Review of Related Literature

OECD (2016) defines tax compliance as the degree to which a

taxpayer complies (or fails to comply) with the tax rules of his

or her country, for example, by declaring his or her income, filing

returns, and paying tax in a timely manner. Based on the above

definitions, it can be concluded that tax compliance is the

sincerity to which a taxpayer reports his or her income, files

returns, and pays all of his or her taxes on time.

According to Wadesango et al (2018), Tax knowledge is an effective

tool to induce tax payers to be more compliant. Also, tax knowledge

is necessary for the purposes of enhancing compliance level and

will also assist record keeping in business and also in creating

a conducive business which enables the business operators who are

compliant to operate freely. Wadesango et al concluded that Tax

knowledge has a significant and positive relationship with tax

compliance. This means that a high level of tax knowledge will

increase voluntary compliance. This result suggests that tax

knowledge and awareness play an important role among taxpayers and

affects their level of compliance.

Furthermore, Palil & Mustapha (2010) discovered that tax

knowledge affects tax compliance positively. Therefore, taking more

measures to provide tax knowledge to a greater part of the society

assists in the prevention of the tax evasion and results in the

promotion of voluntary tax compliance. Conversely, poorer tax

knowledge is associated with negative attitude towards taxation

and increases tendency to evade tax. Tax knowledge usually relates

to the taxpayers’ ability to comprehend and comply or not with tax

laws.

Mukasa (2011) agree that tax knowledge has a significant

positive relationship with tax compliance behavior. As the result

from their research, higher tax knowledge is expected to lead to

higher compliance rates and lower tax knowledge lead to lower tax

compliance rate in adverse. The survey among small and medium

registered taxpayers operating in Kampala central division found

that low tax knowledge is one of the significant factors which

contributed to less compliance. This is because lack of knowledge

of tax law coupled with inadequacy of taxation books in layman

terms to guide them which will contribute to unintentional tax

non-compliance.

Mukhlis, Utomo and Soesetio (2015), also proves that there is

a positive and significant relationship between tax education on

tax knowledge and tax compliance on Handicraft SMEs Sectors in

Indonesia support the above statement and note that there was a

positive significant relationship between taxpayer’s tax knowledge

and tax compliance. The taxpayers who have equipped with the
sufficient tax knowledge are able to access their tax liability

correctly ad file tax return forms on time. Taxpayer cannot be

expected to submit complete, proper tax returns accurately unless

they have sufficient knowledge to understand the system.

Yusoff et al (2017), supported that the influence of a

specific knowledge on the tax compliance decision is assumed to be

important for the tax compliance behaviour. An inadequate level of

tax knowledge could result in inaccurate tax returns, and other

negative consequences, including unintentional non-compliance, and

unfortunately this may lead to false tax computation among

individual taxpayers. Furthermore, tax knowledge improves an

individual's awareness and ethics, thus reducing the tendencies of

tax non-compliance and producing more competent taxpayers in the

future, however, it is not to be expected that knowledgeable

taxpayers would comply.

Canada Revenue Authority (2009) said that gaining tax

knowledge has a significant impact on Malaysian’s compliance level

when the self-assessment system had introduced. They further

indicate that the ability of taxpayer's in complying tax by

reporting taxable income, claim relief, rebates and compute tax

liability correctly can be determined by the sufficiency of

taxpayer's knowledge toward tax policy.

 Fany Inasius (2018), likewise stated that Tax knowledge

affects tax compliance, wherein greater tax knowledge increases

tax compliance. Understanding tax regulations can lead to a sense

of participation in paying taxes. Conversely, a lack of

understanding of taxation can increase the cost of taxation and

the time required to file taxes. Practical tax knowledge can also

contribute to tax compliance. For example, knowing the tax officers

have conducted a large number of tax audits can make them appear

powerful. Therefore, simplifying tax laws, improving taxpayer

attitudes toward the complexity of tax systems, and increasing

taxpayer services are likely to enhance taxpayers’ trust in

authorities.

Park and Hyun (2003), also suggests tax education is one of

the effective tools to encourage more taxpayers to comply the new

tax. In other words, taxpayers are more willing to comply if they

really understand the concept of the tax base.

However, Kasipillai et al (2013), oppose the argument on

positive correlation between tax knowledge and tax compliance has

opposed by some of the studies. They found that there is a

significant negative relationship between tax knowledge and

compliance behavior. They claim that the increasing knowledge of

tax such as audit process and tax regulations expose taxpayers the

opportunity to evade tax. In other word, taxpayer who has higher

level of tax knowledge is well-know about the loophole in tax

regulation and system know the legal way to reduce or even avoid

tax. From their research, they found that tax compliance to be

higher for taxpayers who were less well educated and older.