The influence of religiosity on tax compliance in Malaysia

Abstract

This thesis examines the influence of an individual’s internal value, religiosity compared to external values reflected in attitudes towards government, tax authority and society as well as the impact of threat of punishment on components of tax compliance, namely voluntary tax compliance, enforced tax compliance and tax avoidance attitude in Malaysia. This is the second study to include religiosity as one of the tax compliance variables but the first to explore religiosity in a single country setting, Malaysia. This study also compares the strength of religiosity to determine its importance as a variable of tax compliance. Thus the findings of this research make a significant contribution to the current dearth of literature on the role of religiosity in tax compliance, especially in developing countries.A sequential exploratory mixed-methods research design was employed in this study. Data was collected using a self-administered survey which involved approximately 300 individual taxpayers via drop-off and online surveys in Malaysia. This was followed by face-to-face interviews with 14 individual taxpayers. A majority of the respondents in both the surveys and interviews were salaried taxpayers and the remaining were self-employed taxpayers. Religiosity appeared to have a statistically significant positive impact only on taxpayers’ willingness to voluntarily comply with tax laws. A different religiosity commitment appeared to influence a different tax compliance component, and religiosity was also evident as a moderating variable. The findings of this study show that the taxpayers’ perceptions of the government and tax authority had stronger influences on their willingness to voluntarily comply with the tax laws compared to their religiosity. In other words, these findings confirm the existence of the psychological tax contract between taxpayers and the government and tax authority in Malaysia. However, the impact of the external factors seems to be varied according to the tax compliance components.The current study provides evidence regarding the importance of taxpayers’ perceptions of government and the tax authority in encouraging their positive attitudes towards taxation. Hence, it is important for the Malaysian Government to improve its integrity by addressing critical problems such as corruption and mismanagement of public money. This is necessary in order to increase the citizens’ trust in the government which was found to be extremely fragile. Further, the current mission of the Inland Revenue Board of Malaysia (IRBM) to foster voluntary tax compliance in Malaysia may be feasible because of the positive impact of religious values held by almost all Malaysian citizens. Therefore, it is important for the Malaysian authorities to design policies that benefit citizens as a whole and develop common understanding between the stakeholders to increase taxpayers’ willingness to pay taxes for the benefit of the country. This remains an important challenge for the relevant authorities.The limitations of this study are also acknowledged. For example, the employment status of the majority of the respondents in this study as salaried taxpayers means that they may not represent the true perceptions of all individual taxpayers in Malaysia. Even with its limitations, this study provides evidence that religiosity is important in helping to explain the issue of tax compliance. In particular, the significant impact on tax compliance of taxpayers’ perceptions towards government and of their interaction with the tax authority and society is evident, in addition to the negative effect of the threat of punishment on highly compliant taxpayers. The key direction for future research in this particular area would be to compare the impact on tax compliance of individuals’ religious values with the impact on tax compliance of individuals’ moral values that have no influence from religion. This could make valuable contributions to tax compliance research by further clarifying the distinction between these two values since no clear pronounced definitions of religious and moral values are available to date.