Evaluation of corporate income tax compliance costs and compliance behaviour under the self-assessment system

Commitment to compliance may cause taxpayers to experience unnecessary compliance costs burden resulting in non-compliance behaviour. This study evaluates the tax compliance costs of corporate taxpayers and their compliance with the corporate income tax (CIT) reporting requirements under the Self-Assessment System (SAS) environment. Tax compliance costs, corporate characteristics, tax attitudinal aspects and the likely compliance behaviour of public listed companies (PLCs) are integrated into a single study, which represents a unique combination of research. A quantitative approach was adopted, whereby data was collected through a self-administered questionnaire survey method. Two types of respondents were utilised, namely corporate taxpayers and external tax professionals, for richness of data and as a measure of consistency. The mean CIT compliance costs estimate for the year of assessment 2009 is MYR47,126 per company, accounting for approximately MYR0.01 per sales turnover. The mean estimate of this study is 31.5 percent lower when compared to the findings of similar Malaysian pre-SAS study. The aggregated total compliance costs is almost MYR32 million representing 0.11 percent of corporate tax revenue and 0.01 percent of Malaysian gross domestic product (GDP). The magnitude of CIT compliance costs estimate is low compared to similar estimates in other countries. Nevertheless, the normal regressivity of tax compliance costs, in relation to company size, is evident which corroborates the findings of all existing studies. Major components of compliance costs relate to tax computation work (74 percent) and there is a heavy reliance on external sources (63 percent). Business size and estimated tax liability are the significant determinants for the magnitude of tax compliance costs burden for PLCs. The portion of tax incentives and psychological costs to the mean tax compliance costs incurred by large corporations are approximately seven and 18 percent, respectively. This study also provides empirical evidence in the context of linking between compliance burden of the tax system and compliance behaviour from the large corporate taxpayers’ perspective. Tax compliance costs burden appears to have an impact on the likelihood of non-compliance behaviour, though it is not statistically significant at the 10 percent level. The findings further reveal that the length of time companies have been operating, estimated tax liability and perceptions on complexity in the tax systems, are factors that significantly influence all types of non-compliance, namely under-reporting of income, over-claiming of expenses and overall non-compliance. The remaining corporate characteristics and attitudinal aspects examined, specifically business size, business sector, tax rate structure, tax deterrence sanction, tax law fairness and tax psychological costs, are significant determinants in at least one type of the non-compliance behaviour. This study adds to the growing body of international literature concerning taxpayer compliance costs burden, and to a lower extent, the link between tax compliance costs and tax compliance behaviour. Tax compliance costs and compliance behaviour are clearly important areas of research that have implications for both corporate taxpayers and policy makers. Findings from these research activities should initiate and lead to the progression of more effective and efficient tax policies and practices