviour of Individual Taxpayers in Malaysia: A Case Study Approach”, Journal of Australian Taxation.
Problem faced by Malaysian petty traders in tax compliance & tax audit in the era of SAS
petty traders must comprehend the new systems and to comply with tax administration. e.g. computations, payment of taxes and records keeping need to be tax literate hawkers are at higher risk of being selected for tax audit and investigation awareness of SAS problems during tax filing. E.g. national language, do not know how to fill up form, too much information, too technical and complicated
Tax education and tax knowledge
Tax education can constitute any informal or formal programme
organised by the tax authority or independent agencies by which to facilitate taxpayers in completing tax returns correctly and also to cultivate awareness of their responsibilities in respect of the tax system (Eriksen and Fallan, 1996; IRB Annual Report, 2006; McKerchar, 2007) Tax education, knowledge about tax laws also plays a major role in
determining taxpayers’ compliance behaviour (Eriksen and Fallan, 1996) However, the awareness and attitude of the taxpayer himself is more important since the effectiveness of tax education depends on the readiness, acceptance and honesty of taxpayers
Simplicity of the system
Silvani and Baer (1997) outlined the importance of the fact that a tax
authority should have a simple tax return system from a taxpayer’s point of view Many taxpayers perceived that the tax system itself was too complex, difficult to understand and the terminology used was unfamiliar to taxpayers (Hansford, 1999; Brodie, 1999; Hinks, 2000) The impact of complexity on compliance varied with the characteristics of individual taxpayers such as income level, education level, perceptions of fairness and equity and the opportunity to evade (e.g. see Slemrod, 1989) It has also been argued that simplifying tax laws in SAS might encourage compliance among taxpayers as they might more easily interpret and understand the law and the tax structure and so possibly be better able to declare their income and compute their own tax liabilities correctly (Baldry, 1999)
Tax audit and audit probability
A tax audit is an investigation...