Margaret McKerchar

Sustaining Growth in Developing Economies Through Improved Taxpayer Compliance: Challenges for Policy Makers and Revenue Authorities

The existing body of literature on taxpayer compliance has developed over some 30 years or more and has predominantly emanated from developed economies including the United States, the United Kingdom, Canada and Australia. Over the same period many developed economies have made considerable investment in legislative tax reforms, taxpayer education programs, tax enforcement strategies, and increasingly sophisticated systems of tax administration using new technologies. Undoubtedly there are lessons to be learnt from studying best practice in developed economies. However, compared to their counterparts in developed economies, policy makers and revenue authorities in developing economies face quite different challenges and constraints that require careful consideration in designing appropriate and effective tax systems. In particular, the tax system in a developing economy must foster sustainable economic growth, ensuring that the necessary revenue collections are made to provide for political stability, investment in infrastructure and improved standards of living. Typically developing economies have both limited administrative resources and expertise. Tax administration is generally weak, with widespread evasion, corruption and coercion. Further, taxpayers tend to have low levels of literacy, low tax morale and negative attitudes towards government. The cash economy, and its inherent opportunities for engagement in fraud and tax evasion, often plays a major role in developing economies. This paper explores these challenges and constraints in developing economies. It uses Nigeria as a case study, and identifies the strategies considered to be most effective in improving both personal and corporate taxpayer compliance and the necessary steps to implement them in order to achieve sustainable economic growth.

Challenges in Understanding Compliance Behaviour of Taxpayers in Malaysia

Since the implementation of self assessment in Malaysia almost a decade ago, taxpayers’ compliance behaviour has attracted considerable attention. Tax compliance research in Malaysia has predominantly been in the context of income tax and personal taxpayers, and has been conducted using survey methods and experimental approaches. Access to taxpayers’ data is rarely made available to academic researchers by the Inland Revenue Board of Malaysia (IRB), thus studies have tended to rely on self-reported behaviour and convenience sampling which have limited the extent to which findings can be generalised. Further, most studies have considered only a limited range of variables that may or may not influence compliance behaviour which is widely recognised as being a complex phenomenon. Based on studies to date, it appears that Malaysian taxpayers have high ethics and that individuals’ tax knowledge is a key influence on their compliance behaviour. Scope exists for further research using a range of methodologies, studies that are more comprehensive and longitudinal, and using a wider range of taxes, taxpayers, and compliance obligations.