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There are a number of differences in the tax system structures of the U.S. and Hong Kong. In
addition, the literature suggests there are significant differences between U.S. and Hong
Kong (Chinese) cultures. This study explores whether taxpayer compliance is influenced by
these differences.
Fischer et al.s (1992) expanded model of taxpayer compliance is used as the underlying
theoretical framework. The model is empirically tested using a structural equations
approach with a convenience sample of Hong Kong and U.S. taxpayers. Results indicate
education has a direct, negative effect on compliance in both groups. This effect is moderated
by an indirect, positive link between education, moral development, and compliance. The
significant differ- ences noted are that U.S. (Hong Kong) taxpayers used higher (lower)
stages of moral reasoning, had more (less) favorable attitudes toward the tax system, and
were more (less) compliant. These results suggest that efforts to increase taxpayer
compliance need to be tailored to the structure of the tax system and the predominant
culture of the taxpayers. 2000 Elsevier Science Inc. All rights reserved.
Key Words: Expanded Tax Compliance Model; Moral Development; Cultural Differences;
Structural Equations Modeling
Chris W. Chan School of Business, University of Hong Kong, Hong Kong Island, Hong Kong
(currently on leave from the Macquarie Graduate School of Management, Sydney, Australia);
Phone: (852) 2859-1082; E-mail: chrischan@business.hku.hk. Coleen S. Troutman Department
of Accounting, Foster College of Business Administration, Bradley University, Peoria, IL 61525.
David OBryan Department of Accounting, Kelce College of Business, Pittsburg State University, Pittsburg, KS 66762.
Journal of International Accounting, Auditing & Taxation, 9(2):83103 ISSN: 1061-9518
Copyright 2000 by Elsevier Science Inc.
All rights of reproduction in any form reserved.
8
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2000
INTRODUCTION
A substantial amount of research has examined the reasons for noncompliance with the tax laws in the U.S. (e.g., see reviews by Andreoni et al., 1998;
Roth et al., 1989; Jackson & Milliron, 1986). However, Andreoni et al. (1998)
note that . . . there is a need for more empirical and institutional research
within jurisdic- tions outside the U.S. (p. 856). In addition, they note that
such research could . . . spur comparative analysis across countries, perhaps
helping to identify cultural influences on compliance behavior and modes of
enforcement.
The U.S. and Hong Kong provide an interesting opportunity for comparative
analysis. Despite similar capitalistic economies, a number of structural
differences exist between the U.S. and Hong Kong tax systems. For example,
Hong Kong has a proportional tax rate structure, no periodic withholding, a
mandatory provisional tax, no capital gains tax, and no self-assessment
mechanism. In contrast, the U.S. has a progressive tax rate structure, periodic
withholding, no provisional tax, a capital gains tax, and a self-assessment
mechanism. The extant literature also suggests significant differences between
American and Hong Kong Chinese cultures (Hofstede, 1980, 1991).
In addition, both countries have a significant problem with taxpayer noncompliance. The Internal Revenue Service (IRS) estimates the tax gap for individual filers in the U.S. to be $95.3 billion, or 17% of the total individual income
tax liability (GAO, 1997).1 The Internal Revenue Department (IRD) in Hong
Kong reports over HK$9.4 billion were collected from 1994 99 back taxes
and penalties based on approximately 8,500 investigations and field audits
(French, 1999).
The purpose of this paper is to explore similarities and differences in
taxpayer compliance behavior between U.S. and Hong Kong Chinese taxpayers.
Fischer et al.s (1992) model (hereafter the Fischer Model) of taxpayer compliance provides the underlying conceptual framework to compare and contrast
these countries. A structural equations approach is used to empirically model
and test the multiple constructs identified in the Fischer Model.
This research contributes to the taxpayer compliance literature by simultaneously modeling and testing all major constructs articulated in the Fischer
Model, namely demographics, noncompliance opportunity, attitudes and perceptions, and tax system/structure. In addition, this study validates the empirical link
established in prior research between moral beliefs and taxpayer compliance
(Hanno & Violette, 1996; Hite, 1996). Third, this study explores the potential
effect of an additional construct, cultural differences, on taxpayer compliance in
an international setting.
LITERATURE REVIEW
Roth et al. (1989) identifies two primary factors that have a significant effect
on taxpayer compliance: financial self-interest and moral commitment. Financial
FIGURE 1.
and perceptions. This study investigates the influence of two demographic variables, age and gender. Age is expected to have an indirect, positive effect on
taxpayer compliance (Jackson & Milliron, 1986; Roth et al., 1989). Early
research reports females are more likely to comply, but this gender effect may
be waning (Mason & Lowry, 1981; Grasmick et al., 1984).
Noncompliance Opportunity
In the Fischer Model, noncompliance opportunity can affect taxpayer compliance directly and also, indirectly, through attitudes and perceptions. This study
investigates the direct and indirect effects of two noncompliance opportunity
variables, namely educational and income level, on taxpayer compliance. The
literature supports a direct, negative relationship between educational level and
taxpayer compliance, whereas the direct relationship between income level and
taxpayer compliance is unclear (Jackson & Milliron, 1986; Roth et al., 1989).
Attitudes and Perceptions
This research examines the construct attitudes and perceptions in the
Fischer Model in terms of the separate and combined effects of two variables: (1)
taxpayer moral development, which measures the process of reasoning, and (2)
attitude toward the fairness of the tax system, which focuses on conclusions of
the reasoning process (Rest, 1986). The following sections describe previous
research findings on these two variables as well as their relevance to this study.
Moral Development. The theory of moral reasoning emphasizes the structure of reasoning and the general organizing principles or patterns of thought
(Kohlberg, 1969; Colby & Kohlberg, 1987). Kohlbergs theory posits that an
individuals moral development progresses through six sequential stages of moral
reasoning. The six stages of moral reasoning are briefly discussed in Table 1.
The decision to comply or not comply with tax laws involves an ethical
component. Taxpayers must draw on their perceived values and codes of conduct
to assess the rightness or wrongness of their behavior. Kohlberg & Candee
(1984) demonstrates that individuals using higher levels of moral reasoning
typically choose morally right decisions and act on them. This study predicts a
direct, positive moral development effect on taxpayer compliance.
A direct, positive relationship is expected between moral development and
taxpayer attitude because an individual who uses a principled reasoning process
is more likely to reach a positive conclusion on the fairness of tax laws.
According to the theory of reasoned action, compliance is determined by
taxpayers attitude toward the behavior and influence of subjective norms,
which are based on the persons set of salient beliefs (Carroll, 1992). This theory
is supported empirically by Hanno & Violette (1996).
TABLE 1
Stage One
Stage Two
Stage Three
Stage Four
Stage Five
Stage Six
The U.S. and Hong Kong provide researchers with an opportunity to explore
differences in compliance between two different tax systems/structures. The key
structural differences between these two nations tax systems are listed below:
1.
2.
3.
4.
5.
Tax rate structure. In the U.S. taxpayers are subject to a progressive rate
structure consisting of five brackets ranging from 15 to 39.6%. In Hong
Kong the rate structure is effectively a flat, or proportional, tax for most
residents (Ernst & Young, 1998).3
Tax withholding. Periodic tax withholding has been required in the U.S.
since 1943. There is no periodic tax withholding from wages and
salaries in Hong Kong.
Mandatory provisional tax. Hong Kong residents are required by law to
pay up to twice the current years tax liability as a provisional tax in
anticipation of future taxable income. With the absence of tax withholding and a diminishing savings rate, taxpayers often must borrow to meet
their tax obligations. This is viewed by many as an undue burden.
Although some U.S. taxpayers must pay estimated taxes, mandatory
provisional tax is much less widespread and affects far fewer individual
taxpayers.
Capital gains tax. U.S. taxpayers are generally subject to a capital gains
tax rate different than their income tax rate. On the other hand, Hong
Kong capital gains, unless such investments are carried out within the
scope of an ongoing business, are normally not taxed.
Self-assessment. U.S. taxpayers are responsible for assessing their annual tax liability. Self-assessment has not been implemented in Hong
Kong.
Cultural Differences
The Fischer Model does not include a construct for the effect of cultural
differences on taxpayer compliance. However, a comparison between the U.S.
and Hong Kong would be incomplete without considering cultural differences.
Cultural research has found significant differences between U.S. citizens and
Hong Kong Chinese, particularly in the cultural dimension anchored on one end
by individualism and on the other end by collectivism (e.g., Hofstede, 1980,
1991; Harrison et al., 1994).
U.S. citizens view themselves as distinct and separate entities and place
great value on individual rights. In contrast, Hong Kong Chinese tend to be
collectivists who are expected to follow and subscribe to the explicit and
implicit values and initiatives of their in-groups in order to gain peer
acceptance and social status (Triandis, 1995).4
These cultural differences may have a direct effect on moral development
and, therefore, compliance decisions. Research has shown Chinese place greater
emphasis on Stage Three and less weight on Stage Four of Kohlbergs moral
development scale than their western counterparts (Ho, 1986; Ma, 1989; Ma &
Cheung, 1996).5 In making tax compliance decisions, Hong Kong taxpayers are
expected to engage in predominantly Stage Three reasoning. That is, the decision
to comply with tax laws is motivated by the desire to meet prevailing in-group
norms and expectations rather than the fulfillment of individualistic societal/legal
obligations. A less salient direct link between taxpayer attitude and compliance is
therefore expected, given the likely moderating effects of low moral
development, as long as noncompliance is accepted by the taxpayers ingroup(s) as a moral decision.
In contrast, U.S. citizens are expected to be more individualistic, thus are
more likely to obey tax laws out of concern for social order and obligation
(Triandis, 1988; Trompenaar & Hampden-Turner, 1998). Such an obligation is
viewed as a means to maintain everyones individualistic interests in a legalistic
environment. Consequently, the emphasis to maintain legal and social order (i.e.,
Stage Four reasoning) intensifies the demand for due process and guarantee of
tax laws that are fair to the individual (i.e., Stage Five reasoning). Those who
are further developed morally on Kohlbergs scale are motivated by their
individual duty to maintain law and order and to protect individual rights and
due process. Relative to Hong Kong Chinese, U.S. citizens are posited to be
more inclined to use higher stages of moral reasoning in tax compliance
decisions. Hence, the direct links between moral development and taxpayer
attitude, and between attitude and compliance, are expected to be more salient
in the U.S.
In summary, this study explores the joint impact of structural and cultural
differences between the U.S. and Hong Kong in a tax compliance context. A
dichotomous variable, labeled national differences, will be tested in the model to
examine the possible influence(s) of national differences on noncompliance
opportunity, moral development/attitude, and compliance.
RESEARCH DESIGN
AND
METHODOLOGY
Subjects
A research instrument was administered to a convenience sample of taxpayers enrolled in undergraduate and graduate courses at two state universities in the
U.S. and at two universities in Hong Kong. The participants included in the final
sample were required to have experience in making individual tax compliance
decisions and to complete the survey in a consistent manner.
The survey instrument was administered to 158 U.S. and 86 Hong Kong
participants. Of this total, 101 U.S. and 56 Hong Kong responses were included
in the analysis, yielding a final sample of 157.6 This effective response rate of
64.3% can be attributed to several factors: (1) subjects participation was strictly
90
2000
Descriptive Statistics
Panel A:
Variable
Age (overall)
Full-time Work (yrs.)
P-score
Attitude
Compliance
Panel B:
and
Gender, Education,
Variable
Gender:
Male
Female
Education:
High School Diploma
2-year College
Undergraduate Students
Education:
Bachelor Degree
Master Degree
Graduate Students
Missing Value
a
Average Annual Income :
Less than US$10,000
US$10,00019,999
US$20,00029,999
US$30,00039,999
US$40,00049,999
US$50,000 or More
a
U.S.
Hong Kong
33.8 (8.20)
12.7 (7.90)
40.28 (13.30)
74.9 (14.24)
9.93 (5.52)
28.93 (4.63)
6.79 (5.28)
31.23 (12.12)
82.0 (10.73)
6.59 (5.70)
Income Levels
Combine
d
32.11
10.58
(7.48)
(7.58)
37.05
(13.57)
76.91
(13.60)
8.74
(5.79)
Frequency (Percent)
U.S.
40 (39.6%)
61 (60.4%)
9 (8.9%)
18 (17.8%)
27 (26.7%)
30 (29.7%)
36 (35.7%)
66 (65.4%)
8 (7.9%)
7 (6.9%)
25 (24.7%)
35 (34.7%)
12 (11.9%)
12 (11.9%)
10 (9.9%)
Hong Kong
Combine
d
37 (66.1%)
19 (33.9%)
77
(49.0%)
80
(51.0%)
10 (17.9%)
19
(12.1%)
21 (37.5%)
39
(24.8%)
31 (55.4%)
58
(36.9%)
20 (35.7%)
50
(31.8%)
2 (3.6%)
38
(24.2%)
22 (39.3%)
88
(56.0%)
3 (5.4%)
11
(7.0%)
0 (0.0%)
7
14 (25.0%)
39(4.5%)
(24.8%)
20 (35.7%)
55
(35.0%)
13 (23.2%)
25
(15.9%)
1 (1.8%)
13
(8.3%)
8 (14.3%)
18
(11.5%)
at the prevailing, fixed exchange rate of
US$1 for
Panel A of Table 2 shows U.S. subjects are older than their Hong Kong
counterparts by about 5 years (33.8 vs. 28.93). Full-time work experience is
nearly 6 years greater for U.S. subjects (12.7 years) compared with Hong Kong
subjects (6.79 years). The results for full-time work experience do demonstrate a
relatively high level of full-time work experience for both groups, however. For
the DIT measure, the range (11.7 to 70.0) and mean (37.05) for the combined
dataset are typical (Rest, 1979). Relative to the U.S. sample, DIT scores from the
Hong Kong sample have a lower mean and standard deviation, with a narrower
range. Regression analysis of P-scores on gender indicates no significant gender
effect on P-scores. Hong Kong subjects have a higher mean attitude score (82.0)
than the U.S. sample (74.9), but a lower mean compliance score of 6.59 versus
9.93 for the U.S. subjects.
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2000
RESULTS
AND
DISCUSSION
International
Hong Kong
Structural Path
Model
U.S.
Age 3 Education
Age 3 Income Level
Age 3 Moral Development
Age 3 Attitude
Gender 3 Education
Gender 3 Income Level
Gender 3 Moral Development
Gender 3 Attitude
b
Nat. Diff. 3 Education
Nat. Diff. 3 Income Level
Nat. Diff. 3 Moral Development
Nat. Diff. 3 Attitude
Nat. Diff. 3 Compliance
Education 3 Moral Development
Education 3 Attitude
Education 3 Compliance
Income 3 Moral Development
Income Level 3 Attitude
Income Level 3 Compliance
Moral Development 3 Attitude
Moral Development 3 Compliance
Attitude 3 Compliance
0.443***
0.563***
0.133
20.067
20.014
20.070
0.013
20.093
n.a.
n.a.
n.a.
n.a.
n.a.
0.259**
20.020
20.183*
20.043
20.178
0.022
0.258**
20.077
0.261***
Panel B:
Model
20.380***
0.410***
20.140
0.280*
0.050
0.094
0.019
20.043
n.a.
n.a.
n.a.
n.a.
n.a.
0.072
0.140
20.050
20.180
20.019
0.150
0.270*
0.160
0.320**
0.280***
0.540***
0.099
20.029
20.050
20.075
20.010
20.036
20.320***
0.220***
20.180**
0.330***
20.430***
0.260***
20.035
20.170**
20.100
20.097
0.055
0.230***
20.002
0.280***
Goodness-of-Fit Statistics
Goodness-of-Fit Tests
Model
Mode
l
U.S.
5.470 (p 5 0.140)
0.032
0.98
0.86
7.93 (p 5 0.05)
0.06
0.96
0.64
Internationa
l Model
3.63 (p 5 0.30)
0.019
0.99
0.93
Standardized outputs.
National Differences is a dichotomous variable used to capture the structural and cultural (individualism/
collectivism) differences between the U.S. and Hong Kong. U.S. sample was coded as 0 and Hong Kong
sample as 1
Significant at: *** p , 0.01, ** p , 0.05, * p , 0.10.
greater than 0.90, and a root mean square residual (RMR) of less than 0.05 are
useful indicators of a well-fitted model (Wheaton et al., 1977; Bentler & Bonnett,
1980).
For the U.S. sample, the x2 test of independence shows that the null
hypothesis of no significant difference is not rejected (p 5 0.140), indicating an
acceptable fit between the estimated and the actual data matrix. At 1.82, the ratio
between x2 and degrees of freedom indicates a strong model. The RMR is less
FIGURE 2.
than 0.05 and the AGFI is 0.86. These measures indicate the U.S. model is
reasonably well-fitted.
For the Hong Kong sample, the x2 statistic rejects the null hypothesis of no
significant difference between the estimated and actual data matrix (p # 0.05).
Although the ratio of x2 to degrees of freedom is less than the cutoff of 5 (2.64),
the RMR (0.06) and AGFI (0.64) suggest the LISREL model based on the Hong
Kong sample is not a strong fit. Consequently, interpretation of findings based
solely on the Hong Kong sample should be conducted with caution.
Structural relationships found to be significant are illustrated in Figure 2 for
U.S. results and Figure 3 for Hong Kong results. As shown in Figure 2, U.S.
results suggest gender is not significantly associated with any of the variables
described in the Fischer Model. Age has a positive effect on education, and
education has an indirect, positive link with taxpayer compliance via moral
development and taxpayer attitude. In addition, although age has a positive effect
on income level, income does not appear to have a direct effect on taxpayers
stage of moral reasoning, attitude, and subsequent compliance behavior. Significantly, older U.S. subjects were more likely to earn higher incomes and to be
more educated. Those with more education were more likely to have a higher
level of moral development, to have a more positive attitude toward the tax
system, and were more likely to comply with tax laws.
Figure 3 reports the significant relationships for the Hong Kong sample.
Once again, gender has no effect on any of the remaining variables. Age has
a direct, positive (negative) effect on the income level (education) variable (p
,
0.01). No significant relationship is found between the two
noncompliance op-
FIGURE 3.
9
5
FIGURE 4.
Additional Analyses
Additional regression analyses have been performed to validate, as predicted
by the Fischer Model, the absence of direct link between such demographic
variables as age and gender and compliance. Results confirm that neither age nor
gender is a significant predictor of compliance. Specifically, a regression model
2
of compliance on age yields an adjusted R of 0.012 (F 5 2.92, p 5 0.09)
and a model on gender yields an adjusted R2 of 0.005 (F 5 0.191, p 5
0.663).
Separately, age (t 5 0.447, p 5 0.656) and gender (t 5 0.354, p 5 0.724) are
not significant predictors of compliance in the U.S. The Hong Kong sample
yields similar results (age: t 5 1.068, p 5 0.29; gender: t 5 - 1.543, p 5
0.129).
Recent studies have shown the mode of tax compliance decision (i.e.,
claiming of deduction vs. omission from income) as a significant variable in
compliance scenarios (Thurman, 1991; Christensen & Hite, 1997). To test for this
possible effect, a regression model of compliance on all independent variables
plus the variable labeled mode is examined. The mode variable (a deduction
versus income dichotomy) is found to be insignificant. That is, no significant
difference on regression results can be detected before and after the inclusion of
the mode variable. In addition, after partitioning the overall sample by mode,
only attitude and national differences are significant direct predictors of
compliance (p , 0.05) under the deduction mode and none of the variables is
significant under the income mode.
IMPLICATIONS
AND
LIMITATIONS
Results of this study suggest that the Fischer Model is a viable conceptual
framework for the study of taxpayer compliance. The majority of the predicted
relationships in the Fischer Model have been supported. First, income level is
found to be unrelated to compliance among U.S. and Hong Kong subjects.
Second, whereas no direct link is found between age, gender, and compliance,
age has a direct, positive effect on income and a direct, positive (negative)
effect on education in the U.S. (Hong Kong). Third, a direct, negative
education effect found on compliance is moderated by an indirect, positive
link between education and compliance through higher stages of moral development and better attitude.
Consistent with prior research, Figure 4 indicates that greater education is
directly linked to a reduced likelihood of compliance. Although prior research
has primarily focused on the direct link between education and tax compliance,
this study supports an indirect, positive link between education and
compliance, via adoption of higher levels of moral reasoning and positive
taxpayer attitude as a moderating influence. Educated taxpayers may be more
aware of noncompliance opportunities (i.e., loopholes), but their potentially
better understanding of the tax
system and higher level of moral development promote more favorable taxpayer
attitude and greater compliance. A plausible explanation for this result may be
discerned from Eriksen & Fallan (1996). They found that specific tax knowledge
was positively linked to taxpayer attitude. Higher levels of education may be
associated with a better understanding of specific tax knowledge, which in turn
positively influences attitude and promotes compliance.
Perhaps the most important contribution of this study is that it suggests a
cultural construct should be added to the Fischer Model. Empirical results
suggest that, as individualists, U.S. taxpayers use higher stages of moral
reasoning, are more positive toward the tax system, and tend to be more
compliant. As members of a collectivist culture, Hong Kong taxpayers have a
lower level of moral development, a less favorable attitude toward the tax
system, and consequently a lower level of compliance.
Figure 4 shows that Hong Kong subjects do not only have a direct link with
positive attitude, but also demonstrate an indirect but negative attitude through
less education and lower moral development. A plausible explanation is that
although Hong Kong taxpayers feel favorably, in general, toward the tax system,
they are simultaneously influenced by a lower stage of moral development,
which leads to a less favorable attitude and a lower tendency to comply. As
collectivists, Hong Kong taxpayers personal (and general) attitude toward the
tax system is not the only driver of their compliance decisions. That is, Hong
Kong taxpayers, although having no specific difficulties with the tax system,
may still decide against compliance as long as they are convinced that
noncompliance is consistent with in-group expectations and norms. Using
relatively lower stages of moral reasoning, Hong Kong taxpayers are driven by
societal expectations and approv- als, rather than individual attitudinal
judgments, in justifying their decisions not to comply.
Hite (1996) suggests that compliers may rely heavily on individual moral
beliefs and noncompliers may be influenced by other factors in addition to those
beliefs. In their decisions not to comply, Hong Kong taxpayers may discount
their own general perception of fairness of the tax system and base their
decisions instead on norms and expectations of their peers and in-groups.
These findings underscore a key concept advanced by the Fischer Model.
That is, tax compliance decision-making is a complex process. Many factors such
as economic, demographic, behavioral, and even cultural variables are likely to
have integrative effects on how a taxpayer makes his/her compliance decision.
Such factors are frequently translated into competing forces and their separate
and combined effects should be carefully examined. This study provides
empirical evidence in support of this concept.
This research suggests that attempts to improve taxpayer compliance must
consider the cultural context in which they will be implemented. The empirical
results of this study are consistent with Coleman & Freemans (1997) advice that
compliance efforts be tailored to specific cultural groups as well as economic
groups. They cite behavioral literature that demonstrates taxpayers will respond
more favorably to messages and strategies that explicitly take into account
cultural differences. Tax authorities need to incorporate cultural considerations
into their taxpayer compliance efforts.
Future research can explicitly measure and model structural variables such
as tax rate, progressive versus proportional tax systems, tax withholding, and
man- datory provisional taxes. For instance, as income levels are posited to be
posi- tively associated with tax rate, a higher tax rate was found to have a
strong negative effect on compliance (Alm, 1991). Perhaps income level has an
indirect effect on taxpayer compliance via tax rate and/or progressive versus
proportion tax systems.
This study has the following limitations. First, taxpayer compliance is
measured as a judgment based on a hypothetical situation. Actual decisions may
differ from the elicited responses in the survey. Second, unless samples are drawn
from larger and more heterogeneous segments of the society, statements on
generalizability of the results in terms of age and educational effects on DIT
scores and compliance should be made with care. Third, the lack of a good fit for
the Hong Kong model could be attributed to sample size, sampling frame, and
differences in the two samples distributions. Finally, the descriptive validity of
the Fischer Model in an international context can be improved as more refined
measures of tax structure, national culture, and noncompliance opportunity variables are developed.
NOTES
1.
2.
3.
4.
5.
6.
These estimates are based on tax year 1992, which is the most recent data available from the
IRS.
Moral statements expressed in terms of a persons feeling of guilt are often used due to
such assumptions made in tax compliance research that: (1) an individual has internalized
societal norms, (2) an individual has internalized such norms to obey tax laws, and (3) an
individual who violates an internalized norm would feel guilty (Blake & Davis, 1964;
Hirschi, 1969).
The top marginal rate in Hong Kong is 17% of taxable income capped by an average/flat tax
of 15%. Because the thresholds of annual income have traditionally been too low for the
progressive rate structure to take effect, many residents effectively face a flat 15% tax rate
structure.
According to Triandis (1995), in-groups are groups with which members tend to identify and
of which they perceive themselves as a part. Examples include extended families, schools,
work units, and social clubs.
Whereas the application of Kohlbergs theory to Chinese societies has been challenged,
several studies have generated empirical support for the generalizability of Kohlbergs theory
to Hong Kong Chinese (Ma & Chan, 1987; Hau & Lew, 1989).
For the U.S. sample, 38 (12) instruments were omitted because of inconsistent/incomplete
responses on the DIT (compliance) portion of the survey, four were omitted because of
a lack of full-time work experience and three were omitted because of incomplete
100
7.
2000
demographic information. For the Hong Kong sample, 15 instruments were omitted
because of inconsistent/incomplete responses on the DIT portion of the survey, nine (fi
were dropped because of incomplete attitude (compliance) scores, and one was omitted
because of incomplete demographic information.
The 26-item taxpayer attitude survey has been developed for this study to examine respondents attitude toward fairness of the tax system. Based on 188 and 122 usable pretest
responses from the U.S. and Hong Kong respectively, this survey has been validated such that
each item consistently measures the underlying construct of taxpayer attitude (Cronbachs
Alpha indices 5 0.91 and 0.79, respectively).
APPENDIX
Hypothetical Tax Evasion Scenario*
Section IDirections: Please read the following paragraph and answer the two questions pertaining
to the paragraph. Your responses are confidential and cannot be traced to you.
Joe Smith has taxable income of $320,000 from his company for the current tax year. During
the year, Joe purchased computer equipment to use at home for personal use. The total cost was
$8,000 and included a central processing unit for $4,000, a monitor for $1,600 and a printer for
$2,400. If he had purchased the computer equipment for use in his business, the full $8,000 would
be a deduction on his personal tax return. He could really use the tax dollars he would save by
including the cost of the computer equipment as a business deduction. He is sure there is no way
the tax authority could detect that he deducted the personal expenditure since he could easily
transfer the computer equipment to his office if he were challenged/audited. Joe has come to you
and asked you what you would do if you were in his situation.
1.
If faced with an identical situation, would you deduct any of the $8,000 computer
equipment cost on your tax return? Indicate your response by placing a mark anywhere on the line below.
Yes
2.
Probably
Unsure
Probably Not
No
How much of the $8,000 computer equipment cost would you deduct on your tax return
if you were faced with an identical situation? Respond by entering the amount you
would deduct (from $0 through $8,000) in the space provided below.
$
Section IDirections: Please read the following paragraph and answer the two questions pertaining
to the paragraph. Your responses are confidential and cannot be traced to you.
Joe Smith has taxable income of $320,000 from his company for the current tax year. Most
of Joes customers pay by check but a few pay in cash. Joe received $8,000 cash from customers
during the year that he did not deposit in his bank account. Joe is debating whether to omit the
$8,000 cash receipts from his taxable income. Although the cash receipts are technically included
in taxable income, he could really use the tax dollars he would save by not reporting the $8,000. He
is sure there is no way the tax authority could detect that he omitted the amount because there is no
record of cash receipts. Joe has come to you and asked you what you would do if you were in his
situation.
1.
If faced with an identical situation, would you omit any of the $8,000 cash receipts from
your tax return? Indicate your response by placing a mark anywhere on the line
below.
Yes
2.
Probably
Unsure
Probably Not
No
How much of the $8,000 cash receipts would you omit from your tax return if you were
faced with an identical situation? Respond by entering the amount you would omit
(from $0 through $8,000) in the space provided below.
$
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