MALAYSIAN TAXPAYERS PERCEPTION TOWARDS THE IMPLEMENTATION OF GOODS AND SERVICE TAX (GST) YUSNIYATI YUSRI & KHOO HUI YEE

Transcription

1 International Journal of Economics, Commerce and Research (IJECR) ISSN(P): ; ISSN(E): Vol. 5, Issue 6, Dec 2015, 1-8 TJPRC Pvt. Ltd. MALAYSIAN TAXPAYERS PERCEPTION TOWARDS THE IMPLEMENTATION OF GOODS AND SERVICE TAX (GST) YUSNIYATI YUSRI & KHOO HUI YEE Faculty of Economics and Management, Universiti Putra Malaysia, Serdang Selangor, Malaysia ABSTRACT The aim of this study is to investigate the perception of individual taxpayers towards the implementation of goods and services tax (GST) in Malaysia. Theory of planned behavior was used as underlying theory for the study. A total of one hundred and ten individual taxpayers in Klang Valley participated in the study. Multiple regressions were employed to examine the relationship between attitude, subjective norm and perceived behavioral control on behavioural intention to comply with GST. Results show that attitude and perceived behavioral control variables were significantly and positively related to behavioural intention while subjective norm variables had a weak significant influence towards the behavioral intention. All these independent variables were able to explain 74% variance in behavioural intention to comply with GST. KEYWORDS: Attitude, Subjective Norm, Perceived Behavioral Control, Intention, Good and Service Tax (GST) Received: Sep 23, 2015; Accepted: Oct 23, 2015; Published: Oct 31, 2015; Paper Id.: IJECRDEC20151 INTRODUCTION Goods and service tax (GST) is a multi-stage consumption tax on goods and services which replace the current single stage consumption tax of sales and service tax. In other countries, GST is also known as value added tax (VAT). GST is levied on the value-added activities by every operation along the delivery chain. Nowadays, more than 160 nations, including the European Union and Asian countries such as Sri Lanka, Singapore and China practice this form of taxation (Royal Malaysian Custom Department, 2013). This make Malaysia become straggler in implementing the GST. Therefore, the Malaysian government now proposed that GST is to be imposed and charged at the rate of 6% on the value of the supply starting from 1 April This proposed rate will be the moderate rate among other countries where the other country rate is between 5 to 24 percent. Original Article The Different between GST and Sales Tax and Service Tax (SST) The difference between GST and the current consumption sale and service tax (SST) is in terms of its scope of charge. GST is levied on the consumption of goods and services at every stage of the supply chain while SST is imposed only at the manufacturing stage and when specific services are provided to the consumer. In other words, sales tax is paid by the manufacturer to the government directly and no taxes to be collected from distributor and retailer while GST is paid by each intermediary level to government. Moreover, in the terms of tax rate, the sales tax is at a rate of 5%, 10% and at a specific rate and service tax is at a rate of 6% and it is a single stage tax. Meanwhile the proposed GST rate is at a 6% and it is multi-stages tax. In the context of threshold, the threshold for sale tax is where the annual sales turnover exceeding RM 100,000 while the threshold for service tax is where various annual sales turnover such as RM 100,000, RM 300,000, RM 3 million. The threshold for GST registration is RM 500,000 of annual turnover. editor@tjprc.org

2 2 Yusniyati Yusri & Khoo Hui Yee GST is a tax levied on goods and services at every production and distribution stage in the supply chain, including importation of goods and services. Only businesses registered under GST can charge and collect GST. GST collected on output must be remitted to the government. It begin with each supplier will need to pay the GST when the input is purchased, and charged GST on the output at the time of sale (Chong & Lai, 2006). Generally, credit offset mechanism will allow GST works by offsetting GST paid on purchases (input tax) against GST due on sales or supplies made (output tax). Thus, the end consumer will bear the GST as he/she is the last person in the supply chain. Although the GST is charges at every stage in the supply chain, the GST element does not become part of the cost of the product because it paid on the business input which is claimable. This is because the input tax incurred at the previous stage is always deducted by the businesses at the next stage in the supply chain. Only the net GST which represents the value added will be accountable to the Custom Department. (Chong et al., 2006). If the net GST is positive, the taxpayer will need to pay to the tax authority while if it is negative, then the taxpayer will get refund by the tax authority. It can be explained by the following diagram: Many studies has discovered that there are still many people have negative perceptions towards the implementation of GST. According to (Chong et al., 2006), the study found that surveyed participants had diverse opinion over the implementation of GST and most of them had misconceptions of the implications of GST on goods/services, business and socio-economic development. Besides that, the awareness of GST among citizens is not consistent due to the lack of understanding or knowledge regarding GST (Saira et al., 2010) which might due to less information and promotions from the relevant authorities (Palil et al., 2011). By all this statement, it can be seen that the Malaysian taxpayer s understanding of GST is still low and this make them misunderstood the impact of GST on the goods or services. Malaysian taxpayers are not aware how much sales and service tax they pay in purchase the goods and services. Therefore, the focus point of problem of the study will spot on Malaysian taxpayers understanding towards the implementation of GST in Malaysia. The objectives of this research are developed to study the relationship between attitude, subjective norm and perceived behavioral control towards the implementation of GST. THEORETICAL AND RESEARCH FRAMEWORK Theory of Planned Behavior (TPB) The theory of planned behavior (TPB) was developed by Ajzen in The theory proposes a model which can measure how human actions are guided. The main focus of this theory is intention. Theory of planned behavior is an extended theory of reasoned action by the incorporation of an additional construct, namely and perceived behavioral control. According to Ajzen s (1991) theory of planned behavior models where the behavior is depending on behavioral intention and behavioral intention in turn depending on three factors: (1) attitude toward the behavior; (2) subjective norms; and (3) perceived behavioral control. Behavioral intention refers to one s willingness to carry out a particular behavior, and it is proposed to be an antecedent of a behavior. The application of this theory of planned behavior in the indirect tax such as GST is scarce. Based on the Bidin et al. (2011) study, they revealed that attitude, subjective norm and ethics are positively significant towards intention to comply with the indirect tax. Theory of planned behavior suggests that a taxpayer is more willing to pay for the goods and service tax if he or she has a positive attitude towards the implementation of goods and service tax and comply with other important people s opinions on the implementation of GST. Impact Factor (JCC): Index Copernicus Value (ICV): 3.0

3 Malaysian Taxpayers Perception towards the 3 Implementation of Goods and Service Tax (GST) Attitudes and Behavioral Intention Attitudes are believed to have a direct effect on behavioral intention (Bidin and Mohd Shamsudin, 2013). In the context of taxation, Hanno and Violette (1996) used theory of planned behavior as a theoretical basis and reported that attitudes have a significant relationship to tax compliance intention. A recent study by Loo et.al. (2007) reported that attitudes towards tax system positively influence compliance behavior. Besides that, Bobek (1997) found that when tax payers have a positive attitude toward paying tax, the higher the intention to pay the tax. Therefore, it is anticipated that taxpayer with favorable perceptions of the tax system are more likely to have positive attitudes towards the tax system and consequently encourage them to comply (Bidin and Mohd Shamsudin, 2013). Attitude toward a behavior is the degree to which performance of the behavior is positively or negatively valued. According to Mohd-Suki & Ramayah (2010), attitude refers to a person s evaluation of a specified behavior. Practically, a taxpayer now has been exposed to a number of taxes. They are likely to form a positive or negative attitude toward the implementation of the goods and service tax in Malaysia irrespective of whether they have experienced it or not. Tax knowledge is important in measuring the attitude towards GST. Level of knowledge seems important in the way people comprehend the reality underlying taxation and the associated attitude to taxation that is expressed (Eriksen & Fallan, 1996). Tan & Chin Fatt (2000) affirmed that tax knowledge can be taught through general understanding on the tax regulations. Knowledge that result in better agreement between how tax payers conceive the tax system and what the situation really is, might also change their attitudes towards taxation (Knut & Lars,1996). Thus, when the taxpayers have tax knowledge, he or she will has more understanding towards GST. Subjective Norms and Behavioral Intention Subjective norm is the perceived social pressure to engage or not to engage in a behavior. In other words, the subjective norm is a person s belief that most of the others who are important to him think he should (or should not) perform the behavior in question (Ajzen & Fishbein, 1980). In the context of taxation, Hanno and Violette (1996) found a significant and positive effect of subjective norms on behavioral intention. However, in the context of GST compliance behavior, a study on GST is yet to be done by using the subjective norms as important variable. Malaysian citizen tend to be affected by the external and interpersonal influences in accepting the goods and service tax (GST). Social influence is an important determinant of behaviour. Social influence occurs when one's emotions, opinions, or behaviours are affected by others. If there is a perception that the goods and service tax (GST) will burden the taxpayer as the price of the goods will be increase and the majority of the people have the same opinion with it, this makes people disagree with the implementation of goods and service tax (GST). In addition, in the implementation Goods and Service tax (GST) context, paying taxes are for those who buying the goods and service. However, the GST is voluntary because the taxpayer can choose to buy those goods or use the service. For those who used to always buy goods and use the services will be benefited because the GST rate is lower than the previous sale and service tax. However, the proposal behind to start implement the GST is in explore. For this reason, subjective norm is considered to be important factor to explain one s behavioural intention to implement the GST. Perceived Behavioral Control Perceived behavioral control refers to people's perceptions of their ability to perform a given behavior. It has two aspects which include how much a person has control over the behavior and how confident a person feels about being able editor@tjprc.org

4 4 Yusniyati Yusri & Khoo Hui Yee to perform or not perform the behavior. In the field of tax, Bobek and Hatfield (2003) revealed that perceived behavioral control is positively related to intention to comply with tax. According to the research of Holst & Iversen (2011), the construct of perceived behavioral control is specifically concerned with the distance between intention and actual behavior, in acknowledgement that one s good intention does not necessarily lead to action. Azjen (1991) suggests that an individual with a high perceived behavioral control will be more likely to perform the behavior in comparison with an individual with a lower perceived behavioral control. Perceived behavioral control encompasses two components namely self-efficacy and facilitating conditions. Self-efficacy is an individual s self-confidence in his or her ability to perform a behavior (Bandura, 1982); while facilitating conditions representing the resources needed to engage in a behavior (Triandis, 1971). For example, in the context of GST, a person might consider factors that may help to increase the country revenue or will burden the taxpayer. The taxpayer may be determined to accept the new tax system, but he or she fears that the price of goods will be increase if proceeds with his or her intention and hence his or her intention to implement the GST is hindered by this psychological barrier. In a situation like this, the perceived behavioral control construct becomes significant, as the intention to implement the GST is favorable, but is not perceived to be within the control sphere of the taxpayer. In this case, the favorable intention to implement the GST become a poor approximation for behavior and only the construct of perceived behavioral control helps the researchers explore the probability of the taxpayer succeeding or failing in her intention to implement the GST. The acceptance the implementation of goods and service tax (GST) is not entirely under citizens control. Hypothesis Figure 1: Research Framework Based on the theory of planned behavior, the hypothesis for this study is developed as below: tax. H1: Attitude will have a significant positive effect on behavioral intention to comply with the goods and service H2: Subjective norms will have a significant positive effect on behavioral intention to comply with the goods and service tax. H3: Perceived behavioral control will have a significant positive effect on behavioral intention to comply with the goods and service tax. RESEARCH METHODOLOGY Survey Instrument This study used a survey instrument that was adapted and modified from Bidin and Mohd Shamsudin (2013). The questionnaires consists of three sections which are Section A, Section B and Section C. Nominal and ordinal scales will be adopted for the respondents background information in Section A. For Section B, there will be six questions which based Impact Factor (JCC): Index Copernicus Value (ICV): 3.0

5 Malaysian Taxpayers Perception towards the 5 Implementation of Goods and Service Tax (GST) on individual taxpayers understanding of GST. For section C, which are independent and dependent variable that comprises 13 items adopt interval measurement scale. This section is to solicit taxpayers perceptions on GST on three constructs namely attitudes, subjective norms and perceived behavioral control. All the items in section C will be measure on five-point Likert scale ranging from strongly disagree and strongly agree with a mid-point indicates neither disagree nor agree. Participants who are the taxpayers were asked to indicate the degree of agreement or disagreement on each statement related to all the variables involved. Table 1: Likert Scale Used to Measure Variables Variables Label Variables Likert Scale Independent variables Dependent variable (1) Attitudes (2) Subjective Norm (3) Perceived behavioural control Intention to comply with Goods and Service tax (GST) 1 = Strongly agree 2 = Slightly agree 3 = Neither disagree nor agree 4 = Slightly disagree 5 = Strongly disagree Development of Regression Model After considering all the variables in the study, a regression model for the study can be form as below: ICGST = α1 + α2 ATT + α3 SN + α4 PBC + ε Where ICGST is the Intention to comply with GST, ATT is the Attitude, SN is the Subjective norm, PBC is the Perceived behavioral control α is the constant and ε is the error. Data Collection The population is all the individual taxpayers in Malaysia while the sample is 200 individual taxpayers in Klang Valley. There will be two survey method used in this study which is online questionnaire and paper-based questionnaire. The online survey was using the Google software to create the questionnaire and sent 100 online questionnaires to those people who are working and stay at Klang Valley through the and mass media such as Facebook and Twitter. The advantages of using the online questionnaire are save cost, save time and removal of geographical boundaries. Besides that, the questionnaires were distributed to a random sample of 100 individual taxpayers in Klang Valley. According to Mansor, Tayib, & Yusof (2005), the rationale for selecting Kuala Lumpur as the research sample is simply because the area has the highest internal indirect tax contributors and the second highest contributor for the total indirect taxes in Malaysia for the past years. Basically, the questionnaires were distributed to the taxpayers who are working and consume at the restaurant, café and shopping mall. All this places are where the taxpayers have to pay the tax when they consume the food, buy clothes and etc. Focus will be given to residents of big city as this would represent the entire population of the state (Palil& Ibrahim, 2011). According to Palil et al. (2013), residents who live in cities are having unique consumption behavior in response to the introduction of GST compared to respondents who are living outside cities as this would increase the external reliability, reduce sampling errors and enrich the data. A target to achieve responses from at least 200 taxpayers, however only 150 was able to be recollected. editor@tjprc.org

6 6 Yusniyati Yusri & Khoo Hui Yee RESULTS AND DISCUSSIONS Background of Participants Table 2 shows the background information of the participants. From the table, respondents consist of 77 female and 33 male, which made up a total of 110 respondents. The respondents chosen are multi-racial, namely Malays, Chinese, Indians and Other. There are 14 Malay students, 90 Chinese students, 5 Indian students and 1 from other races such as Sarawak. The respondents chosen are in age group 21 to 25 year old who are working in Malaysia. Among 110 respondents, there are 45 respondents are year old, 41 respondents are year old, 13 respondents are years old and 11 respondents are above 35 year old. Among 110 respondents, there are 30 respondents (27%) who are married and 80 respondents (73%) who are still single. Based on the table 2, most of the respondents are under employment which consist of 44%, then follow by working in the private sector (43%), doing own business (8%) and lastly work under government sector (5%). Besides that, among 110 respondents, more than half of the respondents (61%) have an income level of less than RM 3,000. Then, follow by those with an income level of RM 5,001 RM10,000 (28%), RM10,001and above (10%) and those with RM3,001 RM5,000 (1%). Table 2: Background of Participants Question Frequency Percentage 1) Gender Male 33 30% Female 77 70% 2) Race Malay 14 13% Chinese 90 82% Indian 5 5% Others 1 1% 3) Age % % % Above % 4) Status Married 30 27% Single 80 73% 5) Occupation Business 9 8% Employment 48 44% Government sector 6 5% Private sector 47 43% 6) Monthly Income Level Less than RM 3, % RM 3,001 - RM 5, % RM 5,001 - RM 10, % RM 10,001 or more 11 10% Correlation Analysis Table 2 shows the correlation analysis between dependent variable; intention and independent variables; attitude, subjective norm and perceived behavioural control. The results show a strong correlation with the intention. Impact Factor (JCC): Index Copernicus Value (ICV): 3.0

7 Malaysian Taxpayers Perception towards the 7 Implementation of Goods and Service Tax (GST) Regression Analysis Table 3: Correlation Matrix Variables Attitude - 2 Subjective norm 0.655** - 3 Perceived behavioral control 0.667** 0.691** - 4 Intention 0.714** 0.694** 0.835** - Note : **Correlation is significant at the 0.01 level Based on Table 4, the adjusted R Square was This means that 74% of the variance in GST compliance intention was significantly explained by the independent variable. Attitude (t=3.345, p<0.01) and perceived behavioural control (t=8.013, p<0.01) had a significant positive effect on intention to comply with GST, where it support the H 1 and H 3. However, subjective norm (t=1.893, 0.1< p <0.05) has a weak significant influence on the intention to comply with GST. Moreover, the highest Beta was shown by the perceived behavioural control and this indicates that perceived behavioural control was the most important factor that influenced the intention to comply with GST in Klang Valley. Table 4: Regression of Attitude, Subjective Norm and Perceived Behavioral Control towards the GST Compliance Intention Note: *p<0.1, **p<0.01; Adjusted R2=0.743 RECOMMENDATION AND CONCLUSIONS The purpose of this study was to examine the perception of individual taxpayers toward GST implementation in Malaysia, particularly in Klang Valley. This study used the theory of planned behavior to examine the factors that influence the behavior among the individual taxpayers in Klang Valley. The factors examined were attitude, subjective norm and perceived behavioral control. Based on the result, it is found that the perceived behavioral control is the strongest factor that influences the intention to comply with GST among the individual taxpayers in Klang Valley. There are many rumours in our daily life, and this rumours indirectly will influence our perceived behavioural towards the GST mechanism. In addition, the information provided is limited, therefore the current result unable draw out the real result. Thus, issues in GST system need to be taking into high consideration as it can affect the revenues and income of the country. Even though implementing the GST is believe can be increase the revenues and income of the country, but the cost of implementing definitely will be increase. This is because in the standard rates supplies always involved in claims back activities. This claims back is not requested in current tax behaviour. Again, government need deeply consideration before implementing of GST. REFERENCES 1. Ajzen, I & M. Fishbein (1991). The theory of planned behavior. Organizational Behavior and Human Decision Processes 50 (2): Unstandardized Coefficients Standardized Coefficients B Std. Error Beta t Sig. (Constant) Attitude ** Subjective norm * Perceived behavioral control ** editor@tjprc.org

8 8 Yusniyati Yusri & Khoo Hui Yee 2. Ajzen, I., & Fishbein, M. (1980). Understanding attitudes and predicting social behavior. Englewood Cliffs, NJ: Prentice-Hall. 3. Bandura. A. (1982). Self-efficacy mechanism in human agency. American Psychologist, 7(2) Bidin, Z, Mohd Shamsudin, F., ShaliAhen, M. S. and Mohd Zainudin, O. (2011) Factors influencing intention to comply with local sales tax in Malaysia. SSRN Electronic Journal. pp ISSN Bidin, Z. and Mohd Shamsudin, F. (2013). Using Theory of Reasoned Action to Explain the Taxpayer Intention to comply with Goods and Service Tax. Middle East Journal of Scientific Research;11/5/2013, Vol. 17 Issue 3, p Bobek, D. D. (1997). Tax Fairness: How Do Individuals Judges Fairness and What Effects Does It Have On Their Behavior. Ph.D. Dissertation, University of Florida, Gainesville. 7. Bobek, D. D., Hatfield, R. (2003). An investigation of the theory of planned behavior and the role of moral obligation in tax compliance. Behavioral Research in Accounting, 15, Hanno, D., Violette, G. R. (1996). An Analysis of Moral and Social Influences on Taxpayer Behavior. Behavioral Research in Accounting, 8, Knut, E. & Lars, F. (1996). Tax knowledge and attitudes towards taxation; A report on a quasi-experiment. Journal of Economic Psychology, 17 (1996) Loo, E. C., McKerchar, M., and Hansford, A. (2007). The effect of the introduction of self-assessment on tax knowledge of individual taxpayers in Malaysia: Survey findings. Paper presented at the Accounting studies International Conference, Kuala Lumpur, Malaysia, October. 11. Mansor, M., Tayib, M. & Yusof, R. (2005). Malaysian Indirect Tax Administration System: An Analysis of Efficiency and Taxpayers Perceptions. IJMS 12 (2), (2005) 12. Malhotra, N. K. (2004) Marketing research: An applied orientation (4thed) New Jersey: Upper Saddle River Pearson International Edition. 13. Mohd-Suki, N. & T. Ramayah (2010). User Acceptance of the E-Government Services in Malaysia: Structural Equation Modelling Approach. Interdisciplinary Journal of Information, Knowledge, and Management, Volume Nunnally, J. O. (1978). Psychometric theory. New York: McGraw-Hill. 15. Palil, M. R. & Ibrahim, M. A. (2011). The Impacts of Goods and Service Tax (GST) on Middle Income Earners in Malaysia. World Review of Business Research Vol. 1. No. 3. Pp Palil, M. R, Ramli, R., Mustapha, A. F. and Abu-Hassan, N. S (2013). Elements of Compliance Costs: Lesson from Malaysian Companies towards Goods and Services Tax (GST). Asian Social Science; Vol. 9, No. 11; Saira, K., Zariyawati, M. A. & Yoke-May, L. (2010). An Exploratory Study of Goods and Services Tax Awareness in Malaysia. Political Managements and Policies in Malaysia. 18. Sekaran, U. (2003). Research methods for business: A skill building approach (4th ed). New York: John Wiley & Sons. 19. Triandis, H. C. (1971), Attitude and Attitude Change, John Wiley and Sons, New York. 20. Torgler, B., Demir, I. C., Macintyre, A., & Schaffner, M. (2008). Causes and Consequences of Tax Morale: An Empirical Investigation Economic Analysis and Policy, 38(2), Impact Factor (JCC): Index Copernicus Value (ICV): 3.0