CHAPTER 8 SYNTHESIS, CONCLUSION AND RECOMMENDATIONS OF THE
8.2 Research Synthesis and Conclusions
8.2.3 Objective Three: The Impact of Using EFDs on Audit Effectiveness, Level of
Chapters 4 and 5 concentrated on the impact of different factors on the rate of EFD use. In Chapter 6, the study determined the impact of EFD use on factors such as the audit effectiveness, the perceived level of transparency in taxation processes, and the perceived fairness of tax procedures. According to the results of the analysis, a significant number of respondents are still not fully comfortable with the effectiveness of tax audit and the extent to which EFDs support tax audit. In this regard, the revenue authority has the responsibility of enhancing this perception through information sharing and technical demonstrations as recommended by Bucciarelli, Odoardi and Muratore (2010).
Before testing the relationship between the rate of using EFDs and the audit effectiveness, the analysis began with other preliminary analyses. According to findings, the level of education is the only demographic variable which provided a positive categorical relationship with audit effectiveness. Respondents with lower levels of education suggested that the tax audit was effective. Traditionally, those with higher education levels are thought to be more in a position to understand technical issues than those with lower education as concluded in the study by Riddell and Song (2012). In the current case, it is possible that those with the low education levels did not bother with details of the audit process and therefore considered the process effective. On the other hand, the study found no categorical relationship between the rate of EFD use and the audit effectiveness.
Furthermore, no causal relationship was observed between the two variables. Therefore, based on the context of the current study, the hypothesis suggesting a significant impact on the rate of EFD use on the audit effectiveness is rejected.
The second part of this section tested the hypothesis which suggested that EFD use determines the perceived level of transparency. First, the age of respondents and the level of education were the two demographic variables which showed both categorical and causal relationships with the perceived level of transparency. Respondents aged between 31 and 50 years are more inclined to perceiving transparency in the taxation process. This category is considered more active in business than those below or above them in age (Kagoro, 2011; Bostan, Popescu, Istrate, Robu, & Hurjui, 2017). They are also considered to be more experienced and knowledgeable than the younger ones (Palil, Hamid, &
Hanafiah, 2013). These may be the reasons for observed differences with other age categories. On the other hand, it was surprising to learn that those with lower levels of education are the ones more inclined to perceive transparency than other categories. In addition, the study observed the presence of a significant categorical and causal relationship between the rate of EFD use and the perceived level of transparency. It is interesting to learn that the higher the rate of use the more the perceived level of transparency. With this information, the study accepts the hypothesis suggesting that the rate of EFD use determined the level of transparency in taxation procedures.
The last set of variables that was tested included the rate of EFD use and the perceived fairness of tax procedures. In the analysis of the age of respondents and the perceived level of fairness, both categorical and causal relationships were confirmed. People above 51 years of age were more inclined to a perceived fairness than the rest. Other demographic variables showed insignificant relationships with perceived fairness. In the case where the core variables for analysis were tested (that is, EFD use and perceived fairness), both categorical and causal relationships were significant as well. It was surprising to learn that those with the use rate below 20% were more inclined to perceived fair tax procedures.
Given this information, the current study confirms the hypothesis suggesting the rate of EFD use determines the perceived fairness in taxation. The less they use the more they perceive fairness; this is not good for the progress of the nation.
8.2.4 Objective four: The influence of the rate of EFD use, audit effectiveness, the level of perceived transparency, and the fairness in tax procedures on tax compliance Tax compliance is the ultimate output variable of the whole study. Other variables were either completely independent or moderating variables with respect to tax compliance.
Although the percentage of those who perceive compliance is 54.4%, a large group of taxpayers is still not fully complying with tax laws and regulations. This is more interesting, because respondents are aware that they are not complying. With reference to demographic variables, only business experience showed a significant relationship with the level of compliance. The approved relationship is both categorical and causal. It was observed that people with business experience below 5 years are more compliant than those more experienced. According to Deyganto (2018), and Edogbanya and Sule (2013), the observation is possible because experience exposes the taxpayers to more methods of avoidance, with a low chance of being detected.
In this part of analysis, one of the hypotheses tested whether the rate of EFD use determined the level of compliance. The result of the analysis suggested no significant relationship between the two variables; neither categorical nor causal relationship is confirmed. Furthermore, the study tested other variables related to EFDs against tax compliance. In this case, the EFD use experience, and EFD use in tax audit both tested positive with tax compliance. The less experienced are more compliant, and the more that EFDs are used in audit the greater the level of compliance. With this information, the relevance of EFD use is a good cause for compliance as concluded by the study of Mandari, Koloseni and Nguridada (2017).
Accordingly, the study confirmed the hypothesis suggesting that effectiveness in tax audit related to tax compliance. In this case, both categorical and causal relationships were confirmed. It was revealed that respondents who perceive effectiveness in tax audit are more inclined to compliance. Another relationship that was confirmed was between fairness in tax procedures and compliance. Hartner, Rechberger, Kirchler, and Schabmann (2008) suggested that fairness is a motivation to taxpayers. On the other hand, transparency was equally detected to determine the level of compliance. In this case, both categorical and causal relationships were confirmed. When the level of transparency is high, the chance for tax compliance also increases. As concluded by Verboon and Goslinga (2009), transparency removes the room for corruption and hence it becomes the point of motivation.