Exploring Key Determinants of Tax Compliance Decision Among Individual Taxpayers in Sri Lanka

Abstract

Tax compliance is a major problem in revenue generation by Government of Sri Lanka.  The aim of this study is to explore the key determinants of tax compliance behavior of individual taxpayers’ in Sri Lanka. Four tax compliance determinants were examined. This research comprises a quantitative study and was established theoretical framework used on existing literature and previous studies relevant to the examined tax compliance determinants were Tax Rate, probability of being Audited, non-Complexity of tax system and probability of detection. This research tested set of research hypothesis based on the framework and quantitative data collected by a questionnaire survey method of research design. Given the five point likert scaled ranking information for both independent and dependent variables. The seven hundred (700) questionnaires were distributed and the number of questionnaire completed and returned were three hundred and eighty eight (388). The researcher used cluster sampling method for this study because of the sample should be represented of the whole country. The multiple regression models were used to examine the relationship between independent and dependent variables and indicate that tax compliance was influenced by the tax rate, probability of being Audited, non- complexity of tax system, and probability of detection. The results of this study can inform policy makers how the determinants influence tax compliance behavior. The results of this study also provides insights both policy makers and tax Administrators to gain better understanding of the key variables that are significantly associated with tax compliance and enable them to implement suitable strategies to minimize potential damaging factors and allow them to improve government revenue. The study also attempts to enhance the existing literature by providing comprehensible picture and a view of taxpayers’ compliance behavior from developing countries.

Keywords: Tax compliance; tax Rate, probability of Audit, non- complexity of tax system, probability detection