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DEMOGRAPHIC FACTORS AND PERSONAL INCOME TAX COMPLIANCE IN KADUNA STATE
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DEMOGRAPHIC FACTORS AND PERSONAL INCOME TAX COMPLIANCE IN KADUNA STATE
Lateef Olumide Mustapha
Department of Accounting and Management Nigerian Defence Academy, Kaduna
Email: [email protected] +2348036049138/+8092137372 Muhammad Liman Muhammad
Professor of Accounting Department of Accounting
Bayero University, Kano +2348036423442
Nyor T. PhD
Department of Accounting and Management Nigerian Defence Academy, Kaduna
Email: terzungwenyor@gmail,com +2347037095443
Abstract
This paper examines the impact of demographic factors on Personal Income Tax Compliance in Kaduna State. The population of the study is the 991 self employed business men and women registered with the Ministry of Poverty Alleviation, Kaduna State who reside in one of the biggest cities of the State: Kaduna, Kanfanchan and Zaria. Stratified random sampling technique was used to select the 285 respondents that form the sample size and to whom copies of the designed questionnaire were administered. The sample size was arrived at through the use of Yamani formula. Multiple regressions technique using the OLS was employed in analyzing the data. The study finds among other that the level of education of the taxpayers has inverse significant relationship with their level of tax compliance in the State. It therefore, recommends among others that Kaduna State government should, as a matter of urgency include tax education into its school curriculum in order to increase the knowledge of her citizens on the benefits of tax to the society.
This will also increase the level of tax compliance in the State.
Keywords: Demographic Factors, Personal Income Tax, Tax Compliance, Taxpayers 1 Introduction
Nigeria which is divided into 36 States and Federal Capital Territory is governed by a federal system and the government’s fiscal power is structured into three tiers of federal, State and local governments, each of which has different tax jurisdictions. The federal government controls all the major sources of revenue like import and excise duties, mining, rent and royalties, petroleum profit tax and value added tax , among other revenue sources. These categories of revenue sources have left States including Kaduna State and local governments with minor revenue sources such as personal income tax thus limiting their scope to raise independent revenue thus making them heavily depended on allocation shared monthly from the federation account.
Personal income tax which is one of the internal revenue sources in the State, refers to all taxes or levies imposed on income, salaries, wages, profit gratuities of an individual as well as interest and dividend from companies accruing to them (individual). This tax is divided into two categories:
Pay-As-You-Earn (PAYE) and the direct assessment categories (Mohammed, 2008). PAYE is a system of taxation whereby income of workers or employees is taxed using a graduated scale. The deduction of this category of tax is usually at source and is done by the employer who remits the amount to the tax authority. The direct assessment category on the other hand, is a tax imposed on the income of self-employed individuals the deduction and payment of which only occurs after the individual has earned the income and filed in a return. The collection of this category of income tax has become difficult due to the non-compliance attitude of the taxpayers (Khabel and Nwoka,2009).
Tax compliance according to Alm (1991) is defined as the reporting of all incomes and paying of all taxes by fulfilling the provisions of laws, regulations and court judgments. Similarly, Singh (2003) describes tax compliance as a person’s act of filling the income tax form, declaring all taxable incomes accurately and deduction of all payable taxes within the stipulated period without having to wait for follow-up actions from the authority. Demographic factors which are one of the determinants of tax compliance are the variables used in the study of human populations and play an important role in the compliance behavior of taxpayers (Salam, 2010). Demographic factors include gender, age, education background and occupation, level of tax payer income among others (Salam,2010).
The non-compliance attitude of many taxpayers with tax laws across the globe has resulted in a significant loss of revenue. For instance, Fagel (1989) and Pyle (1991) cited in Mohammad (2009), show that between 5% and 25% of potential revenue in developing countries like Nigeria were lost due to act of non-compliance. Similarly, the revenue lost in these developing countries due to non compliance is within 35% to 45% ( Mohammad , 2009). These have contributed to Nigeria, being ranked in 2012, among the lowest nations in tax compliance (Asabor, 2012). It is pertinent to note that for this reason, a significant amount of the estimated revenue which the State could have used to provide necessary infrastructures and welfare development of its citizenry could not be collected. These leakages in the revenue generation through non compliance with tax laws and provisions, coupled with enormous responsibilities of Kaduna State and other States of the federation, have often prompted calls by the State for upward review of sharing formula of revenue distributed to the State from the federation account.
Though in Nigeria, there are numerous studies on tax compliance, for instance , Bojuwon (2010), Salam (2010), Fakile (2011), Alabede, Ariffin and Idris (2011), Anyaduba, Eragbhe and Kennedy, (2012) and Alabede (2012) , all of them were conducted outside Kaduna State. For Mohammad (2007) who focused her study on direct assessment performance and internal generated revenue in Kaduna State and concluded of low revenue collection from this source, overlooked the aspect of income tax compliance.
For the government of the State that harbors the largest concentration of both serving and retired elites in the northern part of the country and the most advanced in the north (Mijah, 2008), to meet up with the challenges of execution of projects that would directly improve the well-being of her citizens, it is important for Kaduna State government through the State internal revenue to know
and understand the issues involved in personal income tax compliance. Against this background, the objective of this study is to examine the effect of demographic factors on tax compliance with the aim of improving revenue generation in the State. In order to achieve this objective, the study hypothesized that:
HO: There is no significant effect of taxpayers’ Demographic factors on their Personal income tax compliance in Kaduna State
This paper is divided into five sections. The first section covers the introduction, as above, section 2 is on literature review; the 3rd section is on methodology, the 4th on data analysis and discussion of results while section 5 is about conclusion and recommendations of the paper.
2. Literature Review
The introduction of any tax system by any government has never been accepted anywhere without hesitation because the target tax payers have always perceived it as a source of extortion (Mohammed, 2009). Thus, tax administration is a major challenge to many tax authorities because it is not an easy task to persuade taxpayers to comply with tax requirements (James and Alley 2004).
Tax compliance according to Andereoni, Erard, and Feinstein (1998) is taxpayers’ willingness to obey tax laws in order to obtain the economic equilibrium of a country. Also, James and Alley (2004) defined/ explained tax compliance as the willingness of individuals and other tax entities to act in accordance with tax laws and administration without the application of enforcement activity. Similarly, Kirchlar (2007) advanced a simpler definition in which tax compliance is defined as the most neutral term to describe taxpayers` willingness to pay their taxes. These definitions identify taxpayers’ willingness to obey various tax laws enacted by tax authority as the yardstick for tax compliance. It could be seen here that tax compliance in their own view depends on the voluntary attitude of taxpayers to obey the tax laws to the letter. Indeed, a wider definition of tax compliance by Song and Yarbrough (1978) as cited in (Palil, 2010) suggested that due to the remarkable aspect of the operation of the tax system in the United State which is largely based on self assessment and voluntary compliance, tax compliance should be defined as taxpayers’
ability and willingness to comply with tax laws which are determined by ethics, legal environment and other situational factors of a particular time and place. This definition establishes ethics, legal environment and situational factors as key elements of tax compliance. Tax compliance is also defined by tax authorities as the ability and willingness of taxpayers to comply with tax laws, declare the correct income in each year and pay the right amount of taxes on time (Palil, 2010) However, many scholars view tax compliance in different perspectives. For instance, Allingham and Sandmo (1972) described tax compliance as an issue of ‘reporting an actual income” and also claimed that tax compliance behavior was influenced by a situation whereby taxpayers have to make a decision under uncertainty i.e. either taxpayers would enjoy tax saving due to under- reporting income or have to pay tax on the under declared amount at a penalty rate which is higher than they would have paid had the income been fully declared at the correct time.
Moreover, MCBernet (2001) suggested that tax compliance should be perceived in three ways, namely: a) Committed compliance – taxpayers willingness to pay taxes without complaint: b) Capitulative compliance – reluctantly giving in and paying taxes and c) creative compliance –
engagement to reduce taxes by taking advantage of possibilities to redefine income and deduct expenditure within the bracket of tax laws.
2.1 Determinants of Tax compliance
This section discusses the determinants of tax compliance according to the tax literature. The determinants have been analyzed and grouped by previous studies in different ways. For instance, Cham and Leimong (2009) based their grouping on Fisher’s model. According to Fisher et. al., (1992) the determinants were grouped into four: (i) Demographic (e.g. age, gender, and education), (ii) non compliance opportunity (e.g. income level, income source and occupation), (iii) Attitudes and perceptions (e.g. Fairness of the tax system and peer influence) and (iv) Tax system/structure (e.g. Complexity of the tax system, probability of detection and penalties and tax rates). Similarly, Palil and Mustapha (2011) limited their grouping to four : (i) Economic factors (e.g. tax rates, tax Audits, Perceptions of Government spending), (ii) Institutional factors (e.g. Role of Tax authority, Simplicity of tax returns and administration, probability of detection), (iii) Social factors (e.g.
Ethics and attitude towards tax compliance, perceptions of equity or fairness, changes to current government policies, Referents groups and (iv) Individual factors (e.g. Personal financial constraints, Awareness of Offences and Penalties).
Meanwhile, Kirchlar (2007) and Loo (2006) who did their study earlier focused on Economic, Institutional, Social, Individual and Demographic factor. This approach is adjudged to be a wider perspective of tax compliance because it has an interdisciplinary perspective.
Tax compliance determinants from demographic perspective relates to taxpayers’ willingness to comply with tax laws in response to their demographic status. Demographic factors, according to Salam (2010), are the variables used in the study of human populations and he stressed that they play an important role in the compliance behavior of taxpayers. Demographic factors include gender, age, education background and occupation, among others.
2.3 Gender and Tax Compliance
Several studies have been conducted on the attitudes of men and women towards tax compliance.
For instance, studies by Boyd (1981) and Hoffrnan (1998) found that women are more ethical than men, while the studies conducted by Barnett and Karson (1987) and Weeks, More, McKinney and Longenecker (1991) found that men are more ethical than women. Oxley (1993) conducted a comprehensive study and reported that women in New Zealand were often more compliant in comparism with men. There is evidence from the tax compliance literature showing the tendency that men are less compliant and have lower tax morale than women. For instance, Devos (2006) investigated the ‘relationship between demographic variable of gender and the attitudes of Australian and New Zealand tertiary students towards tax non-compliance. The finding indicates that for Australian respondents, gender variable held statistically significant relationship at the five percent level with the incidence of tax non -compliance. Also, from New Zealand respondents, the gender variable held important implication for tax non-compliance. This demographic variable was tested for statistical significance at 5 percent.
Similarly, a common finding amongst studies reviewed for instance by Richardson and Sawyer (2001) and Jackson and Million (1986) was that female taxpayers were more compliant than their male counterparts. However, Richardson and Sawyer noted that this compliance gap between
males and females appear to be narrowing with the emergence of a more independent, non traditional generation of women. Also, the research carried out by Houston and Tran (2001) showed a higher proportion of non-compliance was by women rather than men.
Consequently, Kasipillai and Jabbar (2003) investigated whether gender difference occurs in relation to tax compliance attitude and behaviour. A personal interview approach is used to obtain information from taxpayers in urban towns in Malaysia and A + test conducted suggests that males and females were found to have similar compliant attitude. Also, results of regression analysis from the same study indicate that gender was statistically significant as determinants of non- compliant attitude. The differences in the studies conducted as discussed above may be as a result of different statistical tools used in analyzing the data. It could be seen from above that empirical studies carried out previously have suggested that the gender of tax payers has influence on tax compliance.
Age and Tax Compliance
Alm and Torgler (2006) found that people have more respect for government and for authority as they get older. In addition, Mc Gee and Tyler (2006) tested the assumption of Alm and Torgler by comparing the scores for the three age groups that the human beliefs and value surveys gathered.
They used Mannwhitney U test to determine whether the differences were significant. The test result comparing the 16 – 29 and 30 – 49 year old groups was significant at the 1 percent level (P<
= 0.003), a comparison of the 30 – 49 and 50 above age groups was also found to be significantly different at 1 percent level (P< = 3.2104e.05). These findings confirmed the belief that people have more respect for government and authority as they get older and that the percentage of people who think that tax non-compliance is always unethical rises as they get older. Similarly, Jackson and Million (1986) in their study found a positive link between age and taxpayer compliance, such that older taxpayers are found to be less willing to take risks and are more sensitive to sanctions.
In the same vein, Richardson (2006) also carried out a survey of post graduate business students to investigate demographic variable of age on tax compliance behavior in Australia using the OLS multiple regression statistical technique and the result revalued that respondents relating to the 20 – 29 age group are significantly correlated (P< 0.01) with tax compliance behavior. The research revealed that for Australian respondents, the age group above is strongly a determinant of tax non- compliance. Similarly, Bojuwon (2010), who focused his study on the impact of tax fairness and demographic factors on tax compliance in Nigeria, used multiple regression analysis and find out that age has positive significant relationship with tax compliance.
Meanwhile, Salam (2010) that investigated the impact of demographic variables on personal income tax compliance in Kwara State- Nigeria, collected data by means of questionnaire and employed ANOVA technique for analysis. The study found that demographic factors such as age have no significant effect on tax compliance while other variables such as employment status have significant effect on tax compliance.
These previous studies have confirmed that age has significant influence on tax compliance behavior of taxpayers.
2.4 Income Level and Tax Compliance
According to Andreoni et al (1998) almost all the theoretical model indicate that as income raises, tax non- compliance should increase over most ranges. Ritsema et al (2003) investigating the participants in the 1997 Arkansas Tax penalty Amnesty program , find that income level is positively related to the tax non - compliance. Similarly, Vogel (1974) finds that respondents who reported an improvement in individual income status during the past 5 years are more likely prone to tax non -compliance than those who report a deterioration of their financial/income status during the same period. He argued further that tax non compliance attitude increases as income statues increases and concluded that control measure that will focus on high level income taxpayers should be introduced to enhance their level of compliance.
Moreover, Mc Gee and Tyler (2006) indicated that the lower income group tends to be more opposed to tax non-compliance than the upper income group. Their finding indicated that the percentage of people who viewed that tax non -compliance is always unethical declines as income increases. A comparison of the scores for lower and middle income groups found the difference is significant at 10 percent level (p<=0.088).Thus, Comparing the scores for middle and upper income groups found the difference not to be significant (p<0.276) while a comparison of the lower upper income scores found the difference to be significant at the 1 percent level (p<=0.005).
Meanwhile, Houston and Tran (2009) also reported that the respondents in the lower income group do have a lower proportion of tax compliance by under-reporting income and by over-claiming expenses than their counterpart in the higher income group. They concluded that non –compliance attitude is more prone to low income taxpayers.
Hite (1997) confirmed earlier findings of Jackson and Milliron (1986) that the evidence on the income level variable is mixed and unclear, because prior researches have found supporting evidence for three contrasting views on this variable : encompassing positive - Smith (1992), negative - Baldry (1987) and no correlation - Worsham (1996) with taxpayer compliance. This reason for these mixed results could be the different methodology adopted by these researchers.
2.5 Education and Tax Compliance
According to Jackson and Million (1986), education as a demographic variable relates to the taxpayer’s ability to comprehend and therefore comply or not to comply with the tax laws.
Greenland and Veldhoven (1983) distinguished two aspects of education; the general degree of fiscal knowledge and the degree of knowledge involving evasion opportunities. General degree of fiscal knowledge, according to his work is the formal education while the latter is the knowledge of consequences of non complance of individual taxpayer. The effect of education on taxpayer compliance is also unclear, based on the study of Wallschutzky (1993) in which he indicated that education is the variable likely to improve compliance, Beron, Tanchen and Witte (1992) indicated that inconsistent results are produced as education is highly correlated with income level.
The reasons given for these conflicting findings are varied. First, there can be difficulty in determining which aspect of education is being measured. Jackson and Million identified four measures of education - the general degree of fiscal knowledge, knowledge involving evasion opportunities, general education attainment and specific tax knowledge. These different dimensions may assist in explaining the confusion surrounding the effect that the education variable has on tax payer compliance.
In a survey of American taxpayers, Hite (1997) focused on the interaction between gender and education; he found that female respondents with college degrees tended to be more tolerant of non-compliance than females without college degrees. In a similar manner, survey of compliance behaviour in the US and Hongkong, Chau, Troutman and O’Bryan (2000) reported that the US respondents’ decisions to comply with tax laws were primarily driven by their education, which in turn has positively influenced moral development and attitude. In contrast, Hong Kong respondents have shown a negative link between education and tax compliance. Furthermore, Palil (2010) who carried out his studies in Malaysia focused on the level of individual taxpayer’s knowledge and explores how tax knowledge levels influence tax compliance behaviour. The study found that tax knowledge has a significant impact on tax compliance even though the level of tax knowledge varied significantly among respondents. It is widely observed from the previous studies that educational background have significant impact on compliance level of taxpayer
3. Methodology and Data
This study empirically attempts to study the impact of demographic factors on personal income tax compliance in Kaduna State Nigeria. The target population for this study consists of all self employed businessmen and women who registered with the Directorate of Poverty Alleviation Programme -Kaduna State with comprehensive address and reside in the three biggest cities of Zaria, Kafanchan and Kaduna. The choice of these cities was based on the fact that they are the most commercialized, industrialized and populous cities where all traits required in this work could be found. Thus, the population of this study based on the criteria above is 991 taxpayers. The sample size is determined through Yaro Yamani’s formula as cited in the work of Fakile (2011).
The formula according to Yamani is
𝑆 = 𝑁
1 + 𝑁(𝑒) … … … (1) Where S = is the sample size
N = is the population
e = is the error limit (0.05 on the basis of 95% confidence level)
∴ 𝑆 = ( )
𝑆 = 991
1 + 991(0.05)
≈ 285 𝑟𝑒𝑠𝑝𝑜𝑛𝑑𝑒𝑛𝑡𝑠
Using a population of 991 registered self-employed business men and women with an error limit of 5%, the sample size of 285 is considered adequate as computed above. This was selected from the three cities through the proportionate stratified random sampling method. Data were gathered through administering of 285 copies of questionnaire, each copy for a sample respondent. The questionnaire was designed using a 5-points likert scale, ranging from Strongly Agree of (5) to Strongly Disagree of (1) for the compliance issue while the demographic aspect of the questionnaire was designed based on the categories of each demographic variable. The use of questionnaire enables vital information which cannot be obtained from the secondary record to be at the disposal of the researcher. This is because in a questionnaire, the respondents’ anonymity is assured (Goel 1988).Descriptive analysis and Multiple regression were used as the statistical tools to analyze the data. The total score of independent variables was regressed against the dependent variable scores through the use of SSPS package.
The Regression model for Demographic factors on tax compliance
TCDIRi = α + β1PAYAGE + β2BUSAGE + β3GENDER + β4INCOME + β5EDUC + e Where
TCDIRi = Tax compliance score α = The intercept
β1 PAYAGE = Taxpayer’s Age
β2 BUSAGE = Age of the Business Demographic β3 GENDER = Gender of the taxpayers Factors β4 INCOME = Level of income
β5 EDUC = Taxpayer’s level of Education e = Error term of random disturbance
The dependent variable is the tax compliance which is measured by the by the ability of taxpayer to register with tax authority as required, obtain identification number, file the required return promptly, report correct tax liabilities, pay outstanding taxes timely and promptly and keep all records as required. The independent variables are measured through the age group of the taxpayer, business age, gender statues, income and education level of the taxpayers in ordinal form. The weighted mean scores of the independent variables were regressed against that of dependent variables.
4. Results and Discussion 4.1 Descriptive Analysis
The presentation and discussion of results will be based on the primary data obtained for this study.
We generated data from the 285 copies of questionnaires administered and 260 copies were duly returned. The data collected are presented and discussed below.
Table 1: Age of the Taxpayer
Categories Frequency Percentage Mean SD Above 60years 70 26.9
3.18 1.567
51-60 years 16 6.2
41-50years 43 16.5
31-40years 58 22.3
20-30years 73 28.1
Total 260 100.0
Source: Field Survey, 2016
Age is one of the important elements of demographic factors to any taxpayer. This is because it determines the physical strength and the experience of tax payers. From the table above, the age category 20-30years was 28.1%, this was closely followed by category 60years and above with 26.9%. Respondents who fall between 31-40years accounted for 22.3% while 16.5% and 6.2% are for age 41-50years and 51-60years respectively. This trend suggests that young and old citizens which constitute 55% of the respondents engaged in self employed while 45% percentage of the respondents (age of 31-60years) who are at their physical best would be found in the self employed businesses.
Table 2: Age of the Business
Categories Frequency Percentage Mean SD Above 40years 63 24.2
31-40years 19 7.3
3.25 1.529
21-30years 37 14.2
11-20years 71 27.3
0-10years 70 26.9
Total 260 100.0
Source: Field Survey, 2016
The number of years a man engaged in a certain business is a significant factor that can influence his/her decision on such business. From the table above, 27.3%, 26.9% and 24.2% which form the higher percentage are for age bracket 11-20years, 0-10years and above 40years respectively. The remaining percentage of 21.5% constitutes age group of businesses that have been in existence between 21-40years.
Table 3: Gender of the Taxpayer
Sex Frequency Percentage Mean SD
Female 140 53.8
1.46 0.499
Male 120 46.2
Total 260 100.0
Source: Field Survey, 2016
One of the demographic variables to investigate is the gender of the tax payers. Of the total respondents, the female gender constitutes 53.8% while the male gender constitutes 46.2%. It must, however, be emphasized that the reason for the dominants of female in the respondents was not farfetched from the fact that female constitute the larger population size in Kaduna State.
Table 4: Monthly Level of Income of the taxpayer
Level of Income Frequency Percentage Mean SD N200,000 and above 21 8.1
3.88 1.240 N150,000- N199,000 15 5.8
N100,000- N149,000 45 17.3 sN50,000- N99,000 71 27.3 Less than N50,000 108 41.5
Total 260 100.0
Source: Field Survey, 2016
The breakdown of the respondents according to Table 4 above shows that those respondents with monthly income of N100,000 and above constitute only 31.2% i.e. (8.1 + 5.8 + 17.3)% while those respondents of monthly income below N100,000 constitute the larger percentage of 68.8%. It is not surprising that most of them are low income self employed business men and women. This is because of lack of capital for business expansion and absence of other key social amenities that negate the survival of business in Kaduna State and Nigeria at large (NPC,2005).
Table 5: Taxpayer’s Level of Education
Categories Frequency Percentage Mean SD Tertiary education 127 48.8
2.10 1.229 Secondary education 37 14.2
Primary education 39 15.0 Vocational education 57 21.9
Total 260 100.0 Source: Field Survey, 2016
Level of taxpayer education is an important demographic factor because it helps to determine the level of reasoning and understanding of taxpayers towards any his/her action. From the table 5 above, the response to level of education were in four categories; vocational education, primary education, secondary education and tertiary education. About 48.8% of the respondents had tertiary education, 14.2% secondary education while 15.0% and 21.9% had primary and vocational education respectively. This analysis implies that there is high level of education among the respondents.
Table 6: Information on Compliance issue
Statement Number % of SA & A Mean SD
Register with tax authority as required 260 74.6 3.99 1.347 Obtain taxpayer identification number 260 73.1 3.85 1.349 File the required return promptly 260 40.7 3.13 1.309
Report correct tax liabilities 260 26.9 2.60 1.387
Pay outstanding taxes timely and
promptly 260 23.9 2.28 1.487
Keep all records as required in term of account and others
260 25.0 2.20 1.535
Source: Field Work, 2016
As an honest and patriotic citizen, taxpayers are expected to abide by all the elements of tax compliance. From Table 6, more than 70% of the respondents agree that they register with tax authority as required and also obtain taxpayer identification number. It is indicated from the table that less than 30% of the respondents agree that they are keeping all records as required of them;
reporting the correct tax liabilities and payment of outstanding taxes timely. This is a clear indication that the respondents fulfill the registration requirement with tax authority but fail to pay their outstanding taxes timely. The taxpayers also report their tax liabilities incorrectly due to lack of record keeping because the mean scores which is slightly above 2 points is generally below the bench mark of 3.
4.2 Regression Analysis
This section presents the regression analysis on the effect of Demographic factors on tax compliance
Table 6: Regression results for Demographic Variables
Variable Coefficient t-statistic Std Err P value Constant
PAYAGE BUSAGE GENDER INCOME EDU
3.241 -.107 .054 .097 .049 -.190
8.149 -1.410 .674 .703 .853 -2.723
0.398 0.076 0.080 0.138 0.058 0.070
0.000 0.160 0.501 0.483 0.394 0.007 R 0.230
R2 0.053 Adjust R2 0.034 F-Statistics 2.836
P-Value 0.016 Source: Regression Output
TCDIR = 3.241 - 0.107PAYAGE + 0.054BUSAGE + 0.097GENDER+ 0.049INCOME - 0.190EDU + e
Based on the SPSS output in the table 6 above, the compliance effect of each of the respondents variable can be determined by the model TCDIR = 3.241 – 0.107 PAY AGE + 0.54 BUSAGE + 0.97 GENDER + 0.049 INCOME – 0.190 EDUC + e
From Table 6 above, the coefficient of determination (R2) shows that 5.3% of the variation in the compliance level is explained by the five independent variables while the remaining 94.7% is account for by other factors outside the demographic factors. Also, the coefficient of correlation, R = 0.230 means that there is a moderate positive relationship between demographic factors used above and the level of taxpayer compliance.
The F – statistics of 2.836 is statistically significant (P<0.05) shows that the regression model is valid and that the proportion of the variation in the level of tax compliance explained above by the regression equation is significant. To corroborate the absence of multi-collinearity, the Variance Inflation Factor (VIF) results are generally low for the five independent variables as each of them is only slightly less than 3.5, while a VIF of not more than 5.00 is statistically considered acceptable. The result of the regression analysis shows that the value of the intercept α = 3.241 is the compliance effect if all the independent variables is zero.
For the taxpayer Age results, b1 = -0.107; t = -1.410 and P value of 0.160, indicates that a non significant inverse relationship exists between Taxpayer’s age and level of compliance. Therefore if all other variable are held constant, an increase in the age of tax payer will decrease compliance by 0.107 points .This finding provides evidence that taxpayers age has strong negative effect on compliance .Though not statistically significant. This result is in consistent with the work of Bojuwon (2010) and Jackson and Million (1996).For the Age of the business, b2 = 0.054; t = 0.674 and the P value of 0.501 indicates a positive non significant relationship between age of the business and level of compliance. This implies that if all other variable are held constant, an increase to the business’s age will increase compliance by 0.054 points.
Moreover, from the Gender of the taxpayer results, b3 = 0.097; t = 0.703 and P value of 0.483 indicates that gender has an insignificant positive relationship with the level of compliance. In view of this, a shift in gender will increase compliance by 0.097 point. Similarly, Income level results show that b4 = 0.049; t = 0.853 and P value of 0.394 shows a positive non significant relationship with the level of tax compliance. This indicates that as income level increases the level of compliance will also increase by 0.049 point. Negating these results, Boyd(1981) and Devos(2006) found a significant relationship between gender and income and tax compliance.
However, Salam (2010) confirmed our position that gender and income level have no significant effect on tax compliance
From the education results in table 6, b5 = -0.190; t = -2.723 and P value of 0.007 indicates that a significance inverse relationship exists. Therefore, if all variables are held constant, every increase in education level will decrease the level of compliance by 0.190 point. This implies that an increase in level of the education of the taxpayers will decrease the compliance level. However, contrary to the expectation, the bad governance issue within the government setting could be
responsible for this result. Thus, the result is in line with the work of Palil (2010) that found a significant relationship between education/knowledge of the taxpayer and level of tax compliance.
5. Conclusion and Recommendations
In view of the importance of tax as one of the main sources of revenue to the State governments like Kaduna State, Nigeria, the study investigate the effect of demographic factors on personal income tax compliance in the State. Data were collected by administering questionnaire on the 285 respondents that form the population size while descriptive statistics and multiple regressions were used as the statistical tools to analyze the data. From the data collected and analysed, the following are the findings of the study.
i. The age of the taxpayers does not strongly enhance their level of tax compliance.
ii. The age of the business is another parameter tested as one of the demographic Variables.
The result shows a positive non significant relationship with tax compliance
iii. It was found that income and gender of the taxpayers do not strongly trigger their tax compliance.
iv. For education level of the tax payers, it was found that the level of education of the taxpayers has inverse significant relationship with their level of tax compliance.
From the foregoing, it can be concluded that all the demographic factors tested except education of the tax payers do not strongly enhanced their tax compliance in the State. It is therefore concluded that the demographic factors of the taxpayers in the State do not strongly influence the taxpayers’ compliance level in the State. In the light of the findings and conclusion drawn from this study, we recommended the following:
i. The State government through the State Board of Internal Revenue should develop a policy that can pay less emphasis on her citizens’ gender and income level because these do not enhance tax compliance among the citizens in the State.
ii. Kaduna State government should expand its publicity outlet through the use of mass media as well as the use of village criers in the villages to educate the taxpayer, most especially those that have been in business for long but have not been complying with tax laws, in the developmental changes in our tax laws and the need for compliance.
iii. It is deemed necessary for the State government to include tax education in its school curriculum in order to educate the upcoming youth of the society on the benefit of tax payment. This will enhance the level of tax compliance in the State.
iv. Government should endeavor to provide enabling environment for businesses to strive so as for both young and old businesses owners to be more compliant with tax laws in the State.
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