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Islamic Banking, Accounting And Finance International Conference–
The 9
thiBAF 2020
Tax Professionals and Tax Issues: A Review of Recent Tax Studies
Suhaila Abdul Hamid
Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia (USIM), Bandar Baru Nilai, 71800 Nilai, Negeri Sembilan Malaysia
Tel: +606 798 6313 E-mail: [email protected]
Abstract
Over the years the roles of tax professional are becoming more challenging especially in a complex business environment. The 4th Industrial Revolution, and currently the covid-19 pandemic has caused new business models to be adopted by business operators. This development requires tax professionals to always be prepared since they are intermediaries between the taxpayers and the tax authority. Therefore, it is important to examine recent tax studies involving tax professionals to understand issues which are still considered as important, relevant and lacking in discussion so that the profession could maintain its relevancy in the tax system. This study examines recent tax studies from 2019 until 30 October 2020 published in Scopus and Web of Science indexed journals involving tax professionals. Out of 28 articles retrieved, only 21 fulfilled the criteria to be included in the study.
A content analysis approach was adopted to determine the themes of the selected articles. Five themes which are role of tax professionals, knowledge, technology, ethics and risk management were developed from the analysis. Interestingly classical issues such as role of tax professionals, knowledge and ethics are still being discussed and considered as relevant. It is also interesting to note that the discussion of digitalization and 4th Industrial Revolution is still much lacking and perhaps requires a lot more discussions in tax setting considering the impact of 4th Industrial Revolution in many sectors today. The findings provide some indirect insights to what is considered as relevant by tax academics and tax profession.
Keywords: Tax Professional, Tax Studies, Content Analysis.
1. Introduction
In a modern world, tax system may perform various functions for a government. The tax system may be used not only for collecting tax income, but also as a mean to enforce government policies such as giving incentives to assist people with low income or discouraging bad habits by increasing the tax duty for e-cigarettes as can be seen in the 2021 Malaysian Budget. Tax compliance issues become more critical when the main sources of the government income is funded by the tax revenue. Based on the latest audited report, to date, most of the contribution from Malaysian Federal Government revenue comes from tax collection which significantly comes from direct tax revenue. The largest contribution to direct tax revenue comes from corporate taxes, followed by individual taxes and petroleum sources as indicated in the following Figure 1 (Federal Government Financial Statement, 2017).
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63,625 64,465
27,566 28,945
8,422 11,761
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000
2016 2017
Corporate Individual Petroleum
Figure 1: Federal Government Income from Direct Taxes (in Million Ringgit)
Meantime, rapid changes in technology have transformed the landscape of how business is being conducted throughout the world. The fourth industrial revolution or Industry 4.0 (4IR) which shifted the economy to digitization, internet of things (IoT), robotics, artificial intelligence influences the conduct of the business including the taxation system. For instance, the role of tax professionals may have changed in response to the need of the industries due to the 4IR. Certain tax areas such as direct tax, indirect tax and employment tax may face great challenges in 4IR era (Monsellato et al., 2018). Either 4IR is perceived as a disruption or opportunities, the taxation system has to be resilient in taxing the appropriate parties and at the same time provide support for business to sustain as well as remain relevant.
Furthermore, the covid-19 pandemic which currently affects many economies throughout the world has also transformed the business models for instance from providing services using traditional face to face to online platform. Embracing the technologies, many businesses transformed their business model to online as can be seen in the surge of retail online business in Malaysia during the Movement Control Order in April 2020 (Department of Statistics Malaysia, 2020). In view of the foregoing, this study seeks to identify the issues that are being discussed in taxation studies involving tax professionals. This is important because tax professionals are advocates and intermediaries between the taxpayers and the tax authority. The issues being discussed in recent tax studies may imply whether or not tax studies are up to date with new developments in the business environment which may impact the tax profession. Therefore, the objective of the study is to examine the current tax issues discussed in recent tax studies and is guided by following research question, which is,
“What are the tax issues discussed in recent tax studies involving tax professionals?”
This paper is structured as follows. This section presents an introduction to the study as well as the research objective and research question. Next is the Literature Review and followed by the Research Methodology section which explains the method used in the study. The findings, discussions and conclusion section is presented in the final section.
2. Literature Review
2.1 Tax compliance concepts and definitions
The concepts and definitions of tax compliance itself needs to be clarified before discussing any issues of tax compliance. The Malaysian Income Tax Act 1967 (ITA 1967), does not clearly state or define tax compliance.
However, throughout the Act, compliance procedures are presented in various sections and there are also specific sections to cover offences and penalties for non-compliance under Part VIII sections 112 to 126. In a more advanced tax system such as Australia, the Australian Tax Office (ATO), has developed a compliance model which incorporates types of compliance strategy based on the level of attitude to comply. The compliance model is illustrated in the following Figure 2.
13 Fig. 2 Australian Tax Office Model of Tax Compliance
Previous studies in tax compliance, have also suggested some definitions such as voluntary compliance with the letter and spirit of the tax law (Alley & James, 2006); timely voluntary payment of the difference between the actual tax due and the amount reported to the tax authority (Andreoni et al., 1998) and timely filing of tax returns accurately according to the tax law and settling any tax dues without further enforcement (Singh, 2003). A more classical definition of tax compliance is provided by Roth et al. (1982) which state:
“The taxpayer files all required returns at the proper time and that the returns accurately report all liability in accordance with the Internal Revenue Code, regulations and court decisions applicable at the time the return is filed”.
The above definition suggests that the central tenets of tax compliance are voluntary compliance and timely payment of tax due according to the tax law. However, in reality it is challenging to apply the above definition of tax compliance, for what is considered to be acceptable level of tax compliance is subjective and this can be evidenced in previous tax law judgments. For example, while tax evasion is illegal since it has the intention to breach the tax law, in some countries, tax avoidance is acceptable because it is regarded as an attempt to take advantage of the loopholes in the tax system (Kirchler, 2007), despite aggressive tax avoidance can become criminal tax evasion as shown for instance in the case of Penny and Hooper v CIR of New Zealand (Elliffe, 2011).
It is important for taxpayers to understand the tax boundaries between compliance to the tax laws and non- compliance to prevent unnecessary tax litigation or other circumstances imposed by the tax authority. Due to the complexity of the tax laws, the roles of tax professionals are important to assist taxpayers since they need a reliable person to assist them in determining these boundaries.
2.2 Roles of tax professionals
Previous studies indicate that there is no definition or terminology to refer to the persons who are hired to handle other people’s tax and as a result, various terminologies have been applied in describing them. For instance, the following terminologies were used in the previous studies, “tax preparer (Klepper et al., 1991), “tax practitioner”
(Dubin et al., 1992; Tan, 1999), “tax practitioner” (Tan & Sawyer, 2003), “tax professionals” (Kahle & White, 2004) and “tax agent” (Mohd Isa, 2012; Abdul Hamid, 2014).
Notwithstanding the various special areas in accounting such as audit, tax, management and financial accounting, the moral reasoning of accountants is indifferent to their job tasks (Emerson et al., 2007). However, tax professionals are perhaps different from other accounting professionals. While auditors are expected to be independent and perceived to be independent, tax professionals, on the other hand are advocates to their clients (Tan
& Sawyer, 2003; Abdul Hamid, 2014) while at the same time has to remain objective in their professional conduct.
They themselves are taxpayers and are also at the same time act as intermediaries between their client (the
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taxpayers) and the tax authority (government). The various roles could lead to challenging situation for tax professionals due to the conflict of interests that may arise from performing these roles.
The roles of tax professionals as advocates and intermediaries to a certain extent could influence the tax compliance process as indicated in previous studies. Doyle et al. (2009) indicate that tax professionals are influential in determining the amount of tax that will be paid by their clients. Their roles are important in assisting their clients in various tax matters and not restricted only to submission of tax files and payment of tax dues as evidenced in Mohd Isa (2012) and Smart (2012). The expertise of tax professionals is much needed in tax planning, risk management (Doyle et al., 2009) and resolving uncertainties (Abdul Hamid, 2014) especially in a complicated tax environment. Due to their important roles, it is worthy to examine recent tax studies on tax professionals especially in the era of 4 IR and covid-19 pandemic when their assistance is much needed to face the challenges in embracing new technologies and challenges in business.
3. Research Method
In this study, the content analysis approach was adopted to analyse recent tax studies which involved tax professionals in order to examine the areas that being discussed and considered as relevant in today’s tax environment. The search for papers started with formulating research question for the study. It is then followed by systematic screening, identification and determination of the eligibility of the respective papers to be included in the study. The relevant papers were then analysed to determine the relevant themes.
For this study, two databases namely Scopus and Web of Science (WOS) were used for the purpose of generating the relevant papers. Using the following search strings only journal articles published in 2019 and 2020 were selected to examine the most recent topics involving tax professionals in tax studies.
Table 1. The search strings
Database Search string
Scopus TTITLE-ABS-KEY (("tax practitioner*” OR "tax professional*" OR "tax preparer*" OR "tax agent*”))
Web of Science TS ((tax practitioner*” OR "tax professional*" OR "tax preparer*" OR "tax agent*”))
The inclusion and exclusion measures to include the articles for the study are presented in the following Table 2.
Initially 28 journal articles were retrieved from Scopus and Web of Science databases. However, only 21 journal articles were reviewed. The themes for all the papers were determined based on the keywords appeared in the abstract and thorough checking of the content.
Table 2. The inclusion and exclusion measures
Criteria Inclusion Exclusion
Time 2019-2020 <2019
Type of document Journal article Article review, chapters in book, policy papers, conference proceeding, book series, book.
Language English Non-English
4. Findings, discussions and conclusions
The review indicates that there are 21 journal articles eligible for the study for the years 2019 and 2020 as at 30 October 2020 after considering the inclusion criteria. Based on the review, the articles can be divided into several themes which are role of tax agents, technology, ethics, knowledge and risk management.
A total of 6 articles discussed the role of tax agents in various situations such as providing quality services, the need to be perceived as professionals, intermediaries between the taxpayers and the tax authority and assisting clients with tax evasion. Only 2 articles involved tax professionals in the studies of technology and tax compliance.
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Interestingly, one of the articles by LaMothea and Bobek (2020) is the only article discusses the sustainability of tax professionals in the era of 4th Industrial Revolution.
The issue of ethics and ethical judgement is still relevant and considered as important for tax professionals. A total of 8 articles discussed ethics and ethical judgment of tax professionals in various context. For instance, Assidi and Hussainey (2020) examined the tax aggressiveness of tax preparers on corporate tax in the United Kingdom.
Christensen (2020) discusses the ethical conduct of tax professionals at international corporate taxation level which influence the tax transnational policy. While it is perhaps considered as a classical issue, the professionalism of tax professionals measured by their compliance to the ethical codes of conduct is still being discussed for example by Fatemi, Hasseldine and Hite (2020) in the context of Certified Public Accountants in the United States.
The next theme is knowledge which has been discussed by 3 articles included in the study. Islam et al. (2020) for example highlight the knowledge of tax professionals in a study on VAT in Bangladesh. Similar context is also used by Musimenta (2020) in Uganda which examines among others the knowledge requirements of tax professionals in reducing the compliance cost to VAT. Finally, 2 articles discussed risk management in tax context which involved tax professionals in their studies. In a study by Neuman, Omer and Schmidt (2020), they examined tax risk measures and tax avoidance. Another study on risk assessment was conducted by Christensen and Seabrooke (2020) which looked into the professional misconduct in international taxation using unique expertise and legal loopholes of the tax system.
Based on the analysis it is interesting to note that despite the claims that the role of tax professionals has high potential to be disrupted by digitalization in 4IR, this issue has not been widely discussed by the tax academics and the profession. Except for a study by LaMothea and Bobek (2020) which examined the trust by the public in using digital system to assist them in their tax compliance, many studies are still focused on classical issues. Issues such as the role of tax professionals, knowledge and ethics in decision making of tax professionals are still found to be relevant. Due to the complexity of the tax system and the move by many sectors such as accounting services to embrace digitalization in 4IR, an area that could be explored further is risk management. The risk management could be studied from different aspects such as how to ensure the digital tax system runs efficiently and the issue of privacy of the clients. Future studies should also examine how digitalization in 4IR could improve the services offered by tax professionals so that 4IR is not seen as a threat but as a catalyst that offers a lot of opportunities. As a conclusion, research in tax studies should imply more the development in the current business practices.
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