The impact of tax enforcement on tax compliance in Malaysia: an empirical evidence / Dr Rani Diana Othman and Dr Mohd Shukor Mahfar

Tax non-compliance which defined as the difference between tax owed and taxes paid, have long realised to cause tax gap. Its negative impact on the nation is also associated with losses in revenue and the unequal distribution of social welfare. The issue of the tax gap in Malaysia has been raised by the Auditor General nearly every year due ‘to the presence of massive tax arrears in the Auditor General Report. In spite of the new tax climate, the existing studies in Malaysia are highly focused on survey and experimental studies, reflecting psychological and behavioral approaches to tax compliance. The narrowly focused research is caused by the restricted and limited data provided by the Inland Revenue Board of Malaysia (IRBM). Imposition of Section 138 (Secrecy Information) and insufficient data collected by the Malaysian tax authority have also limited the type of studies undertaken by Malaysian researchers. Meanwhile, regardless of the ongoing efforts to improve tax enforcement activities, there is no study in Malaysia that has sought to show empirically the impact of its efforts towards compliance. From whatever standpoint of view, the main objective of any tax compliance studies is to enhance the efficiency of a nation’s tax administration. The IRBM has given a generous permission to this study in using its actual unexplored data on individual taxpayers and the rate of its enforcement factors for the period of 2002 - 2007.