Factors Influencing Individual Taxpayer Compliance Behaviour

356 Pages·2014·3.361 MB·English

by  Ken Devos (auth.)

Factors Influencing Individual Taxpayer
Compliance Behaviour
Ken Devos
Factors Influencing
Individual Taxpayer
Compliance Behaviour
1 3
Ken Devos
Business Law and Taxation
Faculty of Business and Economic
Monash University
Melbourne
Victoria
Australia
ISBN 978-94-007-7475-9 ISBN 978-94-007-7476-6 (eBook)
DOI 10.1007/978-94-007-7476-6
Springer Dordrecht Heidelberg London New York
Library of Congress Control Number: 2013948878
© Springer Science+Business Media Dordrecht 2014
No part of this work may be reproduced, stored in a retrieval system, or transmitted in any form or by
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Printed on acid-free paper
Springer is part of Springer Science+Business Media (www.springer.com)
Acknowledgments
This study has benefited from the assistance of particular individuals and organi-
sations. Initially thanks goes to the market research company, Newton Wayman
Chong & Associates Pty Ltd (NWC), for their assistance in sourcing a sample of
taxpayers from the general population in 2006. Particular thanks are also exten-
ded to Assistant Commissioner Chris Mobbs from the Australian Taxation Office
(ATO), for his involvement and assistance in sourcing the tax evader sample via
the data bases of the ATO in 2007. I would also like to acknowledge the taxpayers
who gave their time both in completing surveys and taking part in interviews during
the course of the study. Finally, the Australian Tax Research Foundation for the
financial funding towards part of the study (including a research grant) with respect
to accessing the ATO data and employing two research assistants in the input and
transcription of the data.
I would also thank my family for their support during the years of the book’s
production.
v
Legislation
Income Tax Assessment Act 1936 (ITAA 1936)
Income Tax Assessment Act 1997 (ITAA 1997)
Tax Administration Act 1953 (TAA 1953)
Crimes Act 1914 (Cth)
Crimes Taxation Offences Act 1980
Criminal Code Act (1995)
vii
Contents
1 Introduction and Background .................................................................. 1
1.1 Introduction ......................................................................................... 1
1.2 Background and History ..................................................................... 2
1.2.1 History ..................................................................................... 2
1.2.2 Impact of Non-Compliance ..................................................... 2
1.2.3 Australian Government Response to Non-Compliance .......... 3
1.3 Definition of Tax Compliance and Selected
Tax Compliance Variables ................................................................... 4
1.3.1 Definition of Tax Compliance ................................................. 4
1.3.2 Selected Tax Compliance Variables ........................................ 5
1.4 Research Objective and Specific Research Questions ........................ 8
1.4.1 Research Objective.................................................................. 8
1.4.2 Research Questions ................................................................. 9
1.5 Overview and Structure ....................................................................... 10
1.6 Conclusion .......................................................................................... 12
2 Tax Compliance Theory and the Literature ............................................ 13
2.1 Introduction ......................................................................................... 13
2.2 T ax Compliance Theories .................................................................... 14
2.2.1 Economic Deterrence Model................................................... 15
2.2.2 Fiscal and Social Psychology Models ..................................... 20
2.3 Tax Compliance Studies on the Variables of interest .......................... 28
2.3.1 Tax Morals ............................................................................... 28
2.3.2 Tax Fairness/Equity ................................................................. 39
2.3.3 Deterrence Measures ............................................................... 49
2.4 Conclusion........................................................................................... 62
3 Extension of the Economic Deterrence Model ........................................ 67
3.1 Introduction ......................................................................................... 67
3.2 T he Definition and Nature of Deterrence ............................................ 68
3.2.1 Definition of Deterrence ......................................................... 68
3.2.2 Nature of Deterrence ............................................................... 69
ix
x Contents
3.3 The Rationale for Deterrence .............................................................. 71
3.3.1 Ethical and Moral Aspects: Philosophy .................................. 72
3.3.2 The Economic Aspect ............................................................. 73
3.3.3 The Political Aspect ................................................................ 74
3.4 Features of the Basic Economic Deterrence Model ............................ 76
3.4.1 The “Economic Deterrence” Approach ................................... 76
3.5 Major Variables Employed within the Basic
Economic Deterrence Model ............................................................... 78
3.5.1 Penalties and Sanctions ........................................................... 78
3.5.2 Sentencing—The Probability of Imposition
of Penalties and Sanctions ....................................................... 80
3.5.3 Probability of Detection and Audit Rate ................................. 82
3.5.4 Tax Rate ................................................................................... 84
3.5.5 Income Level ........................................................................... 84
3.5.6 Complexity .............................................................................. 85
3.6 The Rationale for including Additional Compliance
Variables in an Extended Economic Deterrence Model ...................... 86
3.6.1 Demographic Variables ........................................................... 87
3.6.2 Personal/Internal Factors-Morals ............................................ 94
3.6.3 Situational/External Factors .................................................... 95
3.7 Limitations of the Extended Economic Deterrence Model ................. 97
3.8 Conclusion........................................................................................... 98
4 Theoretical Framework and Hypotheses Development ......................... 99
4.1 Introduction ......................................................................................... 99
4.2 Theoretical Framework ....................................................................... 99
4.2.1 Tax Morals/Ethics ................................................................... 100
4.2.2 Equity and Fairness ................................................................. 102
4.2.3 Deterrence Measures ............................................................... 103
4.3 Proposed Findings and Tax Policy Implications ................................. 104
4.4 Development of Hypotheses ............................................................... 104
4.4.1 Identification of the Research Problem ................................... 104
4.4.2 Primary Research Questions ................................................... 106
4.4.3 Secondary Research Questions ............................................... 109
4.4.4 Descriptive Research Questions .............................................. 109
4.5 Conclusion........................................................................................... 110
5 Quantitative Analysis of Research
Findings—Evader Sample ......................................................................... 119
5.1 Introduction ......................................................................................... 119
5.2 Demographic Profile of the Evader Sample ........................................ 120
5.3 Descriptive Analysis of the Evader Sample ........................................ 121
5.4 Data Analysis of the Evader Sample ................................................... 131
5.4.1 Chi-Square Test Results .......................................................... 132
5.4.2 Logistic Regression ................................................................. 135
Contents xi
5.4.3 Multinomial Logistic Regression ............................................ 136
5.4.4 Factor Analysis ........................................................................ 136
5.4.5 Analysis of the Multinomial Logistic Regression ................... 143
5.4.6 Logistic Regression Analysis and Interpretation..................... 145
5.5 Conclusion........................................................................................... 155
6 Qualitative Analysis of Research
Findings—Evader Sample ......................................................................... 159
6.1 Introduction ......................................................................................... 159
6.2 Overview of Thematic Framework Analysis—Stage One .................. 159
6.3 Findings and Implications from the Interview
Themes- Stages Two to Four ............................................................... 160
6.3.1 Tax Awareness ......................................................................... 160
6.3.2 Tax Fairness ............................................................................. 161
6.3.3 Tax Morals ............................................................................... 163
6.3.4 Tax Law Enforcement and the Probability of Detection ......... 165
6.3.5 Deterrence/Penalties ................................................................ 167
6.3.6 T ax Evaders’ Concluding Comments ...................................... 169
6.4 Mapping and Interpretation of the Data
Using Pattern Matching—Stage Five .................................................. 170
6.4.1 T ax Complexity ....................................................................... 170
6.4.2 T ax Awareness ......................................................................... 171
6.4.3 T ax Fairness ............................................................................. 171
6.4.4 T ax Morals ............................................................................... 172
6.4.5 T ax Law Enforcement and the Probability of Detection ......... 173
6.4.6 Procedural Justice.................................................................... 174
6.4.7 Penalties .................................................................................. 174
6.4.8 Negligence of Tax Agents ....................................................... 176
6.5 Summary of Findings Regarding the Main Compliance
Variables of Interest and Research Questions Posed ........................... 176
6.5.1 Tax Fairness ............................................................................. 177
6.5.2 Tax Morals ............................................................................... 177
6.5.3 Deterrence Measures ............................................................... 178
6.6 Analysis of a Selection of Respondents’ Survey Comments............... 180
6.7 Review of the Quantitative and Qualitative Components
of the Research—Evader Sample ........................................................ 183
6.8 Conclusion........................................................................................... 186
7 Quantitative Analysis of Research
Findings—General Population Sample.................................................... 189
7.1 Introduction ......................................................................................... 189
7.2 Demographic Profile of the General Population Sample .................... 189
7.3 Descriptive Analysis of the General Population Sample .................... 190
7.4 Data Analysis of the General Population Sample ............................... 199
7.4.1 Chi-Square Test Results .......................................................... 199
xii Contents
7.4.2 Logistic Regression ................................................................. 202
7.4.3 Binary Logistic Regression ..................................................... 202
7.4.4 Factor Analysis ........................................................................ 203
7.4.5 Binary Logistic Regression Analysis and Interpretation ......... 207
7.4.6 Conclusion............................................................................... 223
8 Qualitative Analysis of Research
Findings—General Population ................................................................. 225
8.1 Introduction ......................................................................................... 225
8.2 Overview of Thematic Framework Analysis
Stage One ............................................................................................ 225
8.3 Findings and Implications from Interview
Themes—Stages Two to Four ............................................................. 226
8.3.1 Tax Awareness ......................................................................... 226
8.3.2 Tax Fairness ............................................................................. 227
8.3.3 Tax Morals ............................................................................... 229
8.3.4 Tax Law Enforcement and the Probability of Detection ......... 230
8.3.5 Deterrence/Penalties ................................................................ 232
8.3.6 T axpayers’ Concluding Comments ......................................... 233
8.4 Mapping and Interpretation of the Data Using
Pattern Matching—Stage Five ............................................................ 233
8.4.1 Tax Complexity ....................................................................... 234
8.4.2 Tax Awareness ......................................................................... 234
8.4.3 Tax Fairness ............................................................................. 235
8.4.4 Tax Morals ............................................................................... 236
8.4.5 Tax Law Enforcement and the Probability of Detection ......... 237
8.4.6 Penalties .................................................................................. 237
8.5 Summary of the Findings regarding the Main Compliance
Variables of Interest and Research Questions Posed ........................... 239
8.5.1 Tax Fairness ............................................................................. 239
8.5.2 Tax Morals ............................................................................... 239
8.5.3 Deterrence Measures ............................................................... 240
8.6 Review of the Quantitative and Qualitative Components
of the Research—General Population Sample .................................... 242
8.7 Conclusion........................................................................................... 244
9 Further Statistical Testing and a Comparative Analysis
of the Evader and General Population Samples ..................................... 247
9.1 Introduction ......................................................................................... 247
9.2 Statistical Analysis of the Two Samples with Respect to the
Additional Primary Research Questions PRQ7-PRQ21 ..................... 248
9.2.1 Statistical Analysis of Additional Primary Research
Questions ................................................................................. 248
9.2.2 Significant Chi-Square Results ............................................... 248