1

Introduction

Taxes is one of the major source of revenue which is intended for Government’s

expenditures and critical services or development programs. Tax is a “compulsory

contribution to the revenue of the state, levied by the government on taxpayer’s income

and business profits or value added to the cost of some goods, services, and

transactions” (Sutedi et al., 2015). However, not all payments to the government are

considered as tax payments such as charges and other levies. Taxes received from

individuals and corporations contribute significantly to a country’s Gross Domestic

Product (GDP). In the Philippines, tax revenue accounts for a large part of total

government revenue (Ibrahim et al., 2015). A drop in economic activity in a developing

country leads to situations where taxes become a source of government revenue. It

means that many economies rely heavily on taxes to survive. In 2019, the Philippines'

tax revenue contributed 14 percent of the country's GDP (The World Bank Group,

2022). That is why it is necessary to ensure that taxpayers follow on the country’s tax

regulations to keep this essential income viable.

Given the important role that tax plays in every economy, government assured

that tax policies and regulations are being complied legally and properly. These tax

policies work towards guaranteeing compliance to meet development revenue targets

and may affect the willingness of the taxpayers to pay their taxes (Twum et al., 2020).

Given the significant role that taxes play in every economy (Young et al., 2016),

governments globally have put systems in a position to ensure that tax policies have

complied. These tax policies work towards guaranteeing compliance to meet

development revenue targets (Twum et al., 2020). These tax policies may influence
 2

taxpayers' willingness to pay their taxes (Twum et al., 2020). It necessitates that tax

compliance stakeholders foster the eagerness to increase tax compliance, not merely

via the employment of tax regulations (Twum et al., 2020).

As highlighted in the study of Twum et al. (2020), Tax compliance is one of the

biggest issues globally since it has a huge impact on the global economy. Tax non-

compliance is substantially higher in underdeveloped countries than in wealthy

countries (Umar, Derashid, and Ibrahim, 2017; Mas'ud, Aliyu, and Gambo, 2014).

According to the study of Fauziati et al. (2016), it was stated that tax knowledge has a

significant effect towards tax compliance. When a person has no knowledge regarding

tax, they will intend not to comply the tax law. The higher the compliance cost of a tax

system, the more likely individuals and businesses may change their behavior in

reaction to tax laws. Tax complexity creates a negative mindset regarding current tax

legislation, increasing taxpayers' unwillingness to perform their responsibilities.

Under the conditions described, the researchers of this are interested in

researching and analyzing the effect of tax knowledge towards the level of taxpayers’

compliance in South Cotabato, particularly in Tupi, through the perspective of individual

taxpayers. The purpose of this study is to determine the partial and simultaneous

influence of tax knowledge on individual taxpayers’ tax compliance in Tupi.

Review of Related Literature

Taxpayers.

The issue of tax income has been viewed as a burden that individuals and

corporations must shoulder in order for the government's development efforts to

 3

continue. It is an economic policy tool used by the government to achieve

macroeconomic aims and objectives. Any developing country's main economic goals

are to ensure that enough revenue is created to improve the country's human life quality

(Afuberoh & Okoye, 2014). When individual taxpayers perceive the tax system and

policy as fair, trustworthy, just, and sensible usage of tax revenue, Oladipo et al. (2019)

discovered that it will enhance government revenue production favorably.

The procedure through which the applicable tax authority applies tax laws and,

in general, the practical interpretation of legislation is known as tax administration.

According to Afuberoh and Okoye (2014), the primary issue of the tax system in any

country is the soundness of the tax policy, while tax administration ensures the proper

implementation of applicable tax legislation and that all income earned is transferred

directly into the government account. Sound policies, rules, and regulations must be in

place to achieve anticipated goals, and it is also critical to fully implement these policies,

rules, and laws. In the Philippines, the Congress are the responsible person in

implementing tax policy.

In Malaysia, a qualified person (15 percent of income) who is a knowledge

worker residing in Malaysia and working is subject to personal income tax (PWC, 2020).

Residents of the Philippines pay a progressive tax of up to 32 percent on their earnings

(ASEAN TAX, 2020). In the United Kingdom, for example, there is a basic rate of 20%,

a higher rate of 40%, and an additional rate of 5% (GOV.UK, 2020). This tax is imposed

in the Philippines on all net income earned from both domestic and international

sources.

Tax knowledge.
 4

Tax knowledge is used in this study to symbolize tax education, which has a

comparable connotation. How taxpayers pay their taxes is influenced by their level of

tax awareness and knowledge. Tax knowledge was identified as one of the most

important factors impacting tax compliance behavior (Newman et al., 2019; Olaoye et

al., 2017). According to Saad (2014), tax knowledge may be separated into two

categories: formal education and knowledge oriented at potential tax evasion

opportunities. In the first instance, taxpayers' level of formal tax education is an

essential element that influences their tax compliance behavior.

Due to their level of education and exposure, taxpayers with enough formal

education and expertise are predicted to have adequate information on tax and fiscal

policies, according to Newman et al. (2019). Tax knowledge was discovered to be a

significant element in influencing tax compliance behavior. Pratama (2018) discovered

that taxpayers who are more tax informed engage in more ethical behavior. When

determining the amount of taxpayer compliance behavior, knowledge of tax and fiscal

policy was seen as critical. Bernard et al. (2018) also looked at the impact of tax

awareness and understanding on tax compliance among stockholders in Kenya's export

production zones. The study found that taxpayers' ability to grasp tax regulations and

hence boost tax compliance is positively correlated with their tax knowledge and

awareness. In conclusion, tax knowledge has a huge influence on tax compliance

behavior.

Tax compliance.

In Malaysia, Faizal et al. (2017) investigated the relationship between justices,

trust, and tax compliance behavior. The findings demonstrated that in Malaysia,
 5

fairness and trust have a substantial impact on tax compliance behavior. According to

Sausgruber and Tyran (2014), taxpayers will collaborate and be more motivated to

comply with the requirements of the tax system created by the tax authority if the tax

authority treats them politely and fairly. Jurney et al. (2017) suggested that taxpayers

should have faith in a government that is as fair and equitable as possible when levying

taxes on residents.

Doran (2009, as cited in Oladipo et al., 2022) looked into the relationship

between taxpayer awareness and tax compliance behavior, and discovered that it was

substantial. Oladipupo and Obazee (2016) employed ordinary least square (OLS)

regression in Nigeria to assess the impact of taxpayer knowledge and the tax penalty on

SMEs' tax compliance. This research supports the findings of Olaoye et al. (2017), who

found that tax knowledge has a considerable favorable impact on tax compliance.

Sanctions.

Humans, by their very nature, do not perform tasks without being motivated. This

motivation may take the form of either an incentive to encourage individuals to perform

their obligations or a penalty if they didn't. Sometimes both incentives are required, and

if the first one is not feasible or under no pressure, the second one will be required

(Doran, 2009 as cited in Lutfi & Hijattulah, 2015). According to Blank (2014), tax fines

result from tax noncompliance. In other words, failing to abide by the tax code may

result in financial penalties. Penalties have a considerable positive connection with tax

compliance, according to Witte and Woodbury (1985 as cited in Lutfi & Hijattulah, 2015),

and Twum concurred with this finding (2014).

 6

According to Purnamasari and Sudaryo (2018), to understand how the laws and

fines can have a deterrent effect on an individual taxpayer who commits a tax

infringement, the sanctions that are provided must be clear.

Tax morale.

Numerous research suggested that tax morale has a significant favorable impact

on tax compliance behavior (Halla 2012; Molero and Pujol 2012). According to Alm and

Torgler (2011, as cited in Hassan et al., 2021), people are sometimes motivated by

other "ethical" reasons like morality, altruism, and fairness rather than acting selfishly,

logically, and in their own best interests. Tax morale is the term used to describe a

taxpayer's internal drive to pay their taxes (Alm and Torgler 2006 as cited in Hassan et

al., 2021). Taxpayers care more about the overall welfare than their own, according to

the Altruistic Approach theory of Chung (1976, as cited in Hassan et al., 2021). The

authors propose that compliance studies should take this factor into consideration when

making decisions because ethics vary among people.

Demographic control variables.

Sex. According to certain studies, males are more obedient. However,

several researches and studies have investigated and found contradict results or

there is no significance difference at all. The need to examine recent discoveries

is crucial because there is still agreement on the findings. Female taxpayers

were more compliant than male taxpayers, according to Hasseldine and Hite's

(2003, as cited in Palil, 2012) research. However, the study found that when a

negatively framed message was utilized, males were more cooperative than
 7

females, and when a positively framed message was used, females were more

compliant than males.

Conceptual Framework

Independent Variable Dependent Variable

Knowledge
Rights and responsibilities
Business Income

Awareness of sanctions Tax Compliance

Tax morale

Figure 1: Conceptual Framework

Statement of the Problem

The main thrust of this study is to determine the impact of tax knowledge on tax

compliance among individual taxpayers in Tupi, South Cotabato who were involved in

paying taxes in the month of January to December.

It further seeks to answer the following questions:

1. What is the profile of the respondents in terms of:

1.1 Sex

1.2 Age
 8

1.3 Level of Income

1.4 Culture?

2. What discourages taxpayers to comply on tax rules and policies?

3. Is there a significant correlation between the tax knowledge on rights and

responsibilities to the tax compliance of the individual taxpayers in Tupi, South

Cotabato?

4. Is there a significant correlation between the tax knowledge on the business

income to the tax compliance of the individual taxpayers in Tupi, South

Cotabato?

5. Is there a significant correlation between the awareness of sanctions to the tax

compliance of the individual taxpayers in Tupi, South Cotabato?

6. Is there a significant correlation between the tax morale to the tax compliance of

the individual taxpayers in Tupi, South Cotabato?

Significance of the Study

The study aims to determine the factors and effects of tax knowledge on tax

compliance of individual taxpayers in Tupi, South Cotabato. This will also find out how

the taxpayers of Tupi, South Cotabato manage to comply when they don’t have enough

knowledge on taxes. The significance of the study lies in the benefits of the following:

Taxpayers. This will help them to determine the effects of having knowledge

regarding taxes. The result of this study will help taxpayers to choose if it is significant

to comply or not on the government tax policies.

 9

Entrepreneurs. This will help them identify consequences for not complying the

tax regulations and rules.

Academe. The information they can get from the study will be their guide in

giving proper knowledge to their students. They will be able to identify and educate

students properly on how to be knowledgeable in terms of taxes.

Future researchers. This will serve as their reference for further studies on why

tax knowledge is important and what are its possible effects on tax compliance.

Definition of terms

The following terms operationally defined for the purpose of explaining further the

important concepts and variables presented in this study. Operational definition define

concepts and labels in a concise detail by how they are used or applied to data

collection in the study. The key terms was designed for proper interpretation of the

study.

Tax Knowledge. It is defined as the level of understanding or comprehension of

the respondents who are involved in tax compliance from Tupi, South Cotabato

Tax Compliance. It is one of the problems/issue encountered by the

respondents in Tupi, South Cotabato.

Tax morale. It is defined as the willingness of the respondents in Tupi, South

Cotabato to pay their taxes.

Sanctions. This can be defined as the consequences of non-compliance of the

respondents in Tupi, South Cotabato.

 10

Non-compliance. It is defined as the opposite of compliance which means that

the respondents of this study are not complying on the tax rules and policies.
 11

Method

This chapter presents the discussion on the research method of the study,

research design, locale of the study, sources of data, participants/respondents, samples

and sampling technique, research instruments, data gathering procedure, data analysis

and limitations of the study that will be used for accurate data analysis and

interpretation of the study.

Research Design

The method used by the researchers in this study will be the descriptive–

correlative. A method designed to determine if two or more variables are associated

with each other, descriptive method is use to describe the present behaviour or

characteristics of a particular population. And it is also a design which uses some form

of correlation to describe the relationship between the important variables.

As gleaned from Mostales (2013), supported by Paler and Calmorin (2003) when

they emphasized that if an investigation aims to determine relationship between

variables which means correlational method is appropriate to describe the data.

Locale of the Study

This study will be conducted at the different Barangays in the Municipality of

Tupi, Province of South Cotabato, Region XII. Tupi is one of the municipalities in South

Cotabato, which is known as the “Flowers and Fruit Basket of the South”.
 12

Figure 2: Map of Locality

Respondents of the study

The respondents of the study are individual taxpayers of the municipality of Tupi,

province of South Cotabato. They will be identify using random sampling techniques in

which each sample has an equal probability of being chosen.

Sampling Design

Sampling is the process of selecting a number of individuals in such a way that

they represent the large group of individuals which they were selected. This study used
 13

simple random sampling technique. Simple random sampling is done by simply writing

the names or numbers of all the members of the population in small rolled pieces of

paper which are later placed in a container and randomly select. Individuals involved in

paying taxes were used in the study because they would be able to provide valuable

experiences on how they manage to comply, and how tax knowledge greatly affect their

tax compliance.

Since the study was focused on a particular group of individuals involved in a

complying tax, the researchers took 250 respondents from all Barangays and they were

selected through simple random sampling technique.

Research Instruments

The researchers will use survey questionnaires as a tool for obtaining concrete

answers for the analysis and interpretation of data. The structured questionnaire will

have a review with the adviser for corrections suggestions and insights. It will be

submitted to expert’s validations to check its validity and accuracy before it using this to

gather data and information. The data to be taken from the questionnaires will be

considered as primary data used by the researcher. This survey questionnaire will

contain questions regarding the impact of tax knowledge on tax compliance among

individual taxpayers.

The part of the questionnaires of the instruments includes statements in which it

focuses on tax compliance of individual taxpayers regarding their level of knowledge by

using Likert scale.

 14

Data Gathering Procedure

Send a letter to the dean for the approval of conducting of the study

Prepare a survey questionnaire for 250 respondents

Set of the date to start conducting the survey

Grouping of the sub-problems of the study

The collected data will be collated, tallied, tabulated and subject the responses into
statistical analysis

Results will be analyzed and interpreted based on the purpose of the study

Figure 3: Data Gathering Procedure

Figure 3 shows the several processes to obtain the most reliable data to be used

in the study. Whereas, the researchers will undergo in several steps in order to

accumulate data needed in the study.

 15

Data Analysis

The data gathered will be analyzed using quantitative analysis. This study will

also use statistical tool in determining the compliance of individual taxpayers through

weighted mean. All the procedures were followed in order to attain the expected and

desired output of the study.

Regarding the variable pertaining on the tax knowledge of the respondents, the

mean score will be solved. The values of the computed mean for each group will be

interpreted.

Limitations of the Study

Few important limitations of this study are: first, the choice of the sample which

was only taken from taxpayers’ population, non-taxpayer’s views could also be added

for more insightful findings. Secondly, the scope of tax compliance and tax knowledge

questions were limited to the basic knowledge of the respondent, more professional

queries could spot the gap in the policies which affect compliance behavior. Thirdly, the

respondents could misinterpret or be untruthful to the survey questions as tax non-

compliance is not straightforward. Lastly, the sample size was small as compared to

previous studies and was limited to the individual residing in Tupi, South Cotabato.

Nevertheless, caution was taken while generalizing the results of the study. Actual

behaviour of the subjects may vary from the responses given.

 16

SURVEY QUESTIONNAIRE

Good Day ma’am/sir! We, students from South East Asian Institute of
Technology, Inc. have been conducting a research project on “The impact of tax
knowledge on tax compliance among individual taxpayers in Tupi, South Cotabato”.
Therefore, we would like you to take some of your precious time to respond to the
questionnaire below which contains 3 sections (Section A, B and C). Your contribution
and participation are valuable for our research project as well as higher education in
Tupi since it serves as a new knowledge regarding the research field. We are confident
that your information is confidential. Please answer it with all honesty. We are hoping for
your kind cooperation. Thank you!
Sincerely Yours,
The Proponents

SECTION A - Personal Background

Direction: Please check one choice for each item where there are check spaces.
A1. Sex:  Male  Female
A2. Age:  21 – 25  41 – 45
 26 – 30  46 – 50
 31 – 35  51 – 55
 36 – 40  56 and above
A3.
 17

References