Versita

Effects of Tax Audits and Tax Penalties on Individual Income Revenue Compliance in Malaysia

Ong Yih Tat ,Janice L. H. Nga ,Andy Lee Chen Hiung ,Winnie Wong Poh Ming
Keywords: Tax audit, tax penalty, tax revenues, income tax compliance, Income Tax Act 1967 ,

Abstract

This paper aims to determine the tax audit and penalty effects on personal income tax revenue compliance within the context of Malaysia. A quantitative research method has been employed, with validated secondary data that consist of individual income tax revenue and the number of the taxpayers penalised under subsection 112(3) and subsection 113(2), Income Tax Act 1967 (ITA 1967) have been analysed using EViews 9 tools. Results from the study indicate that an audit of individual taxpayers has a positive effect on income tax revenue. However, penalising individuals under subsection 112(3), ITA 1967 have contributed to a negative effect on the personal income tax revenue while penalising individuals under subsection 113(2), ITA 1967 has contributed to a positive effect on the individual income tax revenue in the context of Malaysia. Several theoretical and practical indications, as well as limitations of the study for future research, have been outlined.