A variety of factors can influence taxpayers' attitudes toward tax compliance, subsequently affecting their tax compliance behavior cultural components and other socio-cultural factors; these potential predictors of tax compliance and noncompliance vary across countries (Okpeyo, Musah, & Gakpetor, 2019a). Taking this analysis further, Barbuta-Misu (2011) classified the determinants of tax compliance into three non-economic and seven economic categories. The amount of actual income, tax rate, fines, penalties, tax benefits and the likelihood of a tax audit were considered the seven economic determinants of tax compliance. Non-economic factors include one's view of the fairness of the tax system, one's attitude towards taxes, and national, social and personal norms. However, Palil and Mustapha (2011) argued that the legal system, ethics and other contextual factors influence tax design to some extent.
I. Fiscal exchange theory
According to fiscal exchange theory, governments can improve compliance by providing and spending money on preferred products to citizens in more effective and accessible ways (Cowell and Gordon, 1988). Research by Alm et al. (1992) shows that perceptions of the availability of public goods and services are positively correlated with compliance. Therefore, taxpayers are primarily concerned with what they actually receive in return for paying taxes in the form of public services, i.e. the consideration. This perspective views taxes and the provision of public goods and services as a kind of contract between the government and the people who pay them. People may value the products and services provided by the government and pay taxes because they understand that their contributions are necessary both to finance those products and services and to encourage others to do the same (Fjeldstad & Semboja, 2001). Consequently, positive returns could increase the likelihood of voluntary compliance and without direct coercion. It follows that a taxpayer's behavior might depend on how satisfied or dissatisfied he is with the terms of his contract with the government. Therefore, if taxpayers believe that the tax system is unfair, they may attempt to change their terms of trade with the government through tax evasion (Helhel & Ahmed, 2014).
Beyond threats, punishments, and detention, incentives are specific actions taken by the government to increase an individual's compliance with the law. In addition to monetary benefits, positive incentives can also promote qualities such as satisfaction, dignity, sincerity, recognition or identification with others, and a sense of justice or stability (Smith and Stalans, 1991). A specific aspect of tax legislation, known as tax incentive, aims to reward or encourage certain compliant behavior among taxpayers. From this the first hypothesis can be developed:
H1: Reward and incentive have positive and significant effect on tax compliance behavior.
II. Social influences- Comparative Treatment Theory
As per the social influence theory, an individual's compliance behavior and attitudes toward the tax system are believed to be influenced by the social norms and behavior of their reference group (Snavely, 1990). As with other aspects of behavior, taxes can also be assumed to have an influence on human behavior. According to Helm and Ahmed (2014), a person's reference group, which includes friends, neighbors and family, can influence their compliance behavior and attitude towards the tax system. Thus, knowing that several members of significant groups in one's life are tax evaders weakens a taxpayer's commitment to compliance. In addition, people with social connections may be discouraged from committing fraud because they fear the consequences if their cover-up is exposed and made public. Furthermore, Sah (1991), argues that social influences can affect compliance by, among other things, altering the perceived likelihood of detection.
With its foundation in equity theory, the comparative treatment model suggests that better compliance could come from eliminating imbalances in the exchange relationship between taxpayers and government (McCarthy and Evans, 2009). The relationship between the state and its citizens cannot be viewed in a vacuum involving only both parties. As per Fjeldstad et al. (2012) they could also think about their own relationship with the state before thinking about their fellow citizens. Perceptions of how the government treats them compared to other can significantly influence their views on both their peers and the government. If a group is granted preferential treatment by the state, this could affect both the group receiving benefits and the citizen's relationship with the state. Consequently, the state's treatment of an individual in relation to other members of its larger national community is as important as what the individual receives from the state. The way each individual taxpayer is treated and the relationship between others' tax burdens and compliance behavior are just two of the ways the perceived fairness of the tax system influences compliance decisions. According to Walsh (2012) people are more likely to comply if they believe that others around them also pay taxes.
Treating equal people matched under equal circumstances is the most understandable requirement of fairness (Jayawardane, 2015). Horizontal and vertical equity are the two main elements of tax equity, which is justice, also known as tax equity. While vertical equity suggests that taxpayers who are better off should contribute the same percentage of their income as those who are less well off, horizontal equity supports collecting taxes based on financial situation (Sahu, 2021). Individuals with different income levels are characterized by vertical equity (Barjoyai, 1987). This allows the second hypothesis to be formulated:
H2: Fairness in the tax system has significant and positive effect on tax compliance behavior.
III. Political legitimacy theory
Political legitimacy theory suggests that citizens' trust in their government affects tax compliance (Kirchler et al., 2008b). Political scientists have studied the processes that lead to political legitimacy and civic identification. Legitimacy can be defined as the belief or trust that the government, institutions and social arrangements are appropriate, just and fair and serve the interests of the general public (Fjeldstad et al., 2012). In order for taxpayers to pay their taxes willingly, trust is crucial (Scholz & Lubell, 1998). Controlled expectations and trust in an uncertain environment are related to the relationship between the government and those in power (Sitardja & Dwimulyani, 2016). When taxpayers who have less trust in the government view events negatively, while taxpayers who have more trust view events positively (Robinson, 1996). Taxpayers who lack trust in the government are likely to be more skeptical about the use of tax revenue collected by the government. If taxpayers see the government in a positive light, they will support its tax reform. Taxpayers' commitment to the tax system and payment of taxes is increased when they have trust in the government (Jimenez and Iyer, 2016b). They also behave differently towards taxes. From this the third hypothesis can be developed:
H3: Perception of government trust has positive and significant effect on tax compliance behavior.
IV. Theory of planed behavior
An influential theory in social psychology that aims to explain people's behavior is the theory of planned behavior (Bobek and Hatfield, 2003). The theory of rational action that Icek Ajzen and Fishbein (1970) proposed to explain conscious behavior was refined into this theory developed by Icek Ajzen (1991). This idea assumes that certain elements, starting methodically and evolving for various reasons, have an impact on the behavior of people in society. However, a person's ability to perform a particular behavior depends on their motivation to do so. The three elements of subjective norms, behavioral attitudes, and cognitive behavioral control define the purpose of behavior (Bobek & Hatfield, 2003). In addition, behavioral, normative and control beliefs influence the factors listed above (Icek Ajzen, 2002). According to Saad (2011), the theory of planned behavior also suggests that beliefs—that is, control beliefs—are a necessary prerequisite for perceived behavioral control, as well as for attitudes toward behavior and subjective standards. As stated by Mathieson (1991), control beliefs are the recognition of the acquisition of opportunities, resources and capabilities and the understanding of the importance of these resources in achieving objectives. A person's ability to control their behavior depends heavily on their skills, expertise, and social support.
One of the factors affecting tax compliance the taxpayers' ability to understand tax laws and their willingness to comply with them. Tax knowledge refers to the general level of tax knowledge, knowledge of avoidance options, a general educational qualification or knowledge of tax law (Bornman and Ramutumbu, 2019). A taxpayer's knowledge of their rights, obligations and tax payment procedures, as well as the consequences of non-compliance, is acquired through tax education (Machogu & Amayi, 2016). The authors suggest that taxpayer education can promote a positive attitude toward tax compliance and provide the necessary tax knowledge to comply with tax laws. This leads to the formulation of the fourth hypothesis:
H4: Tax payers tax knowledge has significant and positive effect on tax compliance behavior.
V. Economic Deterrence Theory
According to the study of Allingham and Sandmo (1972), the economic deterrence model assumes that a variety of factors, including tax rates, the benefits of tax evasion, the likelihood of fraud being detected, and the severity of the penalties for doing so, can influence taxpayers’ behavior. Therefore, it is about making rational decisions amidst of uncertainty, where tax evasion can lead to tax savings or face penalties (Fjeldstad et al. ,2012). As a result, the more likely tax evasion is to be discovered and punished more severely, the fewer people will do it. Conversely, in situations where the likelihood of audits is low and fines are minimal, the expected return from evasion is high. According to Helhel and Ahmed (2014), the model then predicts significant non-compliance. In certain situations, fear of being discovered or caught can serve as an effective deterrent to encourage honest behavior. For example, fear of being caught has been found to be an effective strategy for eliciting truthful behavior, although there is criticism that the model only considers the coercive side of compliance at the expense of consensus. Tax administrations, influenced by the concepts of economic deterrence, have developed enforcement strategies that primarily focus on penalties and the fear of detection, not to mention the associated time and financial cost, including the burden of the tax payment itself.
The economic costs of taxes include not only the actual tax payment and the associated additional burden, but also the time and money spent on tax compliance and tax planning (Blauhus et al. 2011). Your legal and regulatory obligations from tax authorities and tax laws are referred to as compliance costs. Both the actual tax payment and any costs related to tax distortions are not included in these expenses (Eragbhe and Modugu, 2014). The compliance costs would disappear if the tax were collected. In addition to the costs incurred in obtaining and maintaining the knowledge required for this position, such as understanding legal responsibilities and penalties, this also includes the costs of collecting, disclosing and filing taxes on the company's products and income and on the wages and salaries of its employees. Eragbhe and Modugu (2014) divide compliance costs into two categories: tax planning and calculation costs. To maintain an accurate accounting system, the costs associated with data collection and tax liability calculations are called computational costs. However, when taxpayers attempt to legally reduce or avoid taxes, planning costs arise. This understanding leads to the fifth hypothesis:
H5: Compliance cost has negative and significant effect on tax compliance behavior.