Date of Award

1-1-2001

Thesis Type

Masters

Document Type

Thesis

Divisions

Faculty of Business and Economics

Department

-

Institution

Universiti Malaya

Abstract

This study is motivated by a recent amendment to the Income Tax Act, 1967 as part of the tax reform under the Self-Assessment System. Section 114 (1A) now imposes criminal sanctions against those who are negligent in advising and assisting in income tax returns which result in an understatement of tax liability if they do not exercise reasonable care. This study empirically examines the perception of tax agents on the introduction of section 114 (1A) in relation to their understanding and perception of the concept of reasonable care. It further examines perceptions with regards to the fairness of this provision; perception on the imposition of criminal sanctions and perceptions on aggressive reporting positions in the face of criminal sanctions against negligence. The perception of these four dependent variables is examined in a causal relationship with two independent demographic variables, i.e. 'level of experience' and 'environment' as represented by tax agents from big-five public accounting firms against the rest of the tax agents in practice. A questionnaire survey response of 116 tax agents were used to analyse these perceptions and test eight hypotheses for an association between the dependent and independent demographic variables. No evidence was found to reject all the eight null hypotheses. The findings of the study indicate that there is no association between these variables and 'experience' and 'environment'. The perception of the concept of reasonable care, the perception on fairness of the law, perception on the imposition of criminal sanctions and aggressive positions does not depend on level of experience and whether tax agents are from the big­-five or non big-five firms. Extant literature shows that tax agents play an important role in tax compliance among many other variables. There is no conclusive evidence from literature that Indicates that Ina-eased penalties play a deterrent role in line with the Deterrence Theory. Experience is also seen as an important variable in the Judgement decision making in tax planning. 'Reasonable Care' is a legal concept from common law and there is no definition under the law. The study shows that it is not well understood by the respondents and they are divergent in their views. The fact that it is a new concept in the tax legislation has not helped in understanding this concept. The imposition of criminal penalties is seen as ,an unfair intrusion into tax practice as tax agent perceive themselves as service providers who are engaged by their clients. Unlike company auditors, their role is not statutorily defined. The legislation is perceived to be unfair regardless of level of experience or type of tax agent as negligence is now punishable with equal severity as willful evasion. It is recommended that the authorities consider reviewing, the Provision by introducing penalties in accordance with culpable conduct as. adopted in other jurisdictions. The professional bodies who represent these tax agents should be, proactive in adopting practice standards which will be of help to tax agents and even the courts in adjudicating disputes concerning the reasonable care concept.' In America, such standards have also been made enforceable. The strongest argument for such enforceable standards is that the profession s better served when it regulates itself rather than having third parties do it. Even the courts have relied on these standards when interpreting this concept. As there is no single body that represents tax agents in practice, It is also recommended that the government license all tax agents to better, regulate the tax profession. Changes to the law must be accompanied by contemporaneous rulings or circulars. In view of the important role played by tax agent in improving tax compliance in meeting the revenue collection esplrat1ons of the nation, serious attempts should be made in reducing any ambiguity in the law and practice in this area both by the authorities and the professional bodies that represent the tax agent fraternity.

Initial

snms

Additional Information

Dissertation (M.A) -- Faculty of Business and Economics, Universiti Malaya, 2001.

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