Determinants affecting tax compliance: A case of business households in Ho Chi Minh City, Vietnam
136 Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152
Determinants affecting tax compliance:
A case of business households in Ho Chi Minh City, Vietnam
Khuc Dinh Nam1*, Nguyen Thi Binh Minh1
1Nong Lam University, Vietnam
*Corresponding author: [email protected]
ARTICLE INFO
ABSTRACT
DOI:10.46223/HCMCOUJS.
econ.en.11.1.984.2021
This paper aims to identify key factors influencing the tax
compliance of business households in Ho Chi Minh City, Vietnam.
The researchers surveyed 215 owners of business households in Ho
Chi Minh City from June 2020 to July 2020. Analysis of the model
includes the 4 phases following: (i) Applying the expert
methodology; (ii) Cronbach’s test for reliability of the scale and
exploratory factors analysis (EFA); (iii) Pearson correlation
coefficient analysis; (iv) Regression analysis and hypothesis test of
a model. The results of this study revealed that factors affecting tax
compliance of business households in Ho Chi Minh City, Vietnam
in descending order of importance: Tax Rate, Tax Knowledge, Tax
Penalty, Personal Norm, and Perceived Fairness (of the system).
Moreover, the tax rate had a negative relationship with tax
compliance and the others had a positive one with tax compliance.
Finally, the research also proposes some implications to enhance
tax compliance of business households and directions for further
research.
Received: September 21st, 2020
Revised: January 14th, 2021
Accepted: January 18th, 2021
Keywords:
tax compliance, business
households, personal norm, tax
rate, tax knowledge
1. Introduction
In Vietnam, business households are also one of the important economic sectors
contributing to Vietnam’s economy. However, the General Statistics Office of Vietnam showed
that there were more than 5.6 million business households in 2018, but according to the General
Department of Taxation’s data, the whole country had just over 1.7 million business households
having tax payments in 2018. Statistics from the General Department of Taxation show that from
2015 to 2018, the tax revenue collected from business households only increased slightly over the
years, while the proportion of contribution to the state budget decreased. Ho Chi Minh City is an
economic, financial, commercial, and service center of the country, and is the nucleus of the
southern key economic region. With a high economic growth rate, the city size accounts for only
0.6% of the area and 8.3% of the population but has contributed 20.2% of the gross national
product and one-third of the State budget every year. Therefore, Ho Chi Minh City is home to
many business households that provide accommodation services as well as other services related
to the residents such as catering, entertainment, and essentials, etc.
Although tax compliance has been researched for a long time, the factors influencing tax
compliance are very different among different countries and individuals. Moreover, most of the
previous studies are done in developed countries having comprehensive infrastructure and a stable
tax law system and the number of tax compliance research in developing countries like Vietnam
is low in numbers. Particularly, no study has been reported to identify determinants impacting on
Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152 137
tax compliance of business households in Vietnam although the role of business households is
important to Vietnam’s economy. Therefore, this study “Determinants affecting tax compliance:
A case of business households in Ho Chi Minh City, Vietnam” is the first study on tax compliance
of business households in Vietnam to fill the gap and is very necessary and meaningful in current
Vietnam’s economic conditions. The results of the study provide a framework for assessing the
impact of determinants on tax compliance of business households to help tax authorities to come
up with appropriate tax management policies for business households. Moreover, the study also
proposes some recommendations that can help the tax authorities propose solutions to enhance tax
compliance of business households in Ho Chi Minh City in particular and in Vietnam in general.
The main objective focuses on: (i) a literature review of factors affecting tax compliance, (ii)
identifying determinants impacting on tax compliance of business households in Vietnam, and (iii)
policy implications.
2. Literature review
2.1. The definition of tax compliance
For a long time, many researchers have tried to define tax compliance. For example,
Allingham and Sandmo (1972) defined tax compliance as reporting all actual income. Andreoni,
Erard, and Feinstein (1998) showed that tax compliance related to the willingness of taxpayers to
accomplish the tax laws, to truly report tax bases to correctly calculate the tax liability, to file tax
returns on time, to pay tax on time, and to fulfill all tax procedures and obligations without
enforcement. Kirchler (2007) defined tax compliance as the willingness of taxpayers to pay their
taxes. Similarly, according to the reports of IRS (2009), ATO (2009), LHDN (2009), tax
compliance related that taxpayers comply with the tax law willingly, pay the tax fees on time, and
declare correctly their income. In our research, tax compliance concerns that taxpayers comply
with the tax laws willingly, declare their income correctly, file their tax report on time, and pay all
their tax fees on time.
2.2. Tax compliance theories
2.2.1. The economic deterrence theory
The economic deterrence theory states that tax compliance is affected by the tax rate, the
probability of audits and penalties, the evasion’s benefits (Allingham & Sandmo, 1972). The
taxpayers only pay the tax because of their fears of punishment and detection. Conversely, with
low penalties and low audit probabilities, tax evasion is high. Therefore, the tax administration
needs to develop enforcement strategies to increase tax compliance.
2.2.2. The fiscal exchange
The fiscal exchange theory suggests that government expenditures (such as public goods
and services) may encourage tax compliance (Alm, McClelland, & Schulze, 1992). If individuals
recognize that their tax fees are necessary both to help finance the public goods and services and
to get others to contribute, they may pay tax fees (Fjeldstad & Semboja, 2001). Particularly, the
existence of positive benefits, the taxpayers will comply voluntarily, without direct coercion.
2.3.3. Social influence theory
In social influence theory, tax compliance behavior is affected by the behavior and social
norms of an individual’s reference group such as relatives, friends, and neighbors (Keith, 1990).
Thus, taxpayers may evade taxes if they know many people in groups important to them who also
have tax evasion. By contrast, a good social relationship may help deter individuals from evading
tax because of fear of the social sanctions imposed situations discovered and revealed publicly.
138 Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152
2.2.4. Comparative treatment
The comparative treatment model shows that the equity theory and equity in the exchange
relationship between government and taxpayers may lead to improving tax compliance
(McKerchar & Evans, 2009). Citizens not only consider their relationship with the state but also
compare the state’s treatment with them and their fellow citizens. Therefore, this theory highlights
the importance of fairness treatment in the research of tax compliance.
2.3. Determinants of tax compliance
Previous studies have shown that many determinants affect tax compliance. Allingham and
Sandmo (1972) established the basic economic tax compliance model based on some factors that
are audit, penalty, and tax rate. Jackson and Milliron (1986) summarized 14 key factors that
effecting on tax compliance. These factors are arranged into a single integrated model known as
Fischer’s model (Fischer, Wartick, & Mark, 1992). It consists of demographic factors,
noncompliance opportunity factors, attitudes and perceptions factors, and tax system structure.
After that, this model was modified by Chau and Leung (2009) and it was supplemented with
cultural factors and the relationship between the tax system and noncompliance opportunity.
Kirchler (2007) indicated that the three main groups influencing tax compliance were social-
psychological determinants (e.g., attitudes, norms, fairness perception); political determinants
(e.g., complexity of law and tax system, fiscal policy); economic determinants (audits, fines, tax
rate, income). Ngo, Vu, and Tran (2019) showed that 3 key factors influencing tax compliance of
enterprises in Vietnam, including tax knowledge, tax penalty, and tax inspection. Based on a
combination of previous studies and findings of our research, the authors have proposed a model
for tax compliance of individual business households in Ho Chi Minh City, Vietnam including 5
groups: (i) Tax Knowledge, (ii) Tax Systems, (iii) Tax Administration, (iv) Norm, and (v)
Perceived Fairness (of the tax system).
The research model is shown in the following Figure 1:
Tax Knowledge
Tax Rate
Tax Penalty
Tax Compliance
Personal Norm
Perceived Fairness
Figure 1. The proposed research model
2.3.1. Tax Knowledge (TK)
Tax Knowledge is also a key factor affecting tax compliance. Eriksen and Fallan (1996)
indicated that “tax attitudes can be improved through better tax knowledge”, and as a result, tax
compliance could be enhanced and tax evasion could be reduced. Niemirowski, Wearing, and
Baldwin (2003) showed that there was a positive relationship between tax compliance and tax
knowledge.
Some researchers revealed that higher tax knowledge led to rising tax compliance
(Clotfelter, 1983; Groenland & Van Veldhoven, 1983; Wahlund, 1992; Kirchler & Maciejovsky,
2001; Park & Hyun, 2003). Based on the experimental study, Eriksen and Fallan (1996) indicated
Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152 139
that if the students were taught the tax laws in their class, they could be more compliant with the
tax, and tax evasion could be decreased. Moreover, Kirchler, Hoelzl, and Wahl (2008), Palil and
Mustapha (2011), and Ngo et al. (2019) also revealed that higher tax knowledge led to higher
compliance.
Therefore, we had this hypothesis:
H1: Tax Knowledge has a positive (+) impact on tax compliance
2.3.2. Tax Rate (TR)
Clotfelter (1983) and Slemrod (1985) revealed a negative relationship between tax rate and
compliance. Lower compliance at a high marginal tax rate is reported by Lang, Nöhrbaß, and Stahl
(1997) for German taxpayers, by Weck-Hannemann and Pommerehne (1989), and by
Pommerehne and Weck-Hannemann (1996) for Swiss taxpayers. Moreover, Hai and See (2011)
and Tilahun (2018) found that the high rate cause high tax noncompliance.
This hypothesis was then constructed:
H2: Tax rate has a negative (-) impact on tax compliance
2.3.3. Tax Penalty (TP)
According to Allingham and Sandmo (1972), increasing the penalties led to enhancing tax
compliance. A significant relationship between the severity of criminal sanction and tax
compliance was found by Witte and Woobury (1985), and by Hasseldine, Hite, James, and Toumi
(2007). Ngo et al. (2019) indicated that there was a positive relationship between tax compliance
and tax penalty.
This hypothesis was then constructed:
H3: Tax penalty has a positive (+) impact on tax compliance
2.3.4. Personal Norm (PN)
Personal norms include personality factors, moral standards, values, religious beliefs,
authoritarianism, and Machiavellianism, etc. The moral standards on tax were improved and
developed as a result of voluntary compliance (Baldry, 1987; Jackson & Milliron, 1986; Trivedi,
Shehata, & Lynn, 2003). Empirical studies show that Machiavellianism furthers tax evasion
(Adams & Webley, 2001; Kirchler & Berger, 1998; Webley, Cole, & Eidjar, 2001), but tax
compliance is enhanced by community values and altruistic orientation or personal norm
(Braithwaite, 2003; Blamey & Braithwaite, 1997).
Therefore, this hypothesis was constructed:
H4: Personal norm has a positive (+) impact on tax compliance
2.3.5. Perceived Fairness (of the tax system) (PF)
Wenzel (2003) indicated that three dimensions of perceived fairness of the tax system
impact tax compliance including procedural justice, distributive justice, and retributive justice.
The taxpayers are more compliant when the tax system is perceived to be fair (Alm, Jackson, &
McKee, 1993; Azmi & Perumal, 2008; Richardson, 2005; Tilahun (2018), while if taxpayers
perceive that the tax system is unfair, they tend to evade tax. (Allingham & Sandmo, 1972; Etzioni,
1986; Spicer & Lundstedt, 1976; Scott & Grasmick, 1981).
Therefore, this hypothesis was then constructed:
140 Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152
H5: Perceived fairness (of the tax system) has a positive (+) impact on tax compliance
3. Research methodology
The process of our research for determinants influencing tax compliance of business
households in Vietnam has 4 phases following:
Phase 1: The expert methodology was used and we invited 20 lecturers training tax and
20 experts as group discussion to improve the scale and design of the questionnaire. After that,
we created a list of determinants gathered from the literature review as mentioned in the above
studies.
Phase 2: In this phase, a reliability scale was tested with Cronbach’s Alpha coefficient and
exploratory factor analysis EFA. Data were collected by using completed questionnaires
distributed randomly to business households at Ho Chi Minh City from June 2020 to July 2020.
Regarding sample size for factor analysis, the minimum is to have at least five times the number
of observation variables (Hair, Black, Babin, Anderson, & Tatham, 2006). So, with 20 observation
variables in this study, the sample size is at least 100. For regression analysis, Tabachnick and
Fidell (2013) indicated that the sample size, N, should be equal to or exceed 50 + 8p, where p
equals the number of predictor variables. Therefore, with 5 predictor variables, the sample size is
at least 90. Moreover, Comrey and Lee (1992) showed about the sample size: very poor for 50
cases, poor for 100 cases, fair for 200 cases, good for 300 cases, very good for 500 cases, and
excellent for over 1,000 cases. We chose that the sample size for our study was 200 but we
enhanced 40% to prevent invalid answering. Therefore, the final of our sample size was 250. Every
respondent spent about 20 minutes answering the questionnaire. After surveying, we had
approximately 92% of the collected data. Of those returned, approximately 6% were incomplete.
Thus, the analysis is based on the 215 usable surveys and represents a response rate of 86% of the
distributed survey. The questionnaire’s statements were used in this research to measure each
variable. Variables were measured through the respondent’s perception of tax compliance, Tax
Knowledge, Tax Rate, Tax Penalty, Personal Norm, and Perceived Fairness (of the tax system).
Respondent’s perception was measured by using a 5-point Likert scale to determine the
agreement’s level (1 = highly disagree, 2 = disagree, 3 = not certain, 4 = agree, 5 = highly agree).
We coded all data collected and used SPSS 25 to analyze. According to Tabachnick and Fidell
(2013), to ensure the reliability of the scale is any observational variables with a total correlation
coefficient greater than 0.3 and Cronbach’s Alpha coefficient greater than 0.6. Based on the
Eigenvalue, the appropriate factorial analysis, and the observed variables in the whole are
correlated when the Eigenvalues criteria value is greater than 1. Average Variance Extracted is
>50%, the KMO coefficient is within 0.5 to 1, Sig. coefficient is <= 5%, the loading factor of all
observational variables is>0.5 (Hair, Black, Babin, Anderson, & Tatham, 1998).
Phase 3: We tested the Pearson correlation coefficient. In terms of the strength of the
relationship, the value of the correlation coefficient varies between +1 and -1, and the sig (2-tailed)
value is less than or equal to 0.05 (Hair et al., 2006). A correlation of 0 indicates no relationship,
a correlation of 1 indicates a perfect positive correlation, and a correlation of - 1 indicates a perfect
negative correlation (Pallant, 2010).
Phase 4: Multiple linear regression was applied to evaluate the relation between the
dependent variable and independent variables and to test this study’s hypothesis. The regression
of our model is:
TC = 훽0 + 훽1푇퐾 + 훽2푇푆+ 훽3푇퐴+ 훽4푁푂푅푀+훽5푃퐸푅 + 휀
(1)
Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152 141
Where:
훽0, 훽1, 훽2, 훽3, 훽4, 훽5 : Coefficients
TC: Tax Compliance (dependent variable)
TK: Tax Knowledge
TR: Tax Rate
TP: Tax Penalty
PN: Personal Norm
PF: Perceived Fairness (of the tax system)
휀: Classical random error term
To warrant the reliability of our scale for tax compliance, we adopted from previous
researches. The research scale is shown in the following Table 1.
Table 1
Summary of research scale
No
I
Scale
Symbol
TK
Source
Niemirowski et al.
(2003); Ngo et al.
(2019)
Tax Knowledge
I understand the rules of the tax law
TK1
I understand the regulations relating to
tax rights and obligations
TK2
TK3
I understand the tax rate that applies to
my business
I understand the regulations on tax
declaration and payment
TK4
TR
Tilahun (2018)
II Tax Rate
The tax rate applying to my business is
TR1
high
The tax rate that I’m paying is not
suitable for my ability
TR2
TR3
The tax rates of my business area are
higher than in other ones
I am not satisfied with my tax rate and
tax fee
TR4
TP
Hasseldine et al.
(2007); Ngo et al.
(2019)
III Tax Penalty
The tax authority’s ability to detect and
punish tax fraud and fraud is high
TP1
The sanctions for tax non-compliance,
tax fraud, or tax evasion are very strict
TP2
142 Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152
No
Scale
Symbol
TP3
Source
The fines for tax non-compliance are
high
Braithwaite, 2003;
Wenzel (2003)
IV Personal Norm
Tax evasion or tax fraud will be
PN
PN1
condemned by society
Compliance with tax regulations is right
with human morality
PN2
Tax evasion or tax fraud is shameful and
wrong
PN3
PF
Tilahun (2018)
V
Perceived Fairness
The tax fee that I must pay is fair
compared to others in the same field
PF1
Tax officers treat me fairly like other
taxpayers
PF2
PF3
I receive fair benefits from Government
spending
Ngo et al. (2019)
VI Tax Compliance
TC
I always declare and pay taxes on time
TC1
I always make accurate and complete tax
declaration and payment
TC2
TC3
I always comply with regulations on
invoices and accounting voucher
Source: The researcher’s data analysis
4. Results and discussion
4.1. Descriptive statistics
Table 2
Sample description
Item
Frequency
Percentage
Gender
Male
103
112
47.9
52.1
Female
Age
Under 30
30 - 40
40 - 50
42
94
62
19.5
43.7
28.8
Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152 143
Item
Frequency
Percentage
Over 50
17
7.9
Education level
Under High School
High School
Bachelor Degree
Business type
Manufacturing
Trading
21
149
45
9.8
69.3
20.9
9
4.2
166
40
77.2
18,6
Services
Business experiment
Under 2 years
2-5 years
36
56
74
49
16.7
26.1
34.4
28.8
Over 5-10 years
Over 10 years
Source: The researcher’s data analysis
The female group amounted to 112 out of 215 participants or 52.1% of the total answers.
103 male participants accounted for 47.9% of the total answers.
The main age-group of our survey-participants was “30-40” which counted for 43.7% of
the total answers. The second one frequently used answer for the category “age group” was “41-
50” with 28.8% of the total answers. The minor age group of our participants was “over 50” which
included 17 out of 215 participants and accounted for 7.9%.
The major number of participants picked a “high school diploma” as the education level,
which accounted for 69.3% of the total answers. The second one frequently used answer for the
category was “bachelor degree” with 45 participants out of 215 (20.9%). The minor education
level group of our participants was “under high school” which included 21 participants (9.8%).
There are 3 main business types of individual business households namely manufacturing,
trading, and services. From the total sample taken, 77.2%, 18.6%, and 4.2% were trading, services,
and manufacturing respectively.
The majority of participants had “2-5 years” about the business experience, which
accounted for 34.4% of the total answers. The second one had “over 5-10 years” with 26.1%. The
minority of participants had only 16.7% of the total answers.
144 Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152
4.2. Cronbach’s Alpha test for reliability of the scale and exploratory factors analysis
(EFA)
Table 3
The scale reliability test for factors affecting tax compliance of business households in Vietnam
Scale Mean if
Item Deleted
Scale Variance Corrected Item- Cronbach’s Alpha
Item
if Item Deleted Total Correlation
if Item Deleted
TK1
TK2
TK3
TK4
11.18
11.18
11.27
11.13
6.149
6.588
5.994
6.138
0.670
0.589
0.652
0.679
0.766
0.803
0.775
0.762
Cronbach’s Alpha for Tax Knowledge (TK) = 0.823
TR1
6.70
6.71
6.79
6.80
6.399
6.730
6.213
6.684
0.588
0.590
0.679
0.591
0.762
0.759
0.715
0.759
TR 2
TR 3
TR 4
Cronbach’s Alpha for Tax Rate (TR) = 0.799
TP1
TP 2
TP 3
7.32
7.29
7.30
2.871
3.122
2.885
0.538
0.485
0.491
0.553
0.621
0.615
Cronbach’s Alpha for Tax Penalty (TP) = 0. 690
PN1
PN 2
PN 3
6.77
6.73
6.67
3.310
2.971
3.333
0.579
0.621
0.584
0.698
0.651
0.693
Cronbach’s Alpha for Personal Norm (PN) = 0.763
PF1
PF2
PF3
7.21
7.35
7.47
3.225
2.985
2.933
0.646
0.713
0.704
0.804
0.738
0.747
Cronbach’s Alpha for Perceived Fairness (PER) = 0.829
TC1
TC2
TC3
7.37
7.34
7.30
1.290
1.309
1.436
0.578
0.645
0.565
0.704
0.625
0.714
Cronbach’s Alpha for Tax Compliance (TC) = 0.763
Source: The researcher’s data analysis
Table 3 showed that all scales in the second test met reliability requirements. Specially, all
Cronbach’s Alpha coefficients were greater than 0.6, with a Corrected item-total Correlation
greater than 0.5. All observed variables consistently measured specific, statistically, and
Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152 145
analytically significant. After that, the scales were evaluated by Exploratory Factor Analysis
(EFA) to test the unidimensionality of the scales to eliminate inappropriate measurement criteria.
Table 4
KMO and Bartlett’s test for factor affecting tax compliance of individual business households in
the second test
0.747
1230,077
136
Kaiser-Meyer-Olkin Measure of Sampling Adequacy.
Bartlett’s Test of Sphericity
Approx. Chi-Square
Df
0.000
Sig.
Pattern Matrix
Component
3
1
2
4
5
TK4
TK3
TK1
TK2
TR3
TR2
TR4
TR1
PF2
PF3
PF1
PN2
PN3
PN1
TP1
TP2
TP3
0.837
0.790
0.761
0.749
0.836
0.802
0.717
0.710
0.883
0.869
0.812
0.833
0.820
0.801
0.814
0.781
0.743
Source: The researcher’s data analysis
Table 4 showed that all 17 items of five independent factors loaded on five factors with
Eigenvalues greater than 1, the cumulative percent of 67.309% and KMO values = 0.747>0.5.
Bartlett’s test is significant at p = 0.000<0.05 for the variables measuring five factors, including
Tax Knowledge, Tax Rate, Tax Penalty, Personal Norm, and Perceived Fairness (of the tax
system), which were all appropriate. The observed variables of factors were strongly correlated.
146 Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152
Moreover, all 3 items of the dependent variable loaded on 1 factor with Eigenvalues greater
than 1, the cumulative percent of 67.971%, KMO values = 0.686>0.5, and Bartlett’s test is
significant at p = 0.000<0.05. Therefore, exploratory factors analysis was suitable for data and the
observed variables of factors were strongly correlated.
4.3. Pearson correlation coefficient analysis
Table 5
Pearson correlation matrix for dependent and independent variables
Variable
TC
1
2
3
4
5
6
1
2
3
4
5
6
1
TK
TR
TP
PN
PF
0.604**
-0.550**
0.376**
0.285**
0.158*
1
-0.418**
0.127
1
0.082
0.040
0.002
1
-0.043
-0.022
-0.022
0.082
1
0.107**
1
Dependent variable - TC
**. Correlation is significant at the 0.01 level (2-tailed)
*. Correlation is significant at the 0.05 level (2-tailed)
Source: The researcher’s data analysis
Table 5 presented the Pearson correlation matrix for dependent and independent variables.
Results showed that Tax Knowledge (TK), Tax Rate (TR), Tax Penalty (TP), and Personal Norm
(PN) were significantly correlated with Tax Compliance (TC) at a 1% significant level (as P<0.01),
while perceived fairness (PF) was significantly correlated with tax compliance (TC) at 5%
significant level (as P<0.05). Therefore, this result suggested that Tax Knowledge, Tax Rate, Tax
Penalty, Personal Norm, and Perceived Fairness (of the tax system) were significantly correlated
with tax compliance.
4.4. Regression analysis
Table 6
Results of multiple regression analysis
Variable
(Constant)
Coefficient
T
Sig.
Tolerance
VIF
7.906
9.521
-10.351
9.504
8.299
2.249
0.000
0.000
0.000
0.000
0.000
0.026
TK
0.395
-0.428
0.361
0.313
0.085
0.798
0.806
0.953
0.968
0.962
1.253
1.241
1.049
1.033
1.039
TR
TP
PN
PF
Model fit
R
R2
0.844
0.713
Adjusted R2
0.706
St. Error
0.29741
Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152 147
Variable
Coefficient
1.983
T
Sig.
Tolerance
VIF
Durbin-Watson
F
103.658
0.000
Sig.
Source: The researcher’s data analysis
Based on Table 6, estimated regression showed that standardized coefficients for Tax
Knowledge (TK), Tax Rate (TR), Tax Penalty (TP), Personal Norm (PN), and Perceived Fairness
(PF) were statistically at a 5% level (P-value <0.05). The TK, TP, PN, and PF variables had a
positive impact on tax compliance while the TR variable had a negative one.
The adjusted R2 was 0.713 indicating that 71.3% of tax compliance’s variance (dependent
variable) was explained by the independent variables’ variance. The F statistic in regression (F =
103.658, p = 0.000) was affirmed at a 1% significant level, indicating that the estimated regression
was efficient for prediction. Durbin-Watson = 1.983, which was in the acceptable range of 1.5-
2.5, and the Tolerance value was also in the acceptable range.
Results also revealed that there was no multicollinearity among the independent variables
as variance inflation factors (VIF) was also low (less than 1.253). Therefore, the regression model
for business households’ tax compliance in Vietnam could be established as follows:
Tax compliance = - 0.428 Tax Rate + 0.395 Tax Knowledge + 0.361 Tax Penalty + 0.313
(2)
Personal Norm + 0.085 Perceived Fairness (of the tax system)
4.5. Hypothesis test of model
Based on the results of the multiple regression analysis, the result of hypothesis testing was
shown in Table 7.
Table 7
Result of the hypothesis test
Standardized
Coefficients Beta
No.
H1
H2
H3
H4
H5
Hypothesis
Result
Tax Knowledge has a positive (+) impact
on tax compliance
0.395
- 0.428
0.361
0.313
0.085
Accepted
Accepted
Accepted
Accepted
Accepted
Tax Rate has a negative (-) impact on tax
compliance
Tax Penalty has a positive (+) impact on
tax compliance
Personal Norm has a positive (+) impact
on tax compliance
Perceived Fairness (of the tax system) has a
positive (+) impact on tax compliance
Source: The researcher’s data analysis
Accordingly, the result of this study, the Tax Rate (β =-0.428) had a negative and strongest
impact on tax compliance, thus hypothesis H2 is accepted. This is consistent with studies by Hai
148 Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152
and See (2011) and Tilahun (2018). This result also provides evidence that a high tax rate led to
lower tax compliance of business households in Ho Chi Minh City, Vietnam. Therefore,
decreasing the tax rate for business households can enhance tax compliance of business
households.
Regarding Tax Knowledge (β = 0.395), the result of this study shows a significant positive
impact on tax compliance. Thus, hypothesis H1 is accepted. This result is as like as results of
Niemirowski et al. (2003); Ngo et al. (2019). This result also suggests that Tax Knowledge is a
key factor influencing tax compliance of business households. It means that providing and training
knowledge about tax to business households can help to prevent tax evasion and enhance tax
compliance of business households.
Regarding Tax Penalty (β = 0.361) had a significant positive impact on tax compliance.
Thus, hypothesis H3 is accepted. This result is consistent with Hasseldine et al. (2007) and Ngo et
al. (2019) that increasing the tax penalties led to increasing tax compliance of business households.
Regarding Personal Norm (β = 0.313), this study found a positive and significant
relationship between Personal Norm and tax compliance. Thus, hypothesis H4 is accepted. This
finding is similar to the following studies Braithwaite (2003); Wenzel (2003) that the more
developed the moral reasoning or tax ethics, the more likely it is voluntary tax compliance of
business households.
Regarding the Perceived Fairness (of the tax system) (β = 0.085), this study found that a
positive and slight relationship between Perceived Fairness and Tax Compliance. Thus, hypothesis
H5 is accepted. This result is consistent with Tilahun (2018). The result also suggests that if
business households think that the tax system is fair, Tax Compliance is more like occur. For
example, if a business household feels that their tax burden is similar to the same income group,
their Tax Compliance probably increases.
6. Conclusions and recommendations
This paper focuses on identifying determinants affecting Tax Compliance of business
households in Ho Chi Minh City, Vietnam. The results of qualitative research proposed a model
for Tax Compliance with 5 factors and 17 observed variables: Tax Knowledge, Tax Rate, Tax
Penalty, Personal Norm, and Perceived Fairness. Quantitative research used a 5-point Likert scale
to evaluate observed variables. The valid sample size for quantitative research was 215 and SPSS
25 was used for data processing. The results of EFA showed that 17 observed variables were
measuring 5 factors as the proposed model. After analyzing regression, Tax Knowledge, Tax
Penalty, Personal Norm, and Perceived Fairness had a positive relationship with tax compliance
while the tax rate had a negative one. These determinants are organized according to the level of
influence from high to low following: Tax Rate, Tax Knowledge, Tax Penalty, Personal Norm,
and Perceived Fairness respectively.
According to business households in Ho Chi Minh City, Vietnam, the “Tax Rate” had the
strongest and negative impact. To enhance tax compliance of business households, the tax
authorities need to reduce tax rates and the local authorities need to improve the responsibility of
the Local Tax Consultative Council for determining taxable income and tax rate of business
households and avoiding omitting business households that have not been included in the tax
administration.
Because “Tax Knowledge” had a second impact on tax compliance of business households
in Ho Chi Minh City, Vietnam, the government in general and tax authorities, in particular, should
Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152 149
develop professional training programs related to tax laws, tax issues, and modes of tax payment
and collection for business households. With the help of tax education, business households can
improve compliance with tax.
Despite the “Tax Penalty” had the third impact on tax compliance of business households
in Ho Chi Minh City, Vietnam, there are 2 solutions to enhance tax compliance. Firstly, the tax
authorities need to publicize the list of individual business households having high tax risks and
tax debts in the media like making with companies in Vietnam. As a result, other business
households may be more active in tax compliance. Finally, the tax authorities should strictly punish
those cases that deliberately file incorrect returns or evade tax, or commit tax fraud to increase tax
compliance of business households.
“Personal Norm” had a fourth impact with a positive impact on tax compliance of business
households in Ho Chi Minh City. Therefore, the tax authorities should set up good propaganda
groups to communicate how to behave correctly about tax and to disapprove non-compliance
behaviors. Especially, these groups can help business households by sharing tax experiments.
Moreover, legal education should be included in all level educational programs in Vietnam.
Although the least impact on tax compliance of business households in Ho Chi Minh City
was “Perceived Fairness” (of the tax system), there were also some solutions concerning this.
Firstly, the government must build transparent, non-bureaucratic, and responsible institutions and
must use the collected tax wisely for the benefits of the public such as good infrastructure facilities.
Secondly, the tax authorities should assess the taxable income based on the information provided
by business households and checked by the Local Tax Consultative Council. Finally, the tax
authorities should consider the available market condition, inflation, and fairness among business
households. Therefore, the tax authorities and the Local Tax Consultative Council need to
coordinate closely and work seriously and fairly.
In conclusion, this study focused on bringing evidence that some determinants do have an
impact on tax compliance of business households in Ho Chi Minh City, Vietnam. However, this
research also has some limitations. First of the survey ample has trust been limited to 215
observations conducted in Ho Chi Minh City, so further research can broaden this study to cover
some other provinces and cities of Vietnam or the whole country. Moreover, this study only
researched some factors affecting tax compliance. Some other factors need to be considered in
future further studies, such as tax compliance cost, income level, income source, tax audit, etc.
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