1.2. Types of tax compliance and effective factors

Many high quality studies have been conducted in Turkey on tax compliance and its main indicators, i.e., tax ethics. Some of these were supported with field studies. However, due to the passing of time and changing conditions, the continuity in the research on these issues is required since empirical studies indicate that the changes in the conditions over time may give

In this study, as a different approach, perception of tax compliance was tested on university students who have little or no tax implementation experience. For the government, tax income operations are heavily dependent on tax compliance, while the fairness of the allocation of tax burden affects the tax payers' compliance. The situation has been studied here by dealing with university students in regard to whether or not a perception of tax compliance develops in a highly educated people who are not tax payers yet, and to what degree. With this intention, a questionnaire related to the factors that affect the tax compliance was implemented on a sample group that includes people with similar characteristics involving the level of education,

As stated by James and Alley, tax compliance was defined "in terms of the degree to which taxpayers comply with the tax law" [1]. Tax compliance is the tax payers' compliance with tax laws and regulations, while the concept assumes willingness of the tax payers to comply with their liabilities without being inspected, prosecuted, and without a need for a threat or a sanction [2]. The concepts of tax ethics and tax consciousness are hidden in this definition. Tax consciousness is defined as a necessary fact that helps to know the extent to which changes in people's tax burden will affect their behavior [3]. Besides that, tax moral is also defined as "taxpayers' intrinsic motivation to pay taxes" in [4]. Higher the tax consciousness happens, higher the tax morality becomes. As long as the tax consciousness occurs and increases, tax

The tax compliance shaped by tax consciousness and tax ethics should be completed by the stages of taxing in terms of the tax payer. The content of tax compliance is described in four

In our study, the concept of tax compliance will be tested with empirical experiments on university students who are not tax payers yet, but have knowledge about these issues because of their level of education. For this paper, it is preferred to use lab experiment with undergraduate students. As referred in [6], most laboratory experiments which have been conducted by using students are very common. The reason is that in these experiments, it is realized that the responses of students are often heavily the same as the responses of other subject pools in similar lab experiments. Unlike Levitte and List (2007) and Kogler et al. [27], students as a

moral will increase and a perception of tax compliance will develop (Figure 1).

• Accurate representation of the factors to be discounted from the tax

• Complete declaration of the income to be taxed

• Submitting the declaration on time • Calculating the tax liability correctly.

subject pool are useful in many studies [7–10].

different results.

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parts [5]:

department of study, and age.

1.1. The concept of tax compliance

Tax compliance may be defined in two ways namely formal compliance and financial compliance. Formal compliance is the compliance with the formal requirements in terms of tax laws by the tax payers. Financial compliance is the compliance with the financial requirements by the tax payers based on the letter and spirit of tax laws. Formal tax compliance is a complementary factor on financial compliance. The requirement of financial compliance for the tax compliance to be complete was also indicated by Pertiwi [2].

There are fundamental factors that affect formal and/or financial compliance. The following is a list of factors that affect tax compliance [11]:


Among the factors stated above, the ones emphasized here are social-demographic and moralsocial dynamics that affect compliance for the tax payer and inspections-sanctions and subjectiveobjective measures that affect tax administration implementations. The level of knowledge and social norms gained by students in the experiment up to this study is considered to be sufficient in order to test the factors mentioned before.

In addition to the factors listed above, various financial and economic indicators that affect tax compliance may lead to a change in the tax payer's perception of compliance. These factors may be ordered as follows: tax burden, tax structure, debt burden, and underground economy (Figure 2).

The most important macroeconomic parameter that affects the perception of tax compliance is the tax burden, which also affects tax consciousness. The higher the tax burden on an individual is, the more problematic the tax compliance becomes, especially because of the idea that the system is unjust. The idea that the tax burden is unjust may develop based on the ratio of direct and indirect taxes in the tax structure. As the tax payers know that indirect taxes are collected from everyone on goods and services and the burden is inversely proportionate to the income, they may develop opposite reactions. In direct taxes, such as ones collected according to a projected declaration, the tax payer may fail to comply with the declaration based on the amount of the burden. In withholding taxes, as there is no way to avoid the tax, there may be thoughts of overestimation against other tax payers. This situation in the direct and indirect tax structure may affect tax compliance by itself, as well as over the tax burden.

Table 1 shows some indicators that affect tax compliance in Turkey with numbers from the year 2013. These data not only provide numbers important to understand the concepts used in this study but also represent factors that influence real life situations. During the experimental implementation stage of the study, the students were briefed about the data that are mentioned

2013 % Income tax/gross domestic product (GDP) 5.02 Corporate tax/GDP 2.01 VAT + special consumption tax/GDP 10.1 Tax burden/GDP 29.3 Net foreign debt stock/GDP 27.8 The ratio of the total tax income (including social security premiums) lost because of underground economy 16

**TAX COMPLIANCE**

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Direct / Indirect Tax Structure

Underground Economy

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Net Foreign Debt Burden

Tax Burden

Source: [14–16].

Figure 2. Influencing factors of tax compliance. Source: Author's illustration.

Table 1. Various indicators that affect the perception of tax compliance in Turkey.

Debt burden normally leads to tax increases for the term following the term it is experienced. The tax burden is dependent on the magnitude of the debt burden. This is another way of which tax burden interferes with tax compliance. As Önder reports that any decrease or disappearance of the perception of tax compliance for any reason will bring an increase in underground economy [12]. In scope of this issue, the 2015 Action Plan to Eliminate Underground Economy by the Ministry of Development determined increasing the voluntary tax compliance as an important action plan component and stated that "Economic, sociological, cultural, etc. factors that affect voluntary tax compliance will be analyzed, and solutions will be developed to increase the level of compliance by the tax payers" [13].

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Figure 2. Influencing factors of tax compliance. Source: Author's illustration.

factor on financial compliance. The requirement of financial compliance for the tax compliance

There are fundamental factors that affect formal and/or financial compliance. The following is

Among the factors stated above, the ones emphasized here are social-demographic and moralsocial dynamics that affect compliance for the tax payer and inspections-sanctions and subjectiveobjective measures that affect tax administration implementations. The level of knowledge and social norms gained by students in the experiment up to this study is considered to be sufficient

In addition to the factors listed above, various financial and economic indicators that affect tax compliance may lead to a change in the tax payer's perception of compliance. These factors may be ordered as follows: tax burden, tax structure, debt burden, and underground economy (Figure 2). The most important macroeconomic parameter that affects the perception of tax compliance is the tax burden, which also affects tax consciousness. The higher the tax burden on an individual is, the more problematic the tax compliance becomes, especially because of the idea that the system is unjust. The idea that the tax burden is unjust may develop based on the ratio of direct and indirect taxes in the tax structure. As the tax payers know that indirect taxes are collected from everyone on goods and services and the burden is inversely proportionate to the income, they may develop opposite reactions. In direct taxes, such as ones collected according to a projected declaration, the tax payer may fail to comply with the declaration based on the amount of the burden. In withholding taxes, as there is no way to avoid the tax, there may be thoughts of overestimation against other tax payers. This situation in the direct and indirect tax

Debt burden normally leads to tax increases for the term following the term it is experienced. The tax burden is dependent on the magnitude of the debt burden. This is another way of which tax burden interferes with tax compliance. As Önder reports that any decrease or disappearance of the perception of tax compliance for any reason will bring an increase in underground economy [12]. In scope of this issue, the 2015 Action Plan to Eliminate Underground Economy by the Ministry of Development determined increasing the voluntary tax compliance as an important action plan component and stated that "Economic, sociological, cultural, etc. factors that affect voluntary tax compliance will be analyzed, and solutions will be

structure may affect tax compliance by itself, as well as over the tax burden.

developed to increase the level of compliance by the tax payers" [13].

to be complete was also indicated by Pertiwi [2].

a list of factors that affect tax compliance [11]:

• Sanctions, probability of inspection, previous inspections

• Effects of certified public accountants and/or tax consultants

• Subjective and objective measures/preventions

• Complexity of the tax system and tax amnesty.

in order to test the factors mentioned before.

• Level of income and tax ratios • Social and demographic factors

196 Taxes and Taxation Trends

• Moral and social dynamics

Table 1 shows some indicators that affect tax compliance in Turkey with numbers from the year 2013. These data not only provide numbers important to understand the concepts used in this study but also represent factors that influence real life situations. During the experimental implementation stage of the study, the students were briefed about the data that are mentioned


Table 1. Various indicators that affect the perception of tax compliance in Turkey.

above. As a group which does not carry the tax burden and/or does not completely feel it yet, university students know about these issues in terms of economics and finances, and it is important to test these parameters under these conditions in order to understand the perception of tax compliance.

As seen in Table 3, it is important that participants are mostly third and fourth year students, as their knowledge about taxes is above a certain level and they can answer the questions with

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In selection of the questions in the questionnaire according to Likert Scale Formation Technique (Summation Ordering Technique) described in detail in [18], hypotheses were developed in order to assess the fundamental content of the subjects of this study. The hypotheses are

• Hypotheses H1 and H2 are for testing the tax consciousness, which fundamentally affects tax compliance. Associating paying taxes with being a good citizen and being aware of the contribution of taxes for national development will establish or improve a perception of

• Hypotheses H3, H4, and H5 are indicators for tax payers with established or developed perceptions of tax compliance on whether they comply with the duties of paying taxes as

• Hypotheses H6 and H7 measure the contribution of factors provided by the tax administration on the perception of tax compliance. Providing correct and fast service at the administration not only establishes/improves trust in the administration but also prevents

First year Second year Third year Fourth year

complexities and strengthens the tax payers' perceptions of compliance.

1 H1: Being a tax payer who shows the required compliance means being a good citizen

2 H2: A compliant tax payer gained this trait as they think paying taxes helps in national development

6 H6: A compliant tax payer gained this trait because the tax administration provided correct and fast service 7 H7: A compliant tax payer gained this trait because the tax administration provided correct information about

Distribution of participants by levels 62 48 94 83

similar awareness.

2.3. Hypotheses

given in Table 4.

tax compliance.

they must be.

Source. Author's identification.

calculated tax payments Source. Author's identification.

Table 4. Hypotheses of the lab experiment.

Hypotheses

Table 3. Distribution of participants by levels of grade.

3 H3: A compliant tax payer makes their declaration on time 4 H4: A compliant tax payer calculates their debt accurately

5 H5: A compliant tax payer is sensitive about paying their tax debts
