Determinants of non-compliance behaviour on excise duty in Malaysia

Statistical evidence shows that non-compliance with excise duty on cigarettes, liquor, and imported vehicles by importers is the key issue faced by the Royal Malaysian Customs Department (RMCD). However, studies in Malaysia rarely highlighted excise duty non-compliance. This study is the first attempt to examine the excise duty non-compliance determinants. It aimed at investigating the direct relationship between tax rate, penalty rate, tax audit, tax fairness, peer influence, tax knowledge, corruption and excise duty non-compliance. This study also considered the moderating effect of the probability of detection and tax agents. The Deterrence theory and the Fischer model were used to delineate the economic and socio-psychological factors. Data were gathered from 500 useable respondents scattered throughout Malaysia via a survey questionnaire using the disproportionate stratified random sampling technique. Findings from the partial least square analysis revealed that the R2 value achieved a substantial amount of variance of 63% for the direct effects on excise duty non-compliance, increased to 65% for the indirect effects of tax agent, and 66% for probability of detection. Further, tax audit, tax fairness, peer influence, tax knowledge and corruption were significantly and positively related to excise duty non-compliance. Moreover, the relationship of tax audit and tax fairness became weaker for individuals with a high level of probability of detection. On the other hand, the significant and positive relationship of tax knowledge and excise duty non-compliance became stronger for individuals with a high level of probability of detection. However, the significant and negative relationship between penalty rate and excise duty non-compliance was weaker for individuals with high-level influence of the tax agent. This study contributes to the indirect tax non-compliance literature and policy-makers.