Complexity, which is the second-factor affecting tax non-compliance is perceived as another rationale for non-compliance among taxpayers. Researchers and authors believed that complexity of the income tax system compelled taxpayers do not comply, either intentionally or unintentionally. In Malaysia, tax complexity has been identified as an important factor that influences compliance behavior and it is seen as the root of non-compliance among corporate taxpayers (Abdul-Jabbar, 2009). According to Richardson and Sawyer (2001), “tax complexity arises due to the increased sophistication in the tax law”. Many authors believe that complexity in the tax law contributes to non-compliance.
Ultimately, when laws are complex, taxpayers are more prone to tax non-compliance. Malaysia researcher, Mustafa (1996), who studied taxpayers’ perceptions towards the Self-System Assessment (SAS) which was to be introduced (at that time), acknowledged the presence of tax complexity in Malaysia and particularly in terms of record-keeping, having too much detail in the tax law and ambiguity. Back in the days, studies on tax complexity were conducted by various researchers. These studies were to assist the tax authorities in simplifying the tax system by referring to areas where taxpayers experience difficulties with compliance. With that being said, six dimensions of tax complexity were identified:o Ambiguity (uncertainties in tax law lead to more than one defensible position)o Computations (difficult computations that need to be made)o Detail (numerous rules and exceptions to rules)o Changes (frequent and recent changes in law)o Record-keeping (detailed special records must be kept)o Forms (confusing format or instructions)A more recent survey that was undertaken among the salaried taxpayers also acknowledged the complexity of the contents of the income tax law, despite having less computational skills involved (Saad, 2001).
Similarly, a more recent survey undertaken in 2014 by Isa also found the presence of tax complexity and categorized it into tax computations, record-keeping and tax ambiguity (Saad, et al., 2014). Thus, these three are the ones that affect many Malaysian corporate taxpayers.
In Malaysia, many corporation taxpayers have difficulties preparing tax computations. However, in many cases, they can prepare their own financial reports based on the accounting standard but not able to prepare tax computations based on the tax laws. As for instance, financial reports of insurance providers in Malaysia are regulated by the Central Bank of Malaysia known as Bank Negara Malaysia and comply with the internal and external auditor requirements. As such, when tax computations prepared by these insurance providers are been audited by tax auditors, many are found to be non-compliant with the tax laws.
One main reason for that could be taxpayers finding tax computation difficult to prepare as it required considerable understanding of the tax rules and exceptions to the rules. Secondly, in Malaysia, many of the corporate taxpayers have also difficulties in maintaining records and documents. Even though they are not asked when submitting income tax return forms, taxpayers are required to keep their records and documentation for seven years.
But also, many of these taxpayers sometimes are not able to get supporting documents during an audit, and that could be due to several reasons such as lost or missed documents. As many of these SMEs in Malaysia, many are cash traders, cash receipt or invoice are not issued on most business transactions. To summarize, many corporate taxpayers in Malaysia do not maintain proper accounting records that are needed for an audit. Lastly, the ambiguity of tax laws results in different interpretations of the tax laws. The problem of ambiguity is mainly raised by corporate taxpayers in the financial or insurance and contractor or developer industries. In order to reduce tax ambiguity, the Inland Revenue Board Malaysia (IRBM) issued special provisions and general guidelines in May and July 2009 for the respective two groups (IRBM, 2009). Although these guidelines contain helpful guiding principles with clear and detailed explanations, there are no specific regulations applicable to the respective groups of taxpayers.
This will result from different interpretations of the terms and it can lead to either intentional or unintentional non-compliance. In short, the IRBM should consider simplifying the preparation of tax computations, standardizing the procedures for recordkeeping and formulating clearer tax laws to reduce tax ambiguity in the attempt to improve voluntary compliance.