discusses the policy implications and the contributions this research makes

Discusses the policy implications and the

This preview shows page 26 - 29 out of 241 pages.

discusses the policy implications and the contributions this research makes towards empirical research on tax compliance. It also incorporates the research limitations and suggestions for future research.
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13 CHAPTER 2: Ethnicity and Tax Compliance of SMEs 2.1 Introduction This chapter provides an overview of the importance of studying the ethnicity of SME operators and their tax compliance behaviours. The chapter begins with a general discussion of the determinants of tax compliance in section 2.2, followed by an examination of the tax compliance research on SMEs and taxpayers in section 2.3. Next is a review of prior literature on cross-cultural and intra-cultural tax research on students and general taxpayers (in section 2.4), and SMEs (in section 2.5). Section 2.6 examines SMEs’ tax knowledge and record keeping processes, which many find problematic. Literature concerning SMEs’ relationship with and perceptions of tax authorities is discussed in section 2.7. The use of tax practitioners by SMEs is discussed in section 2.8, with the concluding summary in section 2.9. 2.2 Determinants of tax compliance behaviours Since taxes are collected by the government, tax payments are commonly associated with these emotions: “hope, despair, anger, outrage, defiance, frustration, disdain, suspicion, and deference” (Rawlings & Braithwaite, 2003, p. 265). These emotions motivate some to evade taxes by understating their taxable incomes and/or overstating their deductible expenses. Economic deterrence theories assume that taxpayers are amoral utility maximisers deterred only by tax audits and penalties for cheating (Allingham & Sandmo, 1972; Klepper & Nagin, 1989a). Hence, many tax authorities rely on their suggestions to curb tax evasion through these monitoring and regulatory measures (Braithwaite, 2003b; Robben et al., 1990; Tran-Nam, 2003). However, there are increasing criticisms of economic deterrence theories to fully explain actual tax compliance behaviours. Despite the extremely low tax audits in most OECD countries, tax compliance level has been high (Andreoni, Erard, & Feinstein, 1998; Torgler, 2005). Tax compliance experiments have shown participants declaring higher levels of incomes than what is predicted by the economic deterrence theories
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14 (Alm, 1999; Torgler, 2002). Alm (1991) concludes that there are both economic and non-economic factors affecting tax compliance, which was later proven in much experimental, survey and empirical research (Alm, Sanchez, & De Juan, 1995; Cullis & Lewis, 1997; Jackson & Milliron, 1986; McKerchar, 2001; M. Richardson & Sawyer, 2001). One of the major non-economic factors considered currently in the tax literature is tax morale (Frey & Torgler, 2007; Torgler, 2003) which relates to the taxpayers’ intrinsic motivation to comply regardless of the deterrence measures (Frey, 1997). Acknowledging the importance of non-economic factors on tax compliance, Erard and Feinstein (1994) and Andreoni et al. (1998) stress the need to integrate non-economic factors with the economic deterrence theories to provide a reasonable explanation of actual tax compliance behaviour. The primary reason for not fully understanding tax
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  • Fall '16
  • tax compliance, SME Operators

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