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Sociology of Individual Voluntary Tax Compliance

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DOI: 10.37200/IJPR/V24I1/PR200197

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 International Journal of Psychosocial Rehabilitation, Vol. 24, Issue 01, 2020
ISSN: 1475-7192

Sociology of Individual Voluntary Tax Compliance

Muthaloo Subramaniam, Yamunah Vaicondam,
Dineswary Nadarajan and Yap Lai Leng
Abstract--- Taxation plays an important role in any country. It is not only contributes towards the wealth of the
nation but interestingly the health of the nation. Wealth comprises of contribution to the sources of revenue and
distribution of revenue to the good use for the nation. The nation will prosper and having healthy lifecycle will
eventually benefit its citizen at large. In 2001, Malaysia went to through transition from Official Assessment System
(OAS) to Self- Assessment System (SAS). It is a system that allow the taxpayers to calculate their own tax liability
within the boundaries of tax laws. It was different previously where the determination of tax liability, calculation
and other tax administrative works lie greatly with Inland Revenue Board of Malaysia (IRBM). Managing own tax
matters are known as voluntary tax compliance and this relieves the tax authorities from great deal of resources.
The study is aimed to investigate the ethical, moral, religious and cultural background considerations on individual
voluntary tax compliance whose main income is from doing business. This is a quantitative study. Total of 230
questionnaires distributed to respondents and 87% of the questionnaires returned with total number of valid 200
responses. Necessary tests including multiple regression analysis were used in this study. Findings showed that
ethicality and religiosity have direct significant effect on the individual tax compliance among the taxpayers whose
main income from doing business. However, morality and cultural background do not have significant effect in this
relationship. It was believed this study will significantly contributes to the body of knowledge in the areas of
voluntary tax compliance.

Keywords--- Voluntary Tax Compliance, Self-assessment System, Sociological Factors.

I. INTRODUCTION
Taxation system is essential part of the government’s revenue sources and expenditure (Abdul Aziz et al., 2000).
The system may vary across countries depending on the economic structure of the respective country which results
in different share of total tax revenue collected and generated by different countries. Share of tax revenue in
government’s total revenue in Malaysia is comparatively high. In 1963, the total revenue for government was RM
1,150 million, where the 80% or about RM 915 million was contributed by tax revenue. Later in the year 2010, the
government revenue increased to RM162, 131 million in which the share of tax revenue amounted to RM 107, 092
million. This shows an approximately, 66% of the government revenue has decreased (Tabandeh, et al., 2013). In
2017, total revenue in Malaysia was RM 225,330 million with reported tax revenue of RM180, 190 million which is
at about 80% of total revenues (The Star Online, 2017). Hence, tax revenue has been playing greater role in meeting
national aspirations to be a developed country in near future. A well-structured tax system ensures national stability
as the government does not need to overly rely on external funding to stay afloat. A government that collects tax
implied that a nation’s capacity for development and further economic growth, likewise, less tax collections may

Muthaloo Subramaniam, SEGi University, Kota Damansara.

Yamunah Vaicondam, SEGi University, Kota Damansara.
Dineswary Nadarajan, SEGi University, Kota Damansara.
Yap Lai Leng, SEGi University, Kota Damansara.

DOI: 10.37200/IJPR/V24I1/PR200197
Received: 17 Nov 2019 | Revised: 22 Dec 2019 | Accepted: 07 Jan 2020 907
International Journal of Psychosocial Rehabilitation, Vol. 24, Issue 01, 2020
ISSN: 1475-7192

indicative that development and economic growth is stagnant and not competitive enough to meets its state affairs.
(Edame & Okoi, 2014). Even though tax is considered to be a legal form of commitment to the government, it
should be considered as an ethical duty rather than a responsibility as the government spends tax collected funds for
the development of the nation at large (Bhatia, 1976; James and Nobes, 2000). According to Becker’s (1974)
economic theory of crime, tax evasion and other kinds of white-collar felonies have proven to grow more rapidly
despite improved tax and other legislations. Among the earliest research is undertaken by Allingham & Sandmo
(1972), affirmed that tax compliance based on rational flutter between expected benefits and associative costs of not
complying with tax duties. This study is rather on economic perspectives as opposed to the current study. Hence,
taxpayers’ social aspects (ethicality, morality, religiosity and cultural background) may impacted the taxpayers’
compliance in Malaysia.

According to McManus and Warren (2006), a tax gap is the measure of differences between the tax collected by
the government in a single year and the total tax that should have been collected by the government in a single year.
These tax gaps arise for reasons that taxpayers intentionally or unintentionally made when paying taxes (Alabede, et
al., 2011a; Alabede, et al. 2011b). The intentional are those errors left unnoticed. Some taxpayers might not know or
might have low seriousness when complying with tax return submission and payment. These scenarios can be
improved by educating the people. Whereas, intentionally include evasion, abusive avoidance and similar instances.
In 2011, it has been reported that there are 6.4 million taxpayers in Malaysia but only 2.4 million taxpayers pay their
taxes in Malaysia (Bedi, 2011). As this has been distressing phenomenal, the tax defaulters are keep increasing since
2001 and even within 2 years, the number increased 10 times (Choong & Wong, 2011). In 2005, Malaysia went
through the paradigm shift by employing the Self-Assessment System (SAS) where responsibility of calculating
taxes had shifted successfully from the Inland Revenue Board of Malaysia (IRBM) to taxpayers. As part of tax
compliance, challenges are to ensure individuals pay taxes voluntarily. According to a report in Sin Chew Daily
today, IRBM’s chief executive officer Datuk Seri Sabin Samitah said so far, 25,874 tax defaulters had been barred
from leaving the country with tax arrears totally more than RM1.35 billion (Kong, 2019). This will severely affect
the government tax income. Hence, it is vital for taxpayers to comply with their tax laws as government can
accomplish essential programs pertaining to national defence, infrastructure, education, public welfare and an
increase of public goods and services.

The most common and serious challenge faced by the income tax administrators to ensure the tax payers are
complying well with the taxes due to the government. Therefore, the government has undertaken various tax reforms
and have regulated the tax system yet the tax non-compliance among taxpayer is relatively high (Chong, 2017). One
of the recent diplomatic move by government is a special voluntary disclosure program (“SVDP”) which expired on
June 30, 2019 (with e-filing submission is due on 15 July 2019) is to encourage taxpayers to voluntarily disclose any
previously undeclared income to the IRBM. The aim is to collect an estimated RM10 billion from 1 million
taxpayers (The Star Online, 2019). As to date, IRB has identified 79,786 individuals, companies, organisations and
cooperatives who have yet to pay tax (The Star Online, 2018). Government can accomplish various programmes to
develop people and country but partly affected by the uncollected revenue.

DOI: 10.37200/IJPR/V24I1/PR200197
Received: 17 Nov 2019 | Revised: 22 Dec 2019 | Accepted: 07 Jan 2020 908
International Journal of Psychosocial Rehabilitation, Vol. 24, Issue 01, 2020
ISSN: 1475-7192

According to Marti (2010), there is linkage between the existing tax system and the tax compliance
phenomenon. Wentworth and Rickel (1985) stated that there has always been a major issue for the tax
administration for tax compliance, either in developing or developed countries. For decades, researchers and
institutions have been working towards tax compliance. But, the tax compliance issue still persist. Researchers have
carried out numerous studies of the common factors which influences an individual tax compliance which are tax
awareness (Kamaluddin & Madi, 2005; Choong & Edward Wong, 2011), tax fairness (Saad, 2014; Palil &
Mustapha, 2011), and perception of government (Tan, Mohd Salleh & Md Kassim, 2017). Studies on tax
compliance behaviour have been done is well developed countries and not in developing countries however the
sociology factors that affects the income tax compliance in this country is still lacking. Hence this study is
significant contributes in enlightening the tax payers, tax agents or the government on the factors that influence tax
compliance activity. Thus, the aim of this study is to examine sociology effect of the individuals in Klang Valley on
tax compliance by engaging the ethical, moral, religious and cultural background considerations.

II. LITERATURE REVIEW

2.1 Individual Voluntary Tax Compliance

The individual tax compliance study has been conducted by numerous researchers. Angus et al. (2016), stated
that tax compliance is a process of fulfilling taxpayer’s civil obligation for tax payment or tax returns. Voluntary tax
compliance is the willingness of the tax payer on his own complies with tax authority’s directives and regulations
(Tilahun and Yidersal, 2014). Voluntary tax compliance is influenced by the individual’s perception of government
accountability. Based on the equity fairness and gender differences, Tilahum and Yidersal (2014) had investigated
these factors that influence tax compliance. It was found that the elderly age people prefer to be more non-
complying if there is no equity or fairness among the people. Awang and Amran (2014) studied ethical
consideration on tax compliance by the taxpayers (individual and corporate) in general that tax avoidance and tax
evasion are unethical and not complying in the obligations to pay taxes are absolutely affects the trust of
stakeholders. This is as well very obvious among corporate entities. Isa (2014) study found that the smaller
companies face difficulties in meeting tax obligations and the difficult areas for them were record keeping, tax
ambiguity and tax computations. The least difficult areas were dealing with tax agents or authorities and submitting
the returns within the stipulated time frame. Compliance behaviour was also is worth to be considered. Jayawardane
(2016) found that most taxpayers view that the inland revenue authority of Sri Lanka were unfair in the dealing with
tax matters among the individual taxpayers and have significantly affect the compliance decision among them.
Downs and Stetson (2014) examines the impact and interaction of economic and moral social factors in the
corporate tax compliance context. Their study found that non-compliance could be considered if expected benefits
and perceived legality can be justifiable in a corporate setting. After reviewing the related literature, the compliance
of tax duties is useful to be studied through the social aspects such as ethical, moral, religious and cultural
background of the individual taxpayers especially those engaged in the business undertaking.

2.2 Ethicality
Ethicality is the behavioural dimension of an individual in relation to the tax compliance. Ethical consideration is
important aspect, especially for individual in complying with tax obligation. Even though the ethical attitudes and

DOI: 10.37200/IJPR/V24I1/PR200197
Received: 17 Nov 2019 | Revised: 22 Dec 2019 | Accepted: 07 Jan 2020 909
International Journal of Psychosocial Rehabilitation, Vol. 24, Issue 01, 2020
ISSN: 1475-7192

behaviours differs across different individual taxpayers but these differences play important role in complying with
tax obligations. In broad definition, ethics of taxpayers include that the taxpayer will comply with tax obligation
provided the taxpayer believes that compliance is the rightful decision to make. (Alm & Torgler, 2011). McGee and
Preobragenskaya (2007) found that if government that are in charge is corrupt and the tax system is not favourable
towards its people, then being unethical can be expected. Therefore, tax system and government should be fair for
people (Alasfour, 2017). Wenzel (2005) found that tax payments are considered costs to the taxpayers that they must
avoid or reduce provided that chances for being detected by tax authorities and related penalties are strict to deter the
taxpayers for doing so. Henderson and Kaplan (2005) argued that chances of being audited and detection procedures
are very low in improving the tax compliance among taxpayers (Park and Hyun, 2003). As ethical considerations are
not easily justifiable from one individual taxpayer to the other individual taxpayer, it is still subjective and remains
property of the individual taxpayer in determining the compliance with the tax obligations. However, kinder
approach whilst ensuring government’s tax system and policies are not burdening the taxpayers in anyway (Alm &
Torgler, 2011). Therefore, this ethical aspect is worth to be studied on the compliance of tax obligations among the
individual taxpayers whose main income is from doing business.

2.3 Morality

Kirchgassner (2010) affirmed that high tax morale among taxpayers are beneficial to society and government, as
not only the revenue collections improve but society gets better through various development plans. However, the
author found that fairness, religion and trust in the tax system are very important even than tax burden to boost the
tax morale. Trust is looking how the funds collected are well managed to develop and provide care to the society.
Thus, taxpayers’ behaviour in complying with tax payments is very much determined by tax morale which is
regarded as attitude (McGee, 2005). Bosco and Mittone (1997) mentioned "Kantian morality approach” (Laffont,
1975; Sudgen, 1984) and “the altruistic approach” in his study on morality approach in relation towards tax
behaviours. The “Kantian‟ morality approach depends on a level of judiciousness where when tax system is fair for
all and false declaration on taxes will create psychological costs such as anxiety, guilt and reduction in self-image. It
was mentioned that taxpayers feel these costs when what they doing are unfair to the fair tax system. The “altruistic‟
approach is more concerned towards the general society’s welfare than personal welfare. Using this approach
concludes that not complying to pay taxes individually will definite affect the funds needed for the society’s welfare
at large. Luttmer and Singhal (2014) mentioned about improving tax morale mean improving tax compliance with
tax laws and portrays good social norms in compliance. Many researchers studied on penalties, knowledge,
economic factors and tax non-compliance, mainly tax evasion (Sheikh Obid, 2004; Mohd Yusof, Lai & Yap, 2014;
Sapiei and Kasipillai, 2013; Palil, 2010) but there are still lack of research in the aspect of morality which is worth to
be studied here. Therefore, the tax compliance of a country can be essentiality influenced by the morality aspect
within the society.

2.4 Religiosity

Religion is one important social aspect in every believer’s life (Aliman, Ariffin, & Hashim, 2018; Palil, Md Akir
& Wan Ahmad (2013). It is essentially made taxpayers to recognise the tax system within a country, voluntarily

DOI: 10.37200/IJPR/V24I1/PR200197
Received: 17 Nov 2019 | Revised: 22 Dec 2019 | Accepted: 07 Jan 2020 910
International Journal of Psychosocial Rehabilitation, Vol. 24, Issue 01, 2020
ISSN: 1475-7192

compute the income to be taxed and motivates the taxpayers to comply that tax laws to pay taxes due to them
(Sezgin et al., 2011). Saiyyidah (2010) explained on Islamic work practices that religion should be upheld in
fulfilling duty to the God and money earned should be spent in way it should benefit oneself and the community. In
the past research, Benk et al. (2016) categorizes the believer’s relationship with religion into two aspects, association
with religion and pledge towards the associated religion (Worthington et al. 2003) and the religion affecting the
intention to do good and bad is not clearly justified in prior researches, especially in the study by Worthington et al.
(2003). Mohdali and Pope (2014) researched on the pledge, which is the commitment towards religion that were
held into intrapersonal and interpersonal commitment towards religion. Furthermore, they argued religious
commitment should create religious values which are rather positive not negative to assist the taxpayers voluntarily
pay taxes according to tax regulations and laws. In nutshell, they concluded that religiosity significantly decides the
taxpayers’ behaviours to comply in paying taxes. On the other study done by Stack and Kposowa (2006) affirmed
that taxpayers who do not associated with any religion is most likely to commit tax wrongdoings. To conclude, the
religiosity aspect of taxpayers do play important role in tax compliance and looking at Malaysia holding various
religious taxpayers, religion can be seen as important social aspect in examining the tax compliance.

2.5 Cultural Background

Individualism refers to the extent where the members within the group degree to which members of a culture
place a greater emphasis on the group versus the individual himself/herself. In those cultures where individualism is
dominant, every person is expected to focus on what is best for him/her. In the collectivist cultures, the individuals
are, from birth, integrated into strong, cohesive groups which continue to protect them throughout their lives in
exchange for unquestioning loyalty (Yong and Martin, 2016). A cultural background towards compliance
particularly deals with the societal norms or cultural standard where the public develops sufficient tax morale and
tax compliance in a society (Wenzel, 2004). For example, if the behaviour of tax non-compliance is acceptable due
to certain cultural behaviour in a country, then the level of non-compliance will increase. A study conducted by
Jayawardane (2015) suggests that the relationship between tax payers and authorities and tax regulation represent a
linkage with the cultural background of a society. The study also showed that a mutual understanding could be
achieved between tax payers and tax authorities. Chuenjit (2014) investigated the concept of the culture of taxation
and the approaches used in his study and found that differences in the culture of taxation bring out different tax
collection results such as the culture of giving tax reward, fair tax, tax participation and different socio-demography.
According to Brandts, Saijo and Schram (2003), it is very hard to directly correlate the cultural effects of a society
or a social norm to an institutional environment such as the tax system. Hence, different studies conducted on the
cultural effects have shown mixed results based on the evidence that has compiled. In order to significantly correlate
on the tax system, a substantial amount of solid experiments and evidence is necessary. However, Alm and Torgler
(2006) stated that it is difficult to just ignore the cultural background that affects the morality and tax compliance of
a region. The political and economic environments of a country play a huge role in shaping the culture of tax
morality and tax compliance. The study found that Switzerland, a country who exercises direct democracy, has
shaped the mentality and culture of their people in influencing tax morale. In line with Cummings et.al (2006), the
cultural differences of an individual voluntary tax compliance is influenced by the tax regime and government

DOI: 10.37200/IJPR/V24I1/PR200197
Received: 17 Nov 2019 | Revised: 22 Dec 2019 | Accepted: 07 Jan 2020 911
International Journal of Psychosocial Rehabilitation, Vol. 24, Issue 01, 2020
ISSN: 1475-7192

behaviour. Thus, the quality of the government in relation to collection taxes and distribution of collected revenues
affects the trust of taxpayer compliance and the cultures influences ways the taxpayers motivated to pay taxes.

After reviewing the past studies that have put forward the individual constructs (ethicality, morality, religiosity
and cultural background) and association with other constructs, it can be assured that less number of research has
been carried out to investigate the empirical research between these social factors influencing the individual tax
voluntary compliance, particularly in Klang Valley setting. Therefore, present research lessen the gap and adds up to
existing knowledge by proposing sociology aspects that very much influencing the need to comply in paying taxes.

H1. There will be a significant relationship between the ethicality and individual voluntary tax compliance.

H2. There will be a significant relationship between the morality and individual voluntary tax compliance.

H3. There will be a significant relationship between the religiosity and individual voluntary tax compliance.

H4. There will be a significant relationship between the cultural background and individual voluntary tax
compliance.

III. METHODOLOGY
The Figure 1 is the research framework of this study. The dependent variable in this framework is the individual
voluntary tax compliance and the independent variables include ethicality, morality, religiosity and cultural
background. The research is to study the impacts of social aspects on the individual voluntary tax compliance.

Figure 1: Research Framework

The respondents are the individual tax payers who are residing in the area of Klang Valley. This study focused in
Klang Valley due to the city being a good economic development area (Hway-Boon, Ong & Shay, 2017). The target
population for this study are those individual taxpayers whose main income is from doing business. The sampling
method engaged in this study was convenience sampling (Iredele, 2018; Suyanto & Trisnawati, 2016) due to
unavailability of the complete population units. This study adopts the theory of planned behaviour (Ajzen, 1991).
Questionnaires are employed for data collection in this quantitative study. The first section of the questionnaire in

DOI: 10.37200/IJPR/V24I1/PR200197
Received: 17 Nov 2019 | Revised: 22 Dec 2019 | Accepted: 07 Jan 2020 912
International Journal of Psychosocial Rehabilitation, Vol. 24, Issue 01, 2020
ISSN: 1475-7192

the main segment is to examine the demographic profile of respondents. The second part of the questionnaire focus
on estimation to test tax compliance among the taxpayers. The elements that need to quantify in latter segment
comprise ethnicity, religiosity, tax morale and cultural background .The ideas in this survey are measured by the five
scale from (1) "Strongly disagree” to (5) "Strongly agree ". Total 230 questionnaires distributed to respondents and
87% of the questionnaires returned with total no of 200 responses.

IV. RESULTS AND FINDINGS

Based on data collected for the questionnaires, the data has been conducted accordingly and analysed by
engaging Statistical Package for the Social Science (SPSS) Version 22 package. The reliability test shows that all 5
variables which consists of 29 items in total, have a Cronbach’s Alpha of more than 0.7, which meant all the items
in the questionnaire are acceptable and reliable. The Shapiro-Wilk test defined that data are normal and the P-Plot
shows that dataset linear and fit for further analysis.

Table 1: Pearson Correlation Analysis

Variables Tax compliance Ethical Moral Religious Cultural background

Tax compliance 1
Ethical 0.886** 1
Moral 0.864** 0.919** 1
**
Religious 0.945 0.905** 0.906** 1
**
Cultural background 0.840 0.891** 0.896** 0.880** 1
**. Correlation is significant at the 0.01 level (2-tailed).
N is equal to 200 respondents
As per table 1, the person correlation analysis shows significant positive relationship among all the variables.
Therefore, the hypotheses are supported. The finding is further justified by (Ho & Wong., 2008; Palil & Mustapha,
2011).

Table 2: Multiple Regression Analysis

Model Beta P-value

(Constant) 0.094 0.052
Ethicality 0.218 0.001*
Morality -0.059 0.391
Cultural background -0.025 0.658
Religiosity 0.823 0.000**
Dependent Variable: Tax compliance
** Significant at the 0.01 level
* Significant at the 0.05 level;
Based on Table 2, the multiple regression analysis shows that ethicality and religiosity have strong significant
effect on the individual tax compliance behaviour. On the other hand, morality and cultural background doesn’t have
significant effect on individual tax compliance behaviour.

V. CONCLUSION
From the results, several conclusions can be made regarding the impacts of ethicality, morality, religiosity and
cultural background considerations on individual voluntary tax compliance. This study found that not all of the
proposed variables seem to influence individual taxpayers doing business regarding their individual tax compliance.

DOI: 10.37200/IJPR/V24I1/PR200197
Received: 17 Nov 2019 | Revised: 22 Dec 2019 | Accepted: 07 Jan 2020 913
International Journal of Psychosocial Rehabilitation, Vol. 24, Issue 01, 2020
ISSN: 1475-7192

The results revealed that both ethicality and religiosity showed a significant relationship with individual tax
compliance. However, there is no significant relationship between morality and cultural background. Ethical
considerations could be an efficient way to improve tax compliance (Ho & Wong, 2008). In a study conducted by
Marshall, Smith and Armstrong (2010), the inevitable ethical problem for tax agents dealing with individual
taxpayers are confidentiality. Disclosing client’s information surfaces an ethical issue that leads to clients trust. The
results also supported Zandi et. al (2015) study, which determined that in religiosity have a significant effect on tax
compliance. Besides that, the socio-economic background of taxpayers such as gender, age and educational
qualification has significant influence on individual tax compliance. The results had similar conclusions to studies
done by Oladipupo & Obazee (2016), which proposed that one of the measures to enhance voluntary compliance is
by assuring that taxpayers has certain level of qualifications, ability and confidence to fulfil their tax responsibility.

Achieving ethical compliance appears to be too difficult in practice with (1) past political developments eroded
the trust in addition (2) to changes in the government who yet regain the trust as well as those national debts and
budget deficit. Therefore, institutional reform could be way forward (Xavier, 2019). The government should
sensitize the tax payers on the importance of paying tax. It is also recommended that the government ought to be
transparent on how the revenues collected from taxation is being utilized so that the tax payers do not feel that their
money is being misused. Religion is seen as an important tool to develop the attitude, behavior and character of the
people. As Malaysia is bestowed with multi-religious practices, awareness can be raised by the respective leaders.
For example, in Islamic and Christian teaching, sadaqah (contribution) or tithing is highly encouraged to nurture the
values of giving to the needy, which are then can be applied in contributing to the development of the nation (Benk
et al. 2016; Byung & Sung, 2018). Further research can be done on this study area by conducting a larger sample
size to get a better and more accurate response from individual taxpayers. Larger sample size can lead to bigger
responses in number. The ratio of the respondent across the various sectors in the sample could be studied to gauge
the sectorial issues in relation to the tax compliance in this country. In addition, comparisons can be done between
countries especially between emerging economic markets of these social factors. This study can assist countries to
make use of the findings to improve tax compliance such as finding the best practices, formulating relevant policies
and if needed, to educate the ruling government to be prudent in administering the spending to enhance trust among
its people.

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DOI: 10.37200/IJPR/V24I1/PR200197
Received: 17 Nov 2019 | Revised: 22 Dec 2019 | Accepted: 07 Jan 2020 914
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ISSN: 1475-7192

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DOI: 10.37200/IJPR/V24I1/PR200197
Received: 17 Nov 2019 | Revised: 22 Dec 2019 | Accepted: 07 Jan 2020 917

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