Tax Compliance Cost an Important Aspect of Tax Policy

Tax compliance cost has become an important aspect of tax policy. This is because of its connection with the tax compliance and the government revenue in turn. Unnecessary burden of compliance cost either on individual or business taxpayer may have negative effect on the tax compliance and eventually reduction in the tax revenue. Tax compliance cost is one of the determinants of tax compliance behavior. Unnecessary high tax compliance cost leads to either intentional or non-intentional non-compliance. In the case of business taxpayer, especially smaller ones, the burden may discourage their growth. Thus, less complex tax laws and simple tax administration is a pre-requisite to reducing their compliance cost and hence, to encourage entrepreneurship and SMEs development.

Empirical studies were conducted all over the world to estimate the compliance cost. Evans (2008) acknowledged that the number of the compliance and/or administrative cost studies conducted and published after the Haig’s (probably first organized compliance cost study) study in 1935 is more than 100. Despite the existence of the large body of literature, the concept of tax compliance cost remain ambiguous. Most of the research narrow the concept to the objective of their research. Therefore, this essay aims at bringing an overview of the concept in single essay. The next section of the essay discusses the definitions of compliance cost, the third section discusses aspects of compliance cost and finally, the last section gives a recap of the essay.

1.2 Definitions of Tax Compliance Cost

Sandford, Godwin and Hardwick (1989); Evans, Ritchie, Tran-Nam and Walpole (1996) acknowledge the difficulty in giving a precise definition of compliance cost. However, some...

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...nce Costs of Taxation, Fiscal Publications, Bath.

Ariff, M., & Pope, J. (2002). Taxation and compliance costs in Asia Pacific economies. Sintok: Universiti Utara Malaysia.

Tran-Nam, B., Evans, C., Walpole, M., & Ritchie, K. (2000). Tax compliance costs: Research methodology and empirical evidence from Australia. National Tax Journal, 53(2), 229-252.

Sanford, C. (1995). Tax compliance costs measurement and policy. Bath, England: Fiscal Publications.

Sandford, C. T., Godwin, M.R., Hardwick P.J.W. & Butterworth M.I. (1981). Costs and benefits of VAT. London, Heinemann Educational Books.

Evans (2008). “Taxation Compliance and Administrative Costs: An Overview.” In Tax Compliance Costs for Companies in an Enlarged European Community, edited by Michael Lang, Christine Obermair, Josef Schuch, Claus Staringer and Patrick Weninger. Kluwer Law International.