An Evaluation of the Malaysian Tax Administrative System and Taxpayers Perceptions Towards Assessment Systems, Tax Law Fairness and Tax Law Complexity

Tax regimes all around the world are constantly looking for ways and means to improve their tax revenue collections. Since tax revenue forms the major portion of the total revenue in any economy, the efficiency and productivity of the tax administrative system determines the amount collected for any particular year of assessment. If the tax
administrative system is efficient and productive collection of tax revenue would be high. It has also been argued by many researchers that efficiency and productivity could be improved by means of the self-assessment system.
Moreover, the compliance behaviour of the taxpayers is also important to income tax collections. Income tax could also be avoided or evaded by a taxpayer. Avoidance, within the legal framework, is allowed but evasion of taxes are looked upon as national crimes by the tax regimes. Heavy penalties are imposed for tax evasion. On the other hand, taxpayer compliance behaviour is unpredictable. Nevertheless, many researchers have studied this behaviour in many different perspectives. Researchers have also identified many variables that influence taxpayer compliance behaviour. But among the major factors that could influence taxpayer compliance behaviour are the tax administrative system, tax law fairness and tax law complexity. In this study, the efficiency and productivity of the Malaysian tax administrative system was evaluated. Using trend analysis, it was found that the Malaysian tax administrative system is moderately efficient and productive compared to Japan,
Australia and New Zealand. However, it is not as efficient when compared to Indonesia and the U.S. But if we were to ignore Indonesia for reasons mentioned in this dissertation, then, generally, the Malaysian tax administrative system may be seen as efficient and productive. But the trend analysis also indicates that administration costs are on the rise and the productivity on the decline. This may be seen as an unhealthy trend
for the Malaysian tax administrative system to remain efficient and productive. Taxpayers’ perceptions towards the assessment systems, tax law fairness, and tax law complexity were gathered through a survey. Differences in taxpayers’ perceptions were analysed by one-way ANOVA. Significant differences were found in their perceptions. Interestingly, the respondents positively perceived the implementation of the self-assessment system (SAS) in Malaysia. Except for those in the administrative and
clerical group, others agreed that SAS could be implemented in Malaysia. Those in the administrative and clerical group fear that a new assessment system would be a burden to
them. It could also mean that they may need to pay new taxes. With respect to tax law fairness, majority of the taxpayers perceived that the tax law is not being fair to them. Surprisingly, too, only the administrative and clerical group perceived that the tax law is fair or equitable to them. This could be because they are practically satisfied with the tax rate at which their income is subjected to tax. The lowest tax rate in Malaysia is 2 per cent on the chargeable income of RM10,001 -
RM20,000. Tax rate, therefore, may also be a determinant in the taxpayer compliance behaviour. City taxpayers also agreed that the tax law was not equitable. Thus, in order to encourage voluntary compliance among the Malaysian taxpayers, it is important for the IRB and the government to improve these particular groups of taxpayers’ perceptions. The findings of the study also indicate that tax law complexity exists in Malaysia. All the respondents agreed that tax law complexity is one of the factors that hinders voluntary compliance. Record keeping, too much detail in the tax law and ambiguity were ranked highly and perceived to be major factors that hinders voluntary compliance. The IRB might take note of this and take the necessary steps to eliminate tax law complexity, if voluntary compliance were to be encouraged among the taxpayers. One of the major findings of this study is that only owner-managers hire tax professionals to help prepare their annual tax returns. All other taxpayers prepare their
own tax returns. On the average, the owner-managers pay RM250.00 for professional services. This amount is considered low when compared to other developed and
developing countries. Nevertheless, in order to encourage voluntary compliance, it is very important that the compliance costs are kept at a minimum. Compliance costs should not be a burden to the taxpayers even after the implementation of SAS in Malaysia. In conclusion, SAS could be implemented in Malaysia at a minimum cost. But efforts must be taken by the government to ensure that the taxpayers positively perceive tax law fairness. Tax law complexity exists in Malaysia, and if voluntary compliance
were to be encouraged then ways and means must be undertaken to minimise it. Although, compliance costs is much higher among the owner-managers compared to others, it is still comparatively low when compared to other countries.