Tax Non-Compliance of High Income Individuals in Malaysia: Empirical Analysis of Archival Data and Elite Interview

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Abstract

Malaysia has targeted the year 2020 for its emergence as a developed high income nation. Therefore, high income individuals (HIIs) or high net worth individuals (HNWIs) should be targeted by the government to collect more tax revenue. Due to the characteristic of these HIIs, this segment of taxpayers has complex tax affairs with the tax authorities. They challenge the integrity of the tax system, their revenue contribution, and opportunity for aggressive tax planning; by focusing on this group, tax authorities will achieve significant improvement in compliance. To improve the efficiency and effectiveness of tax administrations, a small number of revenue bodies also have a unit specializing in HNWIs, who tend to have complex tax affairs and the tools as well as means for tax planning. In Malaysia, Very Important Person (VIP) units were established at branches. This unit handles VIP (for example, ministers) and high income individuals. However, the VIPs unit and high-income individuals are different and therefore, there is a need to set up a special unit to handle cases of high income individuals. This study provides economic and non-economic evidence of HIIs and taxation in Malaysia. The outcome of this study will provide scientific evidence that is useful to policy makers in formulating effective strategies. The study aims to examine tax compliance behaviours of HIIs in Malaysia and to provide empirical evidence to propose a taxation model for HIIs in Malaysia. There is a need to conduct an explanatory research in initial stage of this study. This study has combined both the quantitative and qualitative methods to study tax compliance behaviours of HIIs in order to develop a tax policies to tax HIIs in Malaysia. In brief, Phase one was employed to explore on the research issues by analyzing and profiling HIIs based on the tax return forms. The data will be analysed using univariate technique and bivariate method that used t-test to test the relationship between variables of tax underreporting of HIIs in Malaysia. A preliminary interviews was conducted with management level tax officers and tax practitioner. In Phase two, the researcher will analysed resolved tax audits and investigations based on resolved audit and investigated cases and to conduct semi-structured in-depth interviews to meet the objectives of this study. Phase Two, grounded theory was used to generate knowledge about taxing HIIs, where little is known.

Author

• Rasyidah Che Rosli, University Technology MARA (UiTM)