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Trust and Tax Compliance Among Malaysian WorkingYouthAzwadi Alia & Norsiah Ahmada

a Faculty of Management and Economics, Universiti Malaysia Terengganu, Kuala Terengganu,MalaysiaPublished online: 15 May 2014.

To cite this article: Azwadi Ali & Norsiah Ahmad (2014) Trust and Tax Compliance Among Malaysian Working Youth,International Journal of Public Administration, 37:7, 389-396, DOI: 10.1080/01900692.2013.858353

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International Journal of Public Administration, 37: 389–396, 2014Copyright © Taylor & Francis Group, LLCISSN: 0190-0692 print / 1532-4265 onlineDOI: 10.1080/01900692.2013.858353

ARTICLES

Trust and Tax Compliance Among Malaysian Working Youth

Azwadi Ali and Norsiah AhmadFaculty of Management and Economics, Universiti Malaysia Terengganu, Kuala Terengganu, Malaysia

A high level of tax morale is necessary in promoting tax compliance among the public, includ-ing youth who tend to have a low sense of responsibility. The current tax system and workingyouth segment of Malaysia are first explained. Based on the relevant literature on taxation,important factors that influence trust and the resulting tax compliance are conceptualized ina research model. An online survey was administered on youth throughout Malaysia thatresulted in 2,030 usable responses, of which 500 were used in testing the model. The empiricalresults from using partial least squares analysis show that one of the two trust variables and taxknowledge are significant determinants of tax compliance. In addition, youth in the registeredtaxpayers group exhibited a greater level of compliance intention than non-registered youth.

Keywords: tax compliance, tax morale, tax knowledge, youth

INTRODUCTION

Tax non-compliance can be considered as an evergreen issuein a nation. A high tax compliance level among taxpayershelps in reducing the monitoring and auditing duties of thetax collector. In addition, it can help a tax revenue target setearlier to be easily achieved. Many “developmental states”including many Asian countries rely more on targeted tax-ation than high levels of tax collection (Sindzingre, 2007).In particular, targeted taxation is chosen because of the highlevel of subsidies of common goods including petrol, cook-ing oil, and sugar currently being applied in Malaysia. As thelegal entity for collecting tax, the Inland Revenue Board ofMalaysia (IRBM) has undertaken many initiatives to pro-mote compliance and deter tax evasion in order to ensure thatthe ruling government’s targeted tax revenue is achieved.

Tax revenue serves the most important role in support-ing government spending. The government needs a good andstable financial resource to manage a whole nation. As adeveloping country, Malaysia tends to set an annual targetedtaxation to finance the anticipated expenses including publichealth care, education, and national defense. For example,

Correspondence should be addressed to Azwadi Ali, Universiti MalaysiaTerengganu, Faculty of Management and Economics, Kuala Terengganu21030, Malaysia. E-mail: azwadi@umt.edu.my

the IRBM in 2010 was able to collect RM79.54 billion indirect tax collections, exceeding the target of RM76.16 bil-lion (IRBM, 2011). In the same year, as many as 1,572 non-compliance cases were charged in court with estimated taxrevenue of RM90.09 million. With the introduction of theself-assessment system (SAS) in 2001, which has reducedclerical consulting tasks, the IRBM has been able to increasethe audit duties to combat the non-compliance problem.

Promoting tax compliance can be undertaken througheconomic measures such as adequate monitoring throughauditing as well as an efficient penalty for tax offenders.In order to achieve this aim, the tax authority of a par-ticular nation should be granted sufficient power to carryout its duty. In addition, high tax compliance can also beexpected when the public has high tax morale. This socio-psychological aspect of the public can encourage more vol-untary compliance rather than enforced compliance achievedthrough pure economic measures. Among the public seg-ments that potentially have a high level of non-complianceand having relatively low tax morale are youth, who arguablyhave a low sense of responsibility toward society as a whole(Wearing & Headey, 1997). In contrast, older people areless likely to justify cheating on taxes than younger people(OECD, 2012). Therefore, the present study was undertakento assess whether or not trust and tax literacy act as deter-minants of tax compliance among the working youth inMalaysia.

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The Ministry of Youth and Sports of Malaysia (MYSM)adopts the definition of youth as those who are in the agerange between 15 and 40 years old consistent with theYouth Association and Development Act (2007). Youth inMalaysia currently represent 46% of the Malaysian popu-lation (MYSM, 2010). As at 2010, this segment consistedof 12,808,667 individuals of the 27,565,821 total popula-tion, while 7,875,100 of this figure were identified as part ofthe labor force (Department of Statistics, Malaysia, 2010).Given the high number of working individuals in this seg-ment, the potential implications of compliance as well asnon-compliance in tax matters are profound.

The present study looked at some psychological factorsthat contribute to the level of tax morale among workingyouth in Malaysia. Hence, the findings from this study can beused by the relevant public administration agencies includingthe IRBM, the MYSM, and the Companies Commission ofMalaysia to review the existing policies and form new pro-cedures, guides, rules, and regulations, as well as activitiesthat are valued most by this population segment in promot-ing their tax compliance. These activities such as awarenessprograms, commercials in the media, and mobile help deskscan substitute some of the purely economic measures thattend to hinder positive perceptions toward the public admin-istration. In particular, we found that when trust in the taxauthority is high, youth are more likely to be willing to filetheir tax returns.

Tax system in Malaysia

The tax system in Malaysia follows a rather standard taxregime, as practiced by most of its counterpart nations.Currently, taxes are levied on individuals and corporationsin the form of tax on occupational, business, and invest-ment incomes. Income tax in Malaysia is territorial and onlyimposed on income that has a Malaysian source except forbanking, shipping, air transport, and insurance industrieswhere the global income rule is applied. In general, the per-sonal income tax system in Malaysia is progressive in natureas the tax rate increases as an individual’s income increases.

The taxpayers are categorized by residency status. Thestatus determines the different tax rates, deductions, reliefs,and rebates. Most non-resident taxpayers are taxed via thewithholding tax mechanism and subjected to a double taxa-tion agreement (DTA) between their countries and Malaysia,if the DTA exists. The country has implemented currentyear assessment since 2000 followed by SAS in 2001 forcompanies, and 2004 for individual taxpayers.

Individual taxpayers must first register with the IRBM,upon which they will be given a tax file number. For thosewho are recruited for the first time by established companiesor governmental departments, their tax registration is nor-mally completed by the employers. However, for those whoare working in the many small and medium business enti-ties, the employers will have a duty to perform scheduled tax

deductions every month when their employees have earnedmore than the minimum taxable monthly income set by theIRBM. Hence, if the employees are not registered taxpay-ers, the employers will have a duty to register tax files forthem. Furthermore, entrepreneurs who have just started theirbusinesses will have a duty to have a tax file registeredwith the IRBM. Because the responsibility for registration isupon individuals and employers, there are many individualsearning income who have yet to register with the IRBM.

Inland Revenue Board

The IRBM has been given the authority to administer andregulate the laws, as passed by the Parliament to ensure thatthey are implemented and to make the tax system work.The main purpose of its existence is to secure and col-lect income revenue for the government. In achieving thispurpose, the IRBM has the responsibility to encourage andassist voluntary compliance, deter tax evasion, maintain pub-lic confidence in the integrity of the tax system, administerthe tax laws fairly, and create a climate of public trust, fair-ness, impartiality, and firmness (IRBM Act, 1995). Besidesadvising the government on matters relating to taxation, theIRBM is also appointed as a collection agent for the gov-ernment and on behalf of any statutory body to recover theunpaid loans to that body under any written laws in Malaysia.

The IRBM has engaged in many activities in promoting ahigh level of tax compliance in Malaysia such as continuoustax education programs designed to provide exposure andawareness on taxation laws to IRBM’s clients and future tax-payers. Besides education, it provides a forum to inform andupdate clients on their rights and responsibilities as taxpay-ers in order to increase the rate of voluntary tax compliance(IRBM, 2011). Implementing an effective tax audit programserves as a key factor in ensuring that the level of tax com-pliance continues to improve and that taxpayers comply withthe provisions of applicable tax laws and regulations, par-ticularly within the environment of a SAS for individualtaxpayers which was introduced in 2004.

LITERATURE REVIEW

High tax non-compliance, such as a high rate of tax eva-sion, can cause a government to spend less on public societalbenefits. In contrast, high tax compliance reduces the costof the tax authority in promoting and regulating tax incomecollection. According to the IRBM, the average annual taxcompliance rate in Malaysia is 74% (The Star, 2012). Thefigure seems to improve every year, and, as reported for yearassessment 2007, the compliance rate was 83.7% (Loo &McKerchar, 2012).

Tax compliance can be defined as “reporting all incomeand paying all taxes in accordance with the applicable laws,regulations and court decisions” (Alm, 1991, p. 577). Among

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the popular efforts to increase compliance are audits andpenalties (Sandmo, 2005). However, more recent studies inthe area have included socio-psychological factors that canfurther explain the behavior.

Tax compliance decisions have been poorly predicted bythe traditional model that includes monitoring probabilityand expected penalty (Ruiu & Lisi, 2011). Hence, later workson tax compliance introduced the concepts of tax morale andthe slippery slope framework, which are believed to be ableto explain the behavior better. These socio-psychologicalvariables, such as fairness and social norms, can explain taxcompliance behavior because the residents of the countryfeel an obligation to do so, and not as a result of fearing therepercussions of non-compliance.

Tax morale can be defined as the intrinsic motivation topay taxes arising from the moral obligation to pay taxesor the belief in contributing to society by paying taxes(Cummings, Martinez-Vazquez, McKee, & Torgler, 2009;Frey & Torgler, 2007). In contrast, the slippery slope frame-work suggests that compliance can either be voluntary orenforced and that these are influenced by the trust in the taxauthority and the power of the tax authority, respectively.

Trusting a tax authority highly depends on the publicperceptions of the tax authority and the general culture offeeling responsibility toward a nation. For those who havereceived services from the tax authority, their attitudes andbeliefs will be formed or re-shaped, while non-paying res-idents will be influenced by the social norm in paying tax(Cummings, Martinez-Vazquez, McKee, & Torgler, 2005).In particular, taxpayers expect procedural justice across alltaxpayers when receiving services from the tax administra-tion. On the other hand, if a tax agency’s behavior falls shortof the socially determined expectation of procedural fair-ness, the intrinsic motivation to pay taxes or tax morale willdecline (Feld & Frey, 2002). Among the public segments,the younger generation have been found to have a low senseof responsibility (Braithwaite, Smart, & Reinhart, 2006;Houston & Tran, 2001; OECD, 2012; Richardson, 2006).

In general, youth are found to have low financial literacy,and hence, poor financial planning, which results in carryinga large amount of debt early in their lives (Lusardi, Mitchell,& Curto, 2010). Their daily activities do not tend to alignwith their long-term financial aims. This happens due todelaying activities to achieve the targeted financial objec-tives and not having many responsibilities such as havingfamilies. In many instances, youth are one of the segmentsthat exhibit a low level of compliance such as safe drivingand adhering to speed limits (Elliott, Armitage, & Baughan,2003; Scott-Parker, Watson, King, & Hyde, 2012a, 2012b).Relating to the commonly perceived behaviors of youth, taxnon-compliance can be a major concern for tax authorities.

With respect to tax matters, youth between 18 and45 years old were found to be less compliant than older indi-viduals (Houston & Tran, 2001). Tax evasion cases amongthis segment revolve around under reported incomes as well

as over-claiming tax deductions (Braithwaite, Reinhart, &Smart, 2010). Younger taxpayers are more risk-seeking, lesssensitive to penalties, and reflect the social and psychologi-cal differences relating to the period in which they are raised(Richardson, 2006). Other suggested explanations includeyounger taxpayers may be lacking the capacity to fulfill tax-paying requirements (Braithwaite et al., 2006), they maybe more defiant of conventional authority (Kirchler, 1999),and they may regard taxation as unfair, warranting politicalresistance (Watts, 1999).

RESEARCH MODEL AND HYPOTHESISDEVELOPMENT

Tax morale has been used as a proxy for tax compliance bysome studies (e.g., Feld & Frey, 2002; Torgler, 2003; Torgler& Schneider, 2007b) but it underestimates the actual com-pliance decisions (Ruiu & Lisi, 2011). For this reason, weused intention to file a tax return as the proxy for tax compli-ance. This is also in accordance with the IRBM in releasingtheir annual tax compliance based on tax filing data and hasbeen used in several local studies (e.g., Loo & Ho, 2005;Mohamad, Ahmad, & Deris, 2010; Palil & Mustapha, 2011).Furthermore, as taxpayers file their annual returns, they canexpect to receive any excess tax payments, and, at the sametime, avoid the potential penalty of not filing it on time.

Trust has been examined in a large amount of the litera-ture from the social and philosophical perspectives (Olsen,2008). Although there are disagreements in its definition,trust is very much associated with the perceived vulnerabil-ity of individuals as a result of the actions of others. In thisview, Rousseau, Sitkin, Burt, and Camerer (1998, p. 395) putforward a good working definition of trust “a psycholog-ical state comprising the intention to accept vulnerabilitybased upon positive expectations of intentions and behaviorof others.”

In the taxation literature, trust is deemed to be a signif-icant attitudinal variable that shapes tax morale among thepublic (Torgler & Schneider, 2007b) and can comprise hor-izontal trust (among taxpayers) and vertical trust betweentaxpayers and the state (Frey & Torgler, 2007). In otherwords, tax rules that are perceived to be fair will have a highhorizontal trust among taxpayers while a just and efficienttax authority shapes high vertical trust.

Although tax evasion can be caused by a number of fac-tors, trusting the tax system can be considered the mainone (Hammar, Jagers, & Nordblom, 2009). Although weare more concerned with tax filing compliance than tax eva-sion per se, we have included trust in the tax system in theresearch model (see Figure 1). Trust in the tax system canbe viewed as taxpayers’ perceptions concerning the fairness,tax burden, and tax distribution. Fairness is related to the per-ceived balance of taxes paid and public goods received, andto the perceived justice of procedures and consequences of

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FRI

TRS

TRA

TK

Where:TRS – Trust in tax systemTK – Tax knowledgeTRA – Trust in tax authorityFRI – Filing tax return intention

FIGURE 1 Research model used in the study.

norm breaking (Hofman, Hoelzl, & Kirchler, 2008), whereasdistribution justice relates to a fair exchange of resources,benefits, and costs, and is distinguished as horizontal, verti-cal, and exchange fairness (Kirchler, 2007). A resident whoperceives the current tax system as unfair tends to exhibit alow level of compliance including late filing or even not fil-ing a tax return at all. Hence, we are interested to test thefollowing hypothesis:

H1: Trust in the tax system is positively related to filingtax return intention.

Trust in tax authorities relates very much to the percep-tion of taxpayers on procedural justice of the existing taxsystem (Kirchler, Hoelzl, & Wahl, 2008). In addition, highcompliance can be expected from trusting the tax authori-ties (Torgler & Schneider, 2007a). Similarly, Feld and Frey(2007) highlight the importance of how taxpayers feel theyare treated by tax authorities and refer to a “psychologicalcontract” and a relationship of mutual respect that leads tax-payers to behave loyally and to pay taxes honestly. In severalstudies, trust in tax authorities is found to be positively cor-related with tax payments (e.g., Hammar et al. 2009; Torgler,2003). In a similar vein, we formed our next hypothesis as:

H2: Trust in the tax authority is positively related to filingtax return intention.

Tax knowledge can be acquired through formal educationwhich enables individuals to better understand tax (Bahari& Ling, 2009). Nevertheless, there is currently no tax syl-labus being formally taught in the public education systemin Malaysia. Therefore, the public can only learn about taxthrough the experience of filing tax returns themselves orthrough awareness programs run by related agencies. TheSAS itself demands that taxpayers learn the tax laws, whichcan be a burden to new users (Natrah, Muzainah, & Idawati,2003); however, over time, the taxpayers will become moreliterate in tax especially those relating to tax laws. By under-standing the tax laws, people are more willing to respect

the tax system including complying with its requirements(Eriksen & Fallan, 1996). In addition, we expect that theincreased tax knowledge in individuals will help them formpositive trust in the tax system and tax authorities. Basedon these arguments, our tested hypotheses relating to taxknowledge are:

H3: Tax knowledge is positively related to filing tax returnintention.

H4: Tax knowledge is positively related to trust in the taxsystem.

H5: Tax knowledge is positively related to trust in the taxauthority.

RESEARCH METHODS AND FINDINGS

Measurements

Driven by an objective to understand key factors that encour-age high tax compliance among Malaysian working youth,a survey based on the research model in Figure 1 utilizingmeasures in Table 1 was conducted on youth registered inthe database of the Ministry of Youth and Sports Malaysia.In Table 1, trust in the tax system was measured by sixitems, trust in the tax authority was measured by seven itemsand compliance with filing tax returns was measured by fiveitems. All of these items except TRS1 were measured using a5-point Likert scale. In addition, measures on tax knowledgewere based on 29 items relating to tax self-administration(6), basic (10), and advanced levels (13).

A free online platform was used to administer the sur-vey to youth registered in the ministry’s database. Over aperiod of three weeks, a total of 2,030 responses had beenreceived. The researchers decided not to prolong the sur-vey after being advised that the number of respondents wasdeemed satisfactory and common with previous surveys con-ducted by the ministry themselves. From the total responses,only 500 were randomly selected and used in the analysis soas to mitigate the potential problem of the research modelbecoming overly sensitive (Hair, Black, Babin, Anderson, &Tatham, 2006). The software used to complete the study wasSmartPLS (Ringle, Wende, & Will, 2005).

Descriptive

The descriptive figures of this sample are given in Table 2and the scores on tax knowledge are given in Table 3. Notethat we used a score of 1 for a correct answer on tax knowl-edge items while 0 was used for wrong answers, missinganswers, and “don’t know.”More than half of the selectedsample respondents are in their prime youth age while only36 respondents are between 30 and 40 years old. Amongthis sample, the majority are non-registered taxpayers andMalays. As for the score on tax knowledge, they can be

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TABLE 1Item Measures

Items Definition/Statements

Youth perceived trust in the current tax system in Malaysia.TRS1 Income tax rate in Malaysia is ______ (1-unfair:5-fair).TRS2 Generally, the income tax system in Malaysia is fair.TRS3 Overall, the burden of tax in Malaysia tax systems has been fairly distributed.TRS4 Current tax rates are far too high. (R)TRS5 Tax revenue is wisely spent by the government on project and infrastructure that are beneficial to taxpayer.TRS6 The taxes I have to pay are not too high considering the social benefits provided by the government.

Youth perceived trust in IRB as tax collector.TRA1 IRBM cares about the position of taxpayers.TRA2 IRBM trusts the assessment made by taxpayers themselves.TRA3 IRBM considers the views of average citizens over changes to their systems.TRA4 I am satisfied with assessment and collection of tax process made by IRBM.TRA5 IRBM gives good cooperation when taxpayers need information about tax.TRA6 Overall, IRBM is very efficient in carrying their duties and affairs with taxpayers.TRA7 In my opinion, IRBM is able to check the correctness of all the information reported in tax form submitted by taxpayers.

Youth inclination toward tax return requirements.FRI1 I lodge my tax return as soon as possible, even if I do not expect a tax refund.FRI2 I am a loyal and law-abiding citizen, so it is not right for me to under-report the income or claim an undeserved deduction.FRI3 I am willing to report my entire income voluntarily even though I will not be examined (audited) by IRBM.FRI4 I will not claim any expenses and relieves more than my eligibility because I am afraid to be caught by IRBM.FRI5 I will report the correct tax computation because I am liable for tax refund.

TABLE 2Descriptive of Sample

Age N Taxpayer N Ethnic N Employment N

20–24 290 Registered 107 Malay 304 Self-employed 10625–29 137 Not Registered 389 Chinese 85 Private 22630–40 36 Indian 50 Government 107Missing 37 Missing 4 Others 61 Missing 61Total 500 500 500 500

TABLE 3Tax Knowledge Score

Knowledge Items Score N (%) Min. Max. Mean

Tax admin 0 33 (6.6) 0 4 2.731 30 (6.0)2 111 (22.2)3 191 (38.2)4 135 (27.0)

Basic knowledge 0 43 (8.6) 0 9 4.311–3 133 (26.6)4–7 276 (55.2)8–10 48 (9.6)

Advanced knowledge 0 79 (15.8) 0 12 4.251–4 188 (37.6)5–10 228 (45.6)11–14 5 (1.0)

considered as having poor tax knowledge with the meanscores for tax administration, basic, and advanced knowl-edge being 2.73, 4.31, and 4.25, respectively. Surprisingly,the high number of respondents who scored zero in the tax

knowledge questions seems to indicate that many of them arenot very familiar with taxable income and deductions.

Validity of Instruments

The validity of the measures was checked by examiningthe composite reliability (CR), average variance extracted(AVE), and Cronbach’s alpha. From the original measures,only one item (TRS4) was discarded due to low loadings,while the remaining items exhibit strong validity as reportedin Table 4. Note that tax knowledge was measured by usingthe total score of all tax knowledge questions.

Between-construct validity was assessed by checkingwhether or not each construct measures what it is supposedto measure. In this approach, the latent constructs’ correla-tions were compared against the square roots of AVE. Forthis study, Table 5 shows that all the inter-construct corre-lations were less than the construct’s square root of AVE,which demonstrates good discriminant validity.

Structural Model

The structural results of the research model are presentedin Figure 2. The partial least squares (PLS) algorithm usedin the study was standardized item scores, using a centroidweighting scheme with 300 maximum iterations. The resultsindicate that filing tax return intention can be reasonably pre-dicted by the model with 21.3% variance explained by theexogenous variables. Only two significant relationships werefound from the five stipulated relationships: these are TRA→ FRI (ß = 0.426) and TK → FRI (ß = 0.126). In addition,

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TABLE 4Validity of Measures

Mean S.D. Loading CR AVE Alpha

TRS1 2.75 1.074 0.715 0.881 0.597 0.837TRS2 2.71 1.059 0.834TRS3 2.90 1.057 0.782TRS5 2.71 1.115 0.729TRS6a 2.98 1.040 0.798TRA1 3.16 1.048 0.722 0.931 0.658 0.913TRA2 3.33 0.931 0.799TRA3 3.18 0.956 0.832TRA4 3.16 0.935 0.837TRA5 3.31 0.921 0.841TRA6 3.24 0.937 0.851TRA7 3.32 0.946 0.789FRI1 3.44 0.982 0.737 0.860 0.555 0.797FRI2 3.52 1.006 0.793FRI3 3.51 1.008 0.834FRI4 3.14 1.016 0.559FRI5 3.57 0.926 0.772TK 11.30 5.223 1.000 N/A N/A N/A

aTRS4 was discarded due to low loading.

TABLE 5Discriminant Validity

TRS TRA FRI

TRS 0.773a

TRA 0.554 0.811FRI 0.251 0.444 0.745

aDiagonal elements are square roots of AVE.

TRSR2

= .0001

TRAR2

= .006

FRIR2

= .213

0.014(.237)

0.426

(6326)

TK0.126

(3 .125)

0.012

(0.2

25)

0 .078(1 .752)

FIGURE 2 Results of structural model.

trust in the current tax system failed to explain the likelihoodof tax filing while tax knowledge could not explain eitherof the trust variables. A summary of the findings is given inTable 6.

TABLE 6Summary of Findings

Path Hypothesis Path Coefficient t-value Results

TRS → FRI H1 0.014 0.237 Not supportedTRA → FRI H2 0.426 6.326 SupportedTK → FRI H3 0.126 3.125 SupportedTK →TRS H4 0.012 0.225 Not supportedTK → TRA H5 0.078 1.752 Not supported

TABLE 7Between Group Comparison

Registered Non-registered

Path Coeff. t-value Coeff. t-valuePooled

std. error p-value

TRS → FRI 0.026 0.188 0.012 0.195 0.100 0.920TRA → FRI 0.402 2.813 0.469 7.199 −0.465 0.642TK → FRI 0.234 2.989 0.039 0.841 1.953 0.051TK →TRS −0.114 1.150 0.081 1.309 −1.524 0.128TK → TRA −0.137 1.733 0.157 2.850 −2.614 0.009

Multigroup Analysis

We further analyzed the PLS results between the groupsof registered and non-registered taxpayers. The varianceexplained for non-registered taxpayers is 23.4% for FRI,while it is only 20.2% for registered taxpayers. The low dif-ference can be attributed to the mixed relationships betweenthe variables within the different groups. Here, the resultsof the pooled standard error analysis provided in Table 7show two significant differences in the anticipated relation-ships between the two groups; these are TK → FRI andTK → TRA relationships. In particular, registered taxpayersdemonstrated a high positive relationship between their taxknowledge and filing tax return, whereas non-registered tax-payers intention to file tax returns could not be explained bytheir tax knowledge. Furthermore, the relationship betweentax knowledge and trust in authority for registered taxpayersseemed to be negative (but not significant), while the sim-ilar relationship for non-registered taxpayers is significantlypositive. One possible explanation to these differences is thatthe registered taxpayers having filed tax returns before havelearnt something more than non-registered taxpayers abouttaxation matters, and, hence, the tax authority’s efficiencymay fall short of their expectations.

DISCUSSION AND CONCLUSION

Using the randomly selected sample of 500 from the2,030 working youth respondents, we found two signifi-cant relationships out of five stipulated hypotheses. Trustin tax authority strongly predicts filing tax return intentionfollowed by tax knowledge while the remaining three rela-tionships were not found to be significant. The relatively high

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trust in the tax authority, as compared to trust in the existingsystem, can be explained by the potential increase in satis-faction concerning the efficiency of the current tax authorityand its improved as well as transformed services. In partic-ular, the SAS, which was introduced in 2004, could play amajor role in this relatively high trust. This is supported bythe increasing rate of tax filing returns via the online sys-tem. Therefore, even without promoting positive trust in theexisting tax system, the IRBM can always find room forimprovement in their services to promote a greater level ofcompliance among the taxpayers, especially with respect tothe working youth.

Overall, this study found that the current level of tax liter-acy among working youth in Malaysia is still low. Hence,education campaigns need to be targeted at younger agegroups to ensure they know about their obligations to thestate. Furthermore, increased tax literacy can explain thelikelihood of the youth to comply with filing tax returns.Nevertheless, in determining the relationship of tax knowl-edge on trust, we found that increased tax knowledge doesnot necessarily lead to increased trust in the tax systemand tax authority. As taxpayers accumulate more knowledgeregarding tax, either via formal readings or through experi-ence of filing tax, they seem to exhibit a stronger intentionto complete the tax filing exercise in the future. This findingseems to suggest that tax knowledge has an influence on thetax morale of individuals as they become more responsibleand better understand about the importance of contribut-ing to public spending through tax when they are more taxliterate.

Trust in the existing tax system is low among the sampleand does not relate to their intention to file a tax return. Thistrust element normally relates to the political aspect of thenation especially regarding public confidence in the compe-tency and integrity of the existing government. As such, ittends to be biased toward public sentiment concerning sen-sitive issues including political rumors. Based on the WorldValues Survey data, trust in the government in Asian coun-tries was the second lowest among the participating countries(OECD, 2012). In addition, the public support of the exist-ing government has followed a diminishing trend since thelast two elections, and as at early 2013, the future rulinggovernment was very much in a cloud. Therefore, a sug-gestion to overcome this issue is through increasing thetransparency of the tax policy making and modernizing thetax administration procedures.

After the sample was split into two groups based ontaxpayer status, we also found two significant relationshipswithin each of the groups. Trust in the tax authority remainsa strong determinant of tax compliance in both groups.Nevertheless, the tax knowledge effect on compliance isonly significant for registered taxpayers. In addition, thetax knowledge of non-registered taxpayers was found to bepositively related to trust in the tax authority. The relation-ship between tax knowledge and filing return intention is

stronger among registered taxpayers suggesting that their taxknowledge increased after having registered or having pre-viously filed a tax return before, and, hence, more willingto continue filing tax returns. Interestingly, the multigroupanalysis also showed that registered taxpayers with hightax knowledge seemed to trust the tax authority less, whilenon-registered taxpayers with relatively high tax knowledgedemonstrated a positive attitude toward the IRBM. This find-ing indicates that as taxpayers become more tax literatethrough filing tax returns, they are likely to question the com-petence of the tax authority and demand more actions to meettheir expectations. This, in turn, leads to them achieving cog-nitive trust, which Olsen (2008) argued is primarily related toperceived competence and reliability of the provider, whereperceived competence is easily demonstrated by past perfor-mance. Therefore, we believe that the IRBM should continueimproving their services offered to taxpayers, while, at thesame time, finding ways to encourage non-registered taxpay-ers to register as early as they can because their image amongthem is currently being perceived to be positive.

Although the present study has only examined the behav-ior of working youth with regard to tax filing intention,the findings of this study can provide some insights to theadministration of many related public services. We suggestthat the IRBM keeps modernizing their tax administrationand engage in more interactive activities that can furtherinculcate a positive sense of responsibility among the pub-lic. As for other public administration agencies such as theimmigration department, the road transport department andbusiness registrar department, these client-friendly measurescan also be used to mitigate negative perceptions toward theabuse of power, while at the same time promoting high trustin their services.

This study has some limitations that future research canimprove upon. First, the relatively low variance in the com-pliance variable being explained by the research modelindicates that there are potentially many other variables thatcan be included to increase the prediction of compliancebehavior. Second, this study is cross sectional, a longitudi-nal study would be advisable to compare the current stage ofe-filing implementation with those improved functions of thesystem in future.

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