European Journal of Economics, Finance and Administrative Sciences ISSN 1450-2275 Issue 28 (2011) EuroJournals, Inc. 2011 http://www.eurojournals.

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An Investigation of Tax Compliance Intention: A Theory of Planned Behavior Approach

Serkan Benk Corresponding Author, Department of Public Finance Faculty of Economics and Administrative Sciences Zonguldak Karaelmas University 67100 Zonguldak, Turkey Tel: +90 (372) 257 40 10; Fax: +90 (372) 257 40 57 E-mail: serkan.benk@karaelmas.edu.tr Ahmet Ferda akmak Department of Business Administration, Faculty of Economics and Administrative Sciences Zonguldak Karaelmas University, 67100 Zonguldak, Turkey Tel: +90 (372) 257 40 10; Fax: +90 (372) 257 40 57 E-mail: ahmet.cakmak@karaelmas.edu.tr Tamer Budak Department of Public Finance, Faculty of Economics and Administrative Sciences Zonguldak Karaelmas University, 67100 Zonguldak, Turkey Tel: +90 (372) 257 40 10; Fax: +90 (372) 257 40 57 E-mail: tamer.budak@karaelmas.edu.tr Abstract In this study, Ajzens (1991) Theory of Planned Behavior is used as a theoretical framework to extend and complement extant tax research by examining the compliance intentions of individual taxpayers in the city of Zonguldak in Turkey. Relying on the theory, we examine the extent to which perceived tax equity (vertical, horizontal and exchange), normative expectations (social and moral norms), and legal sanctions (detection risk and penalty magnitude) affect tax compliance intentions. The data set of the study was obtained from the survey applied to 369 individual taxpayers in the city of Zonguldak. Consistent with the hypotheses, the results reveal that normative expectations of compliance and penalty magnitude indicate are most significant effects on tax compliance intentions. Nevertheless, equity perceptions of the tax system have no significant statistical effect. Keywords: Tax Compliance, Intention, Theory of Planned Behavior.

1. Introduction: Theory of Planned Behavior

Theory of planned behavior is an important theory which presents within the scope of the social psychology and tries to explain human behaviors. This theory was developed by Ajzen (1991) and it is just the improved form of the Theory of Reason Action suggested by Ajzen and Fishbein (1970) in order to explain conscious behaviors. According to this theory, behaviors of the individuals within the society are under the influence of definite factors, originate from certain reasons and emerge in a

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planned way (Erten, 2002). Nevertheless, the ability to perform a particular behavior depends on the fact that the individual has a purpose towards that behavior. As for the factors determining the purpose towards the behavior, they are attitude towards behavior, subjective norms and perceived behavioral control (Erten, 2002). Factors counted above are also under the influence of behavioral beliefs, normative beliefs and control beliefs (Ajzen, 2002).
Figure 1: Theory of Planned Behavior

Outcome Beliefs

Attitude

Normative Beliefs

Subjective Norm

Intention

Behavior

Control Beliefs

Perceived Behavioral Control

Source: Armitage & Conner, 2001: 471

Figure 1 displays the relationships between the elements of the Theory of Planned Behavior. As can be understood from the Figure 1, intention is the basis of this theory and performance of a behavior or its transformation into a different behavior depend on the intention that the individual has generated towards the behavior. Ajzen, described intention as the factor indicating the degree of individual efforts in order to perform a certain behavior (Ajzen, 1991). Intention is explained by attitudes towards behavior, individual norms and perceived behavior controls (Klee & et al. 2000). Attitude includes the evaluations made by the individual who will perform the behavior regarding the act of that behavior. Subjective norm refers to the opinions of the other individuals who are important for individuals that will perform the behavior or are taken as reference as regards to this behavior. Finally, perceived behavior control specifies the difficulty level of the performance displayed by an individual. This element can sometimes affect the behavior directly. For example, in case the behavior control does not depend on the desire of the individual, in other words, if there is any legal sanction, perceived behavior control can affect the behavior directly (arrow indicated by dashes in the Figure 1). As a conclusion, the Theory of Planned Behavior posits that individuals' intentions, together with their perceived control over the behavior determine whether or not they will actually engage in the behavior. It has been observed that empirical studies carried out within the scope of the Theory of Planned Behavior mostly examine behaviors that individuals report and that the studies examining the behaviors that individuals perform is rather scarce in number (Chang, 1998; Allen, 2004). This is because of the fact that observing the individual behaviors is rather costly in terms of time and money (Erten, 2002). The aim of this study is also to analyze the behaviors reported by the taxpayers included in this study instead of observing the behaviors of the individuals regarding tax compliance.

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2. Research Model and Hypotheses

In this study, the model proposed by Efebera et al. (2004) within the framework of the Theory of Planned Behavior was used. As it is seen in the Figure 2, it was observed that three basic components are influential in the formation of the tax compliance intention which is the basic element determining the tax compliance behavior of the individual. First one of these components is the equity perception of the individual as regards to the tax system. When the relationship between tax equity and tax compliance was evaluated, it was seen that underlying reason of the negative reactions against taxes is the fact that the tax system is perceived as unfair by the taxpayers (Torgler, 2004, 2006; McGee and Bose, 2007; Cummings & et al., 2009). Test hypothesis regarding the issue is as follows: H1: There will be a positive relationship between tax compliance intentions and perceptions of (H1a) vertical equity (H1b) horizontal equity and (H1c) exchange equity.
Figure 2: Research Model of Tax Compliance Behavior
Vertical Equity

Horizontal Equity

Equity Attitudes

Exchange Equity

H1

Social Norms Normative Expectations Moral Norms

H2

Tax Compliance Intentions

Tax Compliance Intentions

H3
Detection Risk Legal Sanctions Penalty Magnitude

Not Tested

Source: Efebera & et. al, 2004:6

The second component of the research model is the taxpayers normative expectations toward compliance. It is possible to evaluate the concept of norm defined as expectation of the behavior that is culturally desirable and considered as appropriate at social and moral levels (Kirchler & et. al, 2008: 218). In other words, the basic factor shaping the tax compliance intention of the individual is closely related to the attitude adopted by the society in which the individual exists as regards to taxes. Test hypothesis concerning the issue is as follows: H2: There will be a positive relationship between tax compliance intentions and social norms (H2a), and Moral norms (H2b). The final component of the research model is legal sanctions. When the studies on tax compliance were analyzed, it was observed that legal sanctions referring to the attitude adopted by the laws against the incompatible behaviors of the individuals about taxes were evaluated along with (1) the detention risk and (2) the penalty magnitude (Efebera & et al., 2004, 10). When the literature of this field was examined, it was found that tax evasion decreases and as a result, tax compliance increases in parallel with detention risk increases (Dubin and Wilde, 1988; Franzoni, 2000; Scholz, 2007; Cummings et al., 2009). Likewise, an increase in penalty rates and magnitude will decrease tax evasion and increase the level of tax compliance through its deterrent effect (MacCaleb, 1976; Witte & Woodbury, 1985; Cummings & et. al., 2009). Study and hypothesis test regarding this issue is as follows:

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European Journal of Economics, Finance and Administrative Sciences - Issue 28 (2011) H3: There will be a positive relationship between tax compliance intentions, and, perceived detection risk (H3a) and perceived penalty magnitude (H3b).

3. Methodology
3.1. Participants This study aims to analyze the factors influencing the intentions of the taxpayers as regards to tax compliance within the framework of the theory of planned behavior. Data required to test the model developed in line with this aim were obtained through questionnaires applied to taxpayers operating in Zonguldak, city of Turkey.
Table 1: Demographics
Sample Size= 369 Annual Income Less than TL* 10,000 TL 10,001 TL 20,000 TL 20,001 TL 30,000 TL 30,001 TL 40,000 TL 40,001 TL 50,000 TL 50,001 TL 60,000 TL 60,001 and above Age 21- 30 31- 40 41- 50 51- 60 61 and above Gender Male Female Education Less than high school High School Graduate Marital Status Married Single * TL: Turkish Liras Percentage of Total 23.6 42.0 17.6 7.6 4.6 1.1 3.5 30.1 33.1 24.7 10.8 1.4 75.1 24.9 25.7 46.6 27.7 65.3 34.7

Researchers visited the taxpayers in person and conducted the questionnaires. Participation in the study was voluntary and the participants were assured that their answers would be kept confidential. 392 out of 820 questionnaire forms distributed to the taxpayers were returned. Return rate was 47.80 %. During the analysis, 369 questionnaire forms were accepted for analysis and 23 questionnaire forms were omitted. Table 1, shows the demographics of the study. 3.2. Measured Variables Questionnaire form was derived from Efebera et. als study (2004). Understandability levels of the questions in the questionnaire form were tested on 30 people with different education levels by conducting a pilot practice and it was detected that these questions were understandable. Table 2 shows the variables analyzed through the questionnaires. In this study, a five-point likert scale was used as the evaluation scale.

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In this questionnaire form, variable of equity was measured with three questions and the other variables were measured with two questions. As for the tax compliance intention, it was measured implicitly with two questions. Measuring compliance behavior would seem to be simple, but the problem is to find a measure which allows the researcher to directly study how compliance changes with a change in an underlying tax-related parameter, such as the audit rate. Thus, directly asking participants about their own past involvement in tax evasion is not sufficient. Therefore, questions were directed to the participants within the framework of a hypothetical scenario. In line with this scenario, participants were asked to express their opinions as to whether Mr. A should declare his additional income or not (see Table 2: TC1 and TC2 items).
Table 2: Descriptive Statistics and Reliability Estimatesa
Item VE Alphab Mean 2.34 3.04 0.63 2.40 3.48 0.80 3.42 3.62 Std.Dev. 1.16 1.13 1.13 1.17 1.11 1.13

Item Wording How fair or unfair is the amount of income taxes that you pay when compared to people who make more money than you? (1 = Very Unfair, 5 = Very Fair) HE I pay about the same amount of income taxes as other people who make about the same income as I do. (1=Strongly Disagree, 5=Strongly Agree) EE How fair or unfair is the amount of income taxes that you pay when compared to the amount of services you get back from the federal government? (1=Very Unfair, 5=Very Fair) Social norms SN1 My family will expect me to report the additional TL10.000 income from my part-time business in my tax return. (1 = Strongly Disagree, 5 = Strongly Agree) SN2 My friends and colleagues will expect me to report the additional TL10.000 income from my part-time business in my tax return. (1=Strongly Disagree, 5=Strongly Agree) Moral norms MN1 I will feel guilty if I do not report the additional TL10.000 income from my part-time business in order to receive a larger tax refund (1=Strongly Disagree, 5=Strongly Agree) MN2 It is against my personal principles NOT to report the additional TL10.000 part-time business income in order to receive a larger tax refund. (1=Strongly Disagree, 5=Strongly Agree) Detection risk DR1 How likely would the tax administration find out if you dont report the additional TL10.000 part-time business income in your tax return? (1 = Very Unlikely, 5 = Very Likely) DR2 In this age of computers, the tax administration will find out if I dont report the additional TL10.000 part-time business income in my tax return. (1=Strongly Disagree, 5=Strongly Agree) Penalty PM1 The IRS would severely punish me if they found out that I did magnitude not report some or all of the TL10.000 additional business income in my tax return in order to receive a larger tax refund. (1 = Strongly Disagree, 5 = Strongly Agree) PM2 How serious would the punishment be if the tax administration found out that you did not report some or all of the additional TL10.000 income from your part-time business? (1 = Very Mild, 5 = Very Serious) Tax TC1 If you were in Mr. As situation, how many percent of the compliance TL10.000 additional business income would you report? (1 = intentions 0%, 2 = 25%, 3 = 50%, 4 = %75, 5 = 100%) TC2 If you were Mr. A, how likely is it that you would report the additional TL10.000 income from the part-time business? (1=Very Unlikely, 5=Very Likely) a Each variable was assessed using a 5-point likert scale b Reliability estimates reflect Cronbach alpha. c Pearson correlation (TCI1 and TCI2)

Subconstruct Equity

0.88

3.75

1.08

3.41

1.19

0.93

3.42

1.16

3.77

1.02

0.71

3.29

1.08

0,77c 0.87

3.60 3.72

1.41 1.25

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The inter-item reliability estimates shown on Table 2 were at or above the recommended level of 0.60 (Carmines & Zeller, 1979) indicating acceptable convergent validity. In addition, it was observed that none of the variables has a negative relationship with the total correlation. Thus, this findings show us that internal consistency of the data is considerably high.

4. Research Results
4.1. Factor Analysis To test for divergent validity, the response items were factor analyzed. Results of the principle components analysis are presented on Table 3. Only factors with eigenvalues greater than or equal to one were retained. The factor analysis accounted for 73.7% of the overall variance among response items.
Table 3: Results of Factor Analysis on Measured Variables
Item # MN1 MN2 SN1 SN2 DR2 DR1 VE1 HE1 EE1 PM2 PM1 Factor 1 0.871 0.858 0.830 0.688 0.198 0.208 0.020 0.050 0.112 0.208 0.202 4.149 37.72 37.72 Factor 2 0.082 0.018 0.227 0.339 0.918 0.906 -0.033 0.121 0.109 0.061 0.345 1.606 14.60 52.32 Factor 3 0.100 0.077 0.020 0.077 0.107 0.113 0.789 0.739 0.720 0.052 0.059 1.336 12.14 64.47 Factor 4 0.155 0.162 0.093 0.146 0.160 0.172 0.197 -0.101 0.038 0.878 0.765 1.016 9.23 73.70

Subconstruct Moral Norms Social Norms Detection Risk Equity Penalty Magnitude Eigenvalue Percent of Variance Cumulative Variance

Factor one included the moral norm items and social norm items. Accordingly, the first factor normative expectations was labeled as originally conceived (see Figure 3). The next three factors reflect detection risk (factor 2), equity (factor 3) and penalty magnitude (factor 4). 4.2. Multiple Regression Results (H1, H2, H3) Factor scores were used in the multiple regression analysis rather than construct indices composed of the sum or average of item responses within each construct. Using factor scores eliminates intercorrelated error terms (multicolinearity) among independent variables. The hypotheses predicted positive relationships between tax compliance intentions and perceived equity of the tax system (H1a, H1b, and H1c), normative expectations (H2a, and H2b) and legal sanctions (H3a, and H3b). To test these hypotheses, tax compliance intention was regressed on the four factors arising from the principle components analysis. The significant results are presented in Table 4 and illustrated in Figure 3. As indicated in Table 4, four sub-constructs (moral norms, social norms, penalty magnitude, and detection risk) arising from the factor analysis are significantly positively related to tax compliance intentions. However, equity sub-construct cannot be interpreted in a straightforward manner (see Figure 3).

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Table 4:
Model

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Regression Results of Factor Scores on Tax Compliance Intentionsa
Parameter Estimates Coefficient Std.Error 3.656 0.051 Beta Coefficients t-Value 71.42 13.48 6.48 3.98 -0.68 Significance (p-Value) 0.00 0.00 0.00 0.00 0.50

Constant Variables Norms 0.691 0.051 0.550 Penalty Magnitude 0.332 0.051 0.264 Detection Risk 0.204 0.051 0.162 Equity -0.035 0.051 -0.028 Note: R = 0.40, Adjusted R = 0.39, Overall F-ratio = 59.92 (p<0.01) a Dependent Variable = Tax Compliance Intention. The Tax Compliance averaged to form a single compliance index.

Intention items (TCI and TCI2) were

Figure 3: Research Model Results

Moral & Social Norms

0.5 50*

Penalty Magnitude
0.264*

Tax Compliance Intentions Detection Risk

0.162*

2 -0.0

Equity

Beta Coefficient Significant at p<0.01

Hypothesis one (H1): Hypothesis one stated that there will be a positive relationship between tax compliance intentions and equity attitudes. However Table 4 showed that the calculated t value of 0.68 was greater than the critical value at 0.05 level of significance. The H1 (H1a, H1b, and H1c) hypothesis was therefore rejected, which indicates no statistically significant relationship between tax compliance intentions and equity attitudes in the sample of this study. Hypothesis two (H2): Hypothesis two stated that there will be a positive relationship between tax compliance intentions and normative expectations. As indicated in Table 3, social norms and moral norms variables loaded on one factor which can be named as normative expectations (Factor 1). Since the calculated p-value of regression analyses shows a statistically significant relationship between tax compliance intentions and normative expectations, the hypothesis H2 (H2a, and H2b) is supported. Hypothesis three (H3): Hypothesis three stated that there will be a positive relationship between tax compliance intentions and legal sanctions. Since the calculated p-value of regression analyses shows a statistically significant relationship between tax compliance and legal sanctions, the hypothesis H3 (H3a, and H3b) is supported. Overall, the sub-construct items did not load on the constructs precisely as expected (compare Figure 2 to Figure 3). Nevertheless, factor analysis and regression model results indicate that the constructs articulated in the theory of planned behavior (except equity attitudes) are predictive of individual taxpayers compliance intentions.

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5. Summary and Concluding Remarks

This study aims to analyze the tax compliance intentions of the individual taxpayers operating in Zonguldak within the framework of the theory of planned behavior (Ajzen, 1985, 1991). In this research, tax compliance model that Efebera et al. (Efebera & et al., 2004) developed within the scope of the Theory of Planned Behavior was used. Three basic variables influencing the tax compliance intention were tested in the proposed model. These variables are (H1) equity perceptions of the taxpayers regarding the tax system, (H2) social and moral norms and (H3) legal sanctions. The most outstanding point regarding the results of the study is that there is no statistically significant relationship between the equity perceptions of the taxpayers and the tax compliance intention. When literature is analyzed, it is observed that there are many studies where similar results were obtained (Vogel, 1974; Porcano, 1988; Antonides & Robben, 1995). A creditable reason for the inconsistency as suggested by various researchers is the multidimensional nature of tax equity as a tax compliance variable (Jackson & Milliron, 1986; Richardson & Sawyer, 2001). Despite the inconsistent findings of various researchers, it is widely acknowledged that demographic variables, such as, age, gender, marital status, education, culture and occupation have an effect upon tax equity perceptions which ultimately impacts upon compliance. Therefore, this issue must be examined comprehensively. Another point that draws attention as regards to the results is that normative expectations and legal sanctions are influential in determining the tax compliance intention. Consequently, while tax policies are determined, moral and social norms should be taken into consideration with the purpose of increasing voluntary tax compliance. Moreover, efficiency of the tax penalty system that is applied in order to ensure the enforced tax compliance should also be increased. Our study is subject to a number of limitations. First, it is possible that despite our clear instructions that their behavior in the experiment should reflect real-life taxpaying decisions, participants tax compliance decisions in the experiment may not reflect such real-life taxpaying decisions. Second, our participants admissions of past evasion may have been influenced by concerns regarding self-presentation or may have been affected by poor memory regarding such behavior. Finally, our sample size covers only one city (Zonguldak) in Turkey. Therefore, more researchers are called in a wide sample. Though, related results should be interpreted with caution.

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