Purpose: The success of Self-Assessment Tax System is voluntary compliance with the tax laws. When tax evasion is seen as unacceptable, taxpayers will tend to less evade tax. Hence, the understanding of taxpayers’ attitude on tax morality towards a tax system has to be enhanced in order to minimize tax evasion cases. The objectives of this study are to examine the relationship between tax fairness, tax knowledge, enforcement level and social exchange towards taxpayers’ attitude of tax morality under the Self-Assessment System in Malaysia and also to identify the relationship between taxpayers’ attitude of tax morality and taxpayers’ perceptions on tax evasion. Methodology: Data were collected from 400 taxpayers through a questionnaire and analysed. Findings: From the analysis it has been found out that tax knowledge is the most important tax system characteristic that affects taxpayers’ attitude of tax morality. In addition, taxpayers’ attitude of tax morality is significant to taxpayers’ perceptions on tax evasion in Malaysia. Value: The findings of this study would be useful for government to further improve the present tax system to increase voluntary tax compliance.

INTRODUCTION

The tax system and taxes are fundamental components of any attempt for a developing country such as Malaysia (McKerchar & Evans, 2009). Tax is a means of financing government expenditures and is an important component in a government’s revenue (Tabandeh, Jusoh, Nor, & Zaidi, 2013). Tax compliance has always been an area of concern to policy makers, tax administrators and society in general (Isa, 2014). Tax resistance can happen through either tax evasion or tax avoidance (Kasipillai, Aripin, & Amran, 2003). Tax evasion is different from tax avoidance. Every Malaysian has his/her own right to tax avoidance, while tax evasion is generally viewed as unacceptable on the ground that it is illegal as it involves intentional non-compliance of tax law. Taxpayers’ compliance has a positive linkage with their perceptions of the tax system (Kogler, Batrancea, Nichita, Pantya, Belianin, & Kirchler, 2013; Schwartz, 2014). Acceptability perception can be defined as a person’s moral or duties on a particular thing. Although the tax evasion law has been enforced in Malaysia, the number of tax evasion cases is in an increasing trend, as reported by the Chief Executive Officer of Inland Revenue Board, Malaysia in the Annual Reports of Inland Revenue 2008 to 2012. Insert Table 1 here. It is impossible to achieve 100% compliance of tax regulations in all countries (McGee, Ho, & Li, 2008). It is a concern and challenge for all governments and tax authorities, as it is impossible to convince all taxpayers to meet the terms and guidelines of the tax system since the commencement of income tax collection (James & Alley, 2002). Several future research avenues still exist to improve the understanding of the determinants of tax evasion worldwide (Khlif & Achek, 2015). Hence, efforts have to be taken to increase tax compliance from taxpayers. Taxpayers’ perception on tax evasion is highly questionable in Malaysia. Obviously, taxpayers’ perception of the severity of tax evasion is an essential element. The probability of evading tax is there when taxpayers think that tax evasion is reasonable, and some will justify based on moral ground (Nickerson, Pleshko, & McGee, 2009). Besides, taxpayers’ attitude on tax morality, such as inequitable tax laws and poor tax administration could be among the reasons for non-compliance of tax amongst taxpayers (Odd-Heldge, 2005).