Therefore, with the lax reform trend aimed at building a national government singlewindow mechanism that meets the standards of the Association of Southeast Asian Nations, it is expandi
The urgency of the research problem
According to data from the national database on business registration from the
"The White Book" (Ministry of Planning and Investment, 2023), as of December 31,
In 2022, the total number of businesses in the country reached 895,876, marking a 4.5% increase from 2021's figure of 718,697 Notably, HCM City contributed significantly to this growth, housing 274,067 businesses, which represents 30.6% of the nation's active enterprises This figure reflects a 2.1% rise from the previous year, with HCM City witnessing an increase of 5,602 new businesses in 2022, making it the second-highest region for business growth in the country.
Small and medium-sized enterprises (SMEs) represent over 90% of businesses globally, playing a crucial role in economic growth and job creation, as highlighted by the Organization for Economic Cooperation and Development (OECD) Despite their importance, SMEs face significant challenges with tax compliance, often due to high costs and a lack of understanding of tax obligations The OECD notes that while most SMEs aim to comply with tax regulations, an ineffective tax system and insufficient knowledge contribute to non-compliance Additionally, many SMEs struggle with capital access and navigating complex tax policies, leading to administrative penalties for incorrect tax declarations As these businesses typically operate on a small scale with limited accounting expertise, they frequently incur fines that exceed their financial capacity To support the growth of SMEs, a more favorable and simplified tax environment is essential.
As of December 31, 2021, HCM City had 209,716 SMEs, representing 98.1% of all enterprises, a slight decrease from 2020 but consistent with the 2016-2020 average These SMEs employed over 1,105,270 workers, making up 40.92% of the workforce in the area However, the labor utilization efficiency of medium enterprises was significantly lower at 5.2 times compared to all businesses, while small and micro enterprises had efficiencies of 9.8 times and 2.7 times, respectively Profitability metrics revealed that medium-sized enterprises achieved a net revenue efficiency of 1.34%, contrasted with 3.33% for all businesses, and small and micro enterprises reported minimal returns of 0.34% and -11.1% This data underscores the critical role of SMEs in HCM City and highlights the urgent need for enhanced support to improve tax compliance, benefiting both the community and the businesses.
Ho Chi Minh City leads as the economic center of Vietnam, ranking first in the Top 1000 businesses contributing to corporate income tax, according to Official Dispatch No 4586/TCT-KK from the General Department of Taxation The city's businesses have a tax payment rate that is only surpassed by Hanoi, which accounts for 40% of the total in this ranking This highlights Ho Chi Minh City's significant role in the national economy as reflected in the national business registration database.
"The White Book" (Ministry of Planning and Investment, 2023), in 2022, Ho Chi Minh City had 45,425 businesses, accounting for 30.6% of the total number of newly established enterprises in the country.
Despite fluctuations in global and domestic economies, partly due to the COVID-19 pandemic, the number of Vietnamese businesses continues to grow significantly, signaling positive economic prospects This growth offers the tax industry an opportunity to expand its tax base and enhance future budget revenues However, the rapid increase in businesses presents challenges for tax authorities, particularly in managing the complexities of various industries and improving voluntary tax compliance While large enterprises, primarily state-owned and foreign-invested, tend to demonstrate higher compliance awareness, they also represent a significant portion of the tax base Research indicates that HCM City, as the nation's largest economic center, houses a concentration of large enterprises, with similar tax behaviors observed among units within the same system, making the research sample highly representative.
Previous research has explored tax compliance and its influencing factors, yet inconsistencies remain regarding the direction and level of impact in different contexts In Vietnam, there is a lack of studies employing a combination of qualitative and quantitative analysis methods on tax compliance Despite existing measures in the tax policy system aimed at enhancing compliance, the rise of fraud in tax declarations and evasion in the 4.0 era continues to pose significant challenges, leading to substantial losses for the state budget and societal repercussions.
The ongoing trend of lax reforms is focused on establishing a national government single-window mechanism that aligns with ASEAN standards, ultimately enhancing taxpayer support through effective segmentation This context underscores the significance of researching tax compliance behavior within the digital economy, specifically examining small and medium-sized enterprises (SMEs) in Ho Chi Minh City during this period.
The article "2018 - 2023" offers significant theoretical and practical insights by analyzing and evaluating the tax compliance behavior of SMEs in Ho Chi Minh City during this period It examines key criteria such as understanding of taxes, perception of fairness, corporate reputation, business operation characteristics, socio-economic factors, and relevant tax laws Additionally, the authors provide recommendations aimed at enhancing tax compliance among SMEs in the city.
Objectives of the study
General goals
The research aimed to examine and assess the tax compliance behavior of small and medium-sized enterprises (SMEs) in Ho Chi Minh City, focusing on the factors that influence this behavior Based on the findings, the study proposes policy recommendations to enhance tax compliance among SMEs in the context of the evolving digital economy.
Specific goals
(1) Assess the lax compliance status of SMEs in HCMCity.
(2) Overview of research related to tax compliance and factors affecting tax compliance behavior From there, systematize the theoretical basis, original theories on tax compliance, and factors affecting tax compliance.
(3) Research and lest the appropriateness of the influence of each factor on the lax compliance behavior of SMEs in HCMCity.
This study examines the relationship between various factors and tax compliance in Vietnam's transition economy, highlighting differences compared to findings in developed economies Through testing the research model on a specific sample, the research aims to provide insights into the unique dynamics of tax compliance in Vietnam.
To enhance tax policies and laws, it is essential to propose solutions that improve tax management activities These improvements should aim to create optimal conditions for small and medium-sized enterprises (SMEs) to ensure their compliance with tax regulations.
To achieve the above research objectives, the study focuses on answering the following research questions:
- Current status of tax compliance of SMEs in HCMCity.
- What is tax compliance? Approaches to tax compliance research? Research framework/ Model/Original theories and factors in tax compliance studies?
- What factors affect voluntary tax compliance, mandatory tax compliance, tax compliance, and the level of impact?
- Which factors have greatly or little impact the tax compliance behavior of SMEs in HCM City?
- What are the recommendations for tax policymakers and tax authorities to enhance tax compliance behavior with a particular focus on enhancing voluntary compliance of SMEs?
Object and scope of the study
Research object: Factors affecting tax compliance behavior of SMEs in HCM City
4- Spatial scope: SMEs in HCM City.
+ Time scope: Secondary data for research is collected and analyzed for the period
2018 - 2023 Primary data is collected from November 2023 to January 2024.
Research Methods
This research investigates tax compliance behavior among SMEs and the factors influencing it, utilizing a mixed-method approach that combines qualitative and quantitative research techniques This methodology, endorsed by Nguyen Dinh Tho (2011), addresses the limitations of each individual method, yielding more comprehensive and valuable insights into tax compliance behavior in the digital economy The study follows a structured three-stage process to achieve its objectives.
In the research synthesis stage, the authors analyzed various studies on tax compliance, focusing on theoretical foundations, influencing factors, methodologies, and the outcomes and limitations of each study This analysis allowed for the identification of key research directions in global tax compliance, the original theories employed, and existing research gaps Consequently, the team established a clear research direction, defined the concepts related to tax compliance and its influencing factors, and developed a research model along with preliminary hypotheses.
The preliminary research stage utilizes qualitative methods to address the varying cultural, economic, and tax compliance factors across countries This approach is essential for selecting appropriate measurement scales to assess the elements influencing tax compliance among SMEs in HCM City The findings will inform the development of hypotheses, research models, and survey questionnaires By employing qualitative research, the authors aim to identify relevant factors, refine measurement scales, and create research models tailored to the unique socio-economic landscape of HCM City, ultimately enhancing the reliability and convergence of the variables in relation to SMEs.
The formal research phase involved conducting a survey among SMEs to gather primary data This survey was executed by distributing questionnaires directly to managers, chief accountants, tax accountants, and tax professionals working in SMEs in Ho Chi Minh City, specifically those attending the Postgraduate Training Course at UEH University.
Use a questionnaire built from the overview and previous research steps to collect data on a large scale with a large sample size, and test the proposed research model and research hypotheses.
Using SMARTPLS4 software, the evaluation of the research model involves assessing both the reflective and formative models through metrics such as the outer loading factor and outer weight number Additionally, it is essential to evaluate the reliability and convergent validity of the model by examining Cronbach's Alpha, composite reliability, and average variance extracted (AVE).
To ensure robust analysis, assess discriminant validity through cross-loading coefficients, Fornell and Larcker criteria, and HTMT Additionally, evaluate item collinearity using the VIF coefficient When measuring the structural model, test for multicollinearity among independent variables by examining the inner VIF Furthermore, test hypotheses and analyze the significance of impact relationships within the model by calculating path coefficients Finally, evaluate the model's explanatory power by determining the coefficient of determination (R square) and effect size (f square).
New contributions to the research topic
Th eo re tic Cl I con trih II tio n s:
Research on tax compliance behavior holds significant importance within the financial sector, especially in accounting and taxation This study aims to enhance the existing body of knowledge and contribute valuable insights to the field.
This study reveals a previously unexamined relationship within Vietnam's transitional economy, demonstrating that ownership positively influences taxpayers' voluntary tax compliance behavior Additionally, it confirms that the reputation and image of small and medium-sized enterprises (SMEs) significantly enhance voluntary tax compliance, a finding that has been overlooked in prior research.
This study enhances the understanding of tax compliance behavior in transition economies, specifically in Vietnam, thereby contributing to cross-cultural research and offering valuable insights into tax compliance in developing countries.
Previous research on tax compliance behavior has primarily relied on experimental and management mail surveys This study innovatively integrates both qualitative and quantitative research methods to identify a new influencing factor: ownership.
The author's innovative model is evaluated within the digital economy, specifically targeting SMEs in Ho Chi Minh City, marking a unique contribution to existing research Notably, there is a scarcity of prior studies examining general tax compliance behaviors and the various factors influencing tax compliance among SMEs in this region.
The study offers valuable insights for tax policymakers and authorities regarding the factors influencing both voluntary and mandatory tax compliance It highlights the current impacts on mandatory compliance and the behavior of businesses related to voluntary lax compliance This information is crucial for developing effective legal frameworks and management strategies aimed at enhancing the efficiency of tax collection by the State.
This study reveals that voluntary tax compliance significantly influences taxpayer behavior more than mandatory compliance However, the likelihood of inspection and penalties remains the most critical factor affecting tax compliance, particularly the chance of being audited Consequently, tax authorities must continue to enforce inspection activities related to tax declarations and payments for businesses to ensure compliance.
Corporate reputation significantly influences tax compliance behavior, making it essential to implement strategies that encourage businesses to actively fulfill their tax obligations By recognizing and praising compliant businesses, we can motivate them to contribute more to state revenues and involve them in tax reform initiatives This approach not only enhances tax compliance among these businesses but also inspires others to adopt a more proactive stance towards voluntary tax adherence.
Socio-economic factors significantly influence tax compliance behavior, ranking second in impact after legal policy factors This study highlights the importance of developing transparent and stable tax policies, ensuring timely issuance of legal documents to guide businesses in compliance A clear transition period for new tax policies is essential to facilitate smooth implementation for enterprises Simplifying administrative procedures can enhance compliance while maintaining effective tax management to prevent evasion and corruption Economic stability is crucial, as inflation or deflation affects compliance; thus, balancing the economy and stabilizing interest rates are necessary Furthermore, fostering social development and trade integration creates a competitive business environment, enabling taxpayers to better understand tax laws and their implications, ultimately enhancing compliance Support from tax authorities and improved public services will further build taxpayer trust and promote adherence to tax regulations.
RESEARCH OVERVIEW
Overview of foreign research
Numerous global studies have focused on the tax compliance behavior of businesses, highlighting key factors that influence this compliance, such as tax knowledge, trust in tax authorities, the power of tax authorities, and tax compliance costs Additionally, research has explored the impact of voluntary versus mandatory tax compliance on enhancing taxpayers' compliance behavior.
Tax evasion and compliance have been extensively studied, with Allingham and Sandmo (1972) and Srinivasan (1973) recognized as pioneers in this field Their groundbreaking research introduced utility theory to analyze tax evasion behavior quantitatively In their study, "Income Tax Evasion: A Theoretical Analysis," Allingham and Sandmo propose that taxpayers aim to maximize their benefits from tax reporting and compliance, weighing the economic advantages of evasion against its costs They suggest that individuals may choose to evade taxes if they believe their records will not be scrutinized, yet they are likely to comply when faced with an audit, as the penalties for evasion can significantly outweigh the costs of paying taxes According to their theory, compliance decisions hinge on four key factors: actual income, tax rate, audit probability, and penalties Their mathematical models reveal a positive correlation between increased penalties, heightened audit activity, and the taxpayer's reported income.
Numerous empirical studies have validated Allingham and Sandmo's theory, demonstrating that the imposition of sanctions and the likelihood of audits significantly decrease tax non-compliance Research by Pate and Hamilton (1992), Jackson and Jaouen (1989), Shanmugam (2003), Dubin (2007), Alm et al (1992b), Baldry (1986), and Webley supports these findings.
The theory proposed by Allingham & Sandmo (1972) assumes a constant probability of tax audits, which does not reflect reality, as audit likelihood varies based on reported income Researchers have since expanded this theory to show that the probability of being audited is influenced by income levels and includes tax cheating as a variable This refined model aids in predicting tax compliance and assists tax authorities in formulating effective audit strategies Subsequent studies on tax compliance have largely relied on this framework, emphasizing the importance of audit probability and penalties According to Sour (2001), a higher likelihood of audits and increased penalties can significantly enhance tax compliance.
Sour (2001) discovered that while Allingham's theory suggests increasing tax sanctions and audits could enhance tax compliance, it may actually lead to a negative relationship between tax rates and compliance Instead, the interaction between the government and taxpayers, along with the provision of quality public services, positively influences tax compliance However, a limitation of Sour's study is the assumption that the likelihood of being detected for tax fraud is independent of reported income; in reality, compliance is influenced by the probability of tax audits, which is, in turn, affected by the level of declared income.
Siglé et al (2018) utilized the Slippery Slope Framework (SSF) Model to investigate the influence of trust and tax authority power on tax compliance among large organizations in the Netherlands Their research indicates a positive correlation between trust and voluntary tax compliance, while revealing a negative correlation between trust and mandatory tax compliance These findings align with the research conducted by Damayanti (2018) and Silva, emphasizing the complex dynamics of trust in tax compliance behavior.
Mardhiah et al (2019) found that power negatively affects voluntary tax compliance, with no significant impact on mandatory compliance, contrasting with previous studies by Gobena & Dijke (2015) and Faizal et al (2017), which indicated a strong relationship between power and mandatory compliance The authors argue that increased power does not enhance compliance but rather diminishes voluntary tax payments, additionally weakening the influence of trust on self-reported compliance These findings highlight the necessity for further research into tax compliance dynamics.
Mahangila's (2019) study investigates the relationship between tax compliance costs and tax compliance behavior, considering moderating factors such as age, gender, and education level The research, involving 75 SMEs in Tanzania, aimed to assess whether increased income tax compliance costs negatively affect tax compliance levels The findings revealed a positive correlation between tax compliance costs and tax compliance behavior The study utilized three experimental treatments with tax compliance costs set at 50,000 TAZ, 100,000 TAZ, and 166,667 TAZ, while all participants received an income of 1,000,000 TAZ, with TAZ serving as a laboratory currency exchanged at the end of the experiment.
The research indicates that tax non-compliance rises significantly with increasing tax compliance costs, suggesting that tax authorities should focus on reducing these costs to enhance compliance levels To improve tax compliance, it is crucial for tax authorities to consider the implications of compliance costs when implementing new taxes Additionally, ongoing reforms in the tax system are essential to further decrease these costs.
Kiconco et al (2019) explored the applicability of the Theory of Reasoned Action (TRA) in understanding tax compliance behavior among small enterprises (SBEs) in Uganda, revealing that TRA effectively sheds light on this issue The study integrates various theories related to tax compliance, including Deterrence Theory, Game Theory, and TPB, while also considering economic and psychological perspectives It identifies two key factors—Attitude and Subjective Norms—that significantly influence tax compliance behavioral intentions The findings suggest that Attitude has a more substantial impact on the intention to comply with taxes than Subjective Norms, highlighting the necessity of fostering a positive attitude to enhance compliance Moreover, societal influences play a crucial role in shaping SBEs' intentions towards tax compliance The research concludes that a positive shift in behavioral intention correlates with improved tax compliance, emphasizing the importance of favorable attitudes in driving compliance behavior among SBEs in Uganda.
Research by Biru (2020) investigates factors influencing tax compliance among SMEs in the Wollega area near Nekemte city The study identifies nine key factors: tax rate, income level, rewards and incentives, fines, tax audits, attitude towards tax, simplicity of the tax system, tax awareness and knowledge, and government spending awareness Findings indicate that while a higher tax rate negatively impacts compliance, other factors positively influence it Recommendations include minimizing tax rates, enforcing legal penalties for non-compliance, enhancing tax education, simplifying tax procedures, and ensuring transparency in government spending Additionally, the study suggests that tax authorities should incentivize honest tax payments among SMEs and conduct audits to identify non-compliant taxpayers, thereby improving overall tax compliance behavior.
Musimenta (2020) investigated the link between knowledge requirements, tax system complexity, and tax compliance in Uganda, revealing that while knowledge requirements do not significantly affect compliance costs, increased tax complexity leads to higher compliance costs as taxpayers require additional training and expert advice This complexity directly and indirectly influences tax compliance through these costs Furthermore, Seran et al (2020) analyzed the role of trust in tax authorities and their power, as defined by the Slippery Slope Framework (SSF), on businesses' tax compliance intentions Their findings indicate that trust and authority power do not positively influence lax compliance intentions, while tax compliance intention does positively affect both voluntary and coercive compliance behavior Additionally, tax equity, encompassing the fairness of the tax system and procedural fairness, does not enhance the relationship between trust in tax authorities and compliance intentions This research adds empirical evidence that merges social psychology and deterrence theories to better understand tax compliance behavior in developing nations.
This study explores the influence of tax audits and qualitative factors on corporate tax compliance in Nigeria, revealing a positive correlation between tax audits and compliance levels Key findings indicate that the likelihood of being audited, perceptions of government spending, penalties, and enforcement significantly affect tax compliance The authors recommend that agencies implement more effective strategies to enhance the impact of tax audits, ultimately aiming to strengthen government revenue sources in Nigeria.
Understanding the reasons behind tax non-compliance is crucial for effectively improving compliance levels (Tilahun, 2019) This study reviews previous research on factors influencing tax compliance, highlighting that the fairness of the tax system, tax rates, referral effectiveness, penalties, and audit probabilities significantly impact taxpayers' compliance decisions Addressing tax non-compliance requires a theoretical framework that encompasses economic, psychological, and sociological perspectives It is acknowledged that tax non-compliance is a common issue in all countries Enhancing tax compliance relies on the voluntary cooperation of taxpayers with tax authorities, and it is recommended that this approach be supported by legal enforcement to ensure that both measures work in tandem.
In principle, lax fraud detection should not be viewed as an exogenous variable influencing tax compliance; however, government efforts to impact this variable are likely to be limited in the short term, making the study's method applicable primarily for immediate analysis Furthermore, the research overlooks the varying audit probabilities associated with different income types While identifying factors that affect tax compliance offers numerous advantages, existing studies grounded in economic theories often neglect the ethical and psychological dimensions influencing taxpayer behavior, typically assuming that business ethics play a minimal role in tax compliance decisions.
Overview of research in Vietnam
Research on the tax compliance behavior of businesses in Vietnam has been extensively conducted by numerous researchers and managers This body of work includes master's theses, doctoral dissertations, and scientific articles published in conference proceedings and national or provincial journals.
In her 2009 PhD thesis, "Improving the State's Tax Management to Enhance Tax Compliance of Businesses: A Case Study of Hanoi," Nguyen Thi Le Thuy explores the theoretical, experiential, and practical foundations for enhancing tax collection management by the State to improve business tax compliance Focusing on the State's tax collection management for businesses, excluding individual business households, the research spans domestic tax collection activities overseen by the General Department of Taxation, the Hanoi Tax Department, and district tax branches from 2005 to 2009 The thesis defines tax compliance as a multifaceted concept, adapting a compliance levels model for developing countries and identifying three key indicators for voluntary, complete, and timely compliance It also examines factors influencing tax compliance in developing nations through economic and socio-psychological lenses while highlighting the unique characteristics of businesses in Hanoi that impact their tax compliance.
Bui Thi Thu Thao's 2020 study builds on Nguyen Thi Le Thuy's 2009 research, focusing on tax management to enhance tax compliance among businesses in HCM City The study systematically examines tax management theories, tax compliance behaviors, and the factors influencing these behaviors Key factors identified include propaganda support, management of tax registration and collection, tax inspections, handling of tax violations, resolution of tax complaints, quality of tax services, and technology application in tax management Additionally, business-specific factors such as operational and psychological characteristics of business owners/managers were analyzed The research concludes by establishing the relationships between these factors and the tax compliance behaviors of businesses in HCM City.
In her 2011 research, "Some Theoretical Issues About Tax Compliance," Associate Professor Dr Nguyen Thi Thanh Hoai analyzes the concept of tax compliance, emphasizing its significance in both administrative and technical contexts as defined by the OECD The article highlights various methods for assessing tax compliance, including statistical analysis, sampling surveys, and financial statement evaluations Additionally, it identifies key factors influencing tax compliance among business taxpayers, categorized into economic and social conditions, legal and tax policies, tax authority management, and other relevant factors.
Research by Associate Professor Dr Nguyen Thi Lien (2011) highlights the close relationship between taxpayer compliance and the modernization of tax administration The study emphasizes that fostering a sense of self-compliance among taxpayers is crucial for effective tax administration modernization in Vietnam Despite progress, there are still significant shortcomings that hinder the tax management environment and the implementation of modern tax measures To address these issues, the author proposes several strategies aimed at enhancing taxpayers' self-compliance during the modernization process.
MSc Nguyen Thi Minh Hoa (2011) emphasizes that modern tax management utilizes various techniques—such as electronic tax procedures, risk management, and compliance management—to enhance taxpayer compliance and streamline operations In Vietnam, the tax collection management system is deemed ineffective, leading to low taxpayer compliance and challenges in voluntary tax payments To address these issues, the author advocates for the establishment of a robust legal framework, the implementation of tailored customer service strategies, and thorough assessments of taxpayer compliance, including inspections and enforcement measures, to foster improved tax compliance management.
Dr Vuong Thi Thu Hien's research (2011) highlights the significant impact of developing electronic tax services on enhancing tax compliance in Vietnam The study emphasizes the need for solutions that promote administrative reform and modernize management through advanced information technology Key recommendations include improving the efficiency of support information, upgrading infrastructure for electronic tax services, and collaborating with digital signature providers to streamline tax administrative procedures These measures aim to minimize paperwork and facilitate a more effective tax compliance process in Vietnam.
MSc Dang Thi Bach Van's 2014 research on factors influencing tax compliance behavior identifies key variables that impact taxpayer responses The study categorizes these factors into economic elements, such as actual income level, tax rates, audit probabilities, and penalties for evasion, as well as socio-psychological aspects, including perceptions of fairness and tax awareness The author emphasizes that assessing the level of tax compliance is crucial, potentially more so than pinpointing factors behind tax evasion By enhancing voluntary compliance among taxpayers, tax authorities can alleviate the pressure of closing the tax gap between collected and due amounts Additionally, understanding actual compliance levels aids tax authorities in developing effective tax compliance models.
Several researchers, including Nguyen Minh Ha and Nguyen Hoang Quan (2012), Phan Thi My Dung and Le Quoc Hieu (2015), Bui Ngoe Toan (2017), and Pham Thi My Linh (2019), have explored the factors influencing tax compliance among businesses.
In their 2012 study published in Technology & Banking Magazine, Dr Nguyen Minh Ha and Nguyen Hoang Quan explored the factors influencing tax compliance behavior among private enterprises, specifically regarding timely tax payments Utilizing a modified model based on Mohd and Ahmad (2011), they employed non-linear regression analysis on a sample of 170 private enterprises in Ho Chi Minh City The study revealed that profit before tax (EBT) negatively impacts timely tax payment behavior, contrary to initial expectations, while the total tax payable also exhibits an inverse relationship with this behavior These findings align with previous research by Friedland and colleagues, highlighting the complexities of tax compliance among private enterprises.
A study from 1987 examined the factors influencing tax compliance behavior, specifically regarding income tax evasion, highlighting that industry factors negatively affect compliance However, the author's application of multivariate regression in the recent research indicates a one-way influence of independent variables on the dependent variable, failing to account for potential reverse impacts, measurement errors, latent variables, and the clarity of observed variables.
The research article titled "Factors Affecting Tax Compliance of Businesses" evaluates the tax compliance levels among taxpayers, emphasizing the need for effective tax administration practices by tax agencies Utilizing quantitative methods and drawing on both domestic and international research, the study identifies key independent variables influencing corporate tax compliance in HCM City These factors include lax system structure, business characteristics, quality of public administration, service quality, enterprise business lines, social norms, and economic conditions.
Research findings serve as a valuable foundation for tax authorities to enhance lax policies and regulations, ultimately creating optimal conditions for taxpayers to achieve tax compliance.
Research by Bui Ngoe Toan (2017) on‘‘Factors affecting corporate income tax compliance behavior - Empirical research in HCMCity ” in the Science Magazine - Hue
The research conducted by Phan Thi My Dung and Le Quoc Hieu (2015) highlights significant similarities with university studies regarding enterprises engaged in production and business activities in Ho Chi Minh City Utilizing quantitative methods, the study effectively clarifies the relationship and impact of various factors on income tax compliance among businesses in the city Notably, the findings reveal that the characteristics of lax authority significantly influence the tax compliance behavior of these enterprises, marking a valuable contribution to empirical research on tax compliance.
In the 2013 article "The Impact of Tax Policy on Tax Compliance," Master Nguyen Hoang and Associate Professor Dr Dao Thi Phuong Lien present survey findings from over 200 businesses, providing valuable insights into tax compliance factors The authors compile sample statistics and offer recommendations for businesses, taxpayers, and tax authorities However, the study's limitations include its reliance on descriptive statistics, which restricts the depth of analysis and the proposed solutions.
Gaps in Research
We have thoroughly explored both the theoretical and practical aspects of enhancing tax compliance among taxpayers Nevertheless, several key issues warrant further investigation to deepen our understanding of tax compliance behaviors.
Research by Anita and her colleagues, as well as Bui Ngoe Toan and Leng Minh Hoang, has thoroughly examined the quality of tax services and tax compliance in Vietnam However, there remains a need for further investigation into the factors influencing tax compliance behavior, particularly among small and medium enterprises (SMEs) Additionally, the theoretical framework for lax compliance in the context of electronic tax self-declaration is underdeveloped, especially in a developing country like Vietnam The current digital economic landscape lacks clear methods for assessing tax compliance, and existing indicators for measuring lax compliance are incomplete and require refinement PhD student Nguyen Thi Le Thuy's research highlights that Vietnam is in the early stages of implementing taxpayer self-calculation and risk management techniques, with modern tax management processes just beginning and lacking in online compliance activities This gap underscores the necessity for ongoing research into tax compliance, particularly in understanding the perceptions and knowledge of SMEs regarding tax obligations, informed by international models to foster taxpayer trust.
Research predominantly focuses on taxpayers, particularly small and medium enterprises (SMEs), which constitute over 98% of businesses, as highlighted by studies from Anita et al., Rusdi et al., and Gang et al However, there is a lack of clarity regarding the relationship between tax compliance and tax services for SMEs While tax compliance is often examined in relation to various factors, including taxpayer behavior and policy, the quality of tax services and its simultaneous impact on tax compliance has not been extensively studied Furthermore, the application of the Slippery Slope Framework theory by Kirchler and colleagues in the context of modern tax management, particularly concerning environment-based taxes and mutual respect in service interactions, remains underexplored This underscores significant research gaps in understanding the factors influencing tax compliance behavior.
The current state of tax compliance in Vietnam from 2018 to 2023 has not been thoroughly evaluated, particularly regarding the influences on compliance within the digital economy This includes the implementation of a system that allows businesses to self-declare electronic taxes via connections to the Tax industry's application system.
Fourthly, no work systematically proposes solutions to improve tax compliance of taxpayers in Vietnam in the socio-economic context of the years from 2023 to 2025, with a vision to 2030.
This research identifies critical gaps in understanding tax compliance and the factors influencing tax compliance behavior among SMEs in Ho Chi Minh City The authors aim to systematically clarify theoretical issues surrounding tax compliance, particularly in the context of the digital economy By examining the current state of lax compliance and management from 2018 to 2023, the study will focus on the self-declaration of electronic taxes through the Tax industry application system Ultimately, the research seeks to provide policy recommendations to enhance tax compliance for taxpayers in Vietnam, with a vision extending to 2030.
THEORETICAL BASE AND RESEARCH MODEL
Overview of Theoretical Issues
The amended Law on Tax Administration No 38/2019/QH13 in Vietnam defines tax as a compulsory contribution to the state budget, imposed on organizations, households, business households, and individuals in accordance with tax regulations and laws.
Lenin defined tax as the amount collected by the state from its citizens without providing direct compensation He emphasized that taxes are a primary source of government revenue, derived from the surplus produced by land and domestic labor, ultimately sourced from the capital or income of taxpayers.
To grasp the essence of tax, it is essential to focus on its various concepts and key characteristics Understanding these elements is crucial for a comprehensive study of taxation.
First, in modern society, tax is a monetary contribution.
Taxes are compulsory contributions enforced by governmental authority, serving as a primary source of revenue for the state These funds are not allocated for specific purposes but are utilized to address the general spending requirements necessary for effective social management and the socio-economic functions of the government.
Taxes play a crucial role in macroeconomic regulation and the development of the state, serving as an essential tool for income and asset redistribution They ensure revenue for the state budget, which is vital for meeting government spending needs As the primary source of state revenue, taxes significantly influence economic development, impacting accumulation, investment, consumption, and resource allocation However, the rising tax debt situation nationwide poses challenges to state budget revenue, particularly in major cities like Ho Chi Minh City, which is the country's largest economic center Addressing the urgent need for reliable revenue sources in such urban areas is essential to support the government's growing demand for public services.
Every month, thousands of businesses, primarily SMEs, are registered in Vietnam, contributing to economic development while posing challenges for tax authorities in managing tax collection This has led to significant tax revenue losses, a common issue not only in Vietnam but globally To address this, the Vietnamese government has initiated comprehensive tax reforms, notably through the implementation of Tax Administration Law No 38/2019/QH14 and Circular No 31/2021/TT-BTC, which replaces Circular 204/2015/TT-BTC These reforms focus on risk management, administrative procedure improvements, and modernizing tax management to enhance tax compliance.
2.1.2 Concept and importance of Tax Compliance
The Australian Taxation Office (ATO) defines tax compliance as a business fulfilling its tax obligations in accordance with tax laws and court rulings This concept has been extensively explored and analyzed by various scholars and researchers in the field.
Tax compliance, as defined by Jackson & Milliron (1986), involves the accurate and timely declaration of tax amounts without coercion from tax authorities Roth and Scholz (1989) further clarified this concept, stating that tax compliance requires taxpayers to submit all necessary tax returns punctually, ensuring that these returns accurately reflect their tax liabilities in accordance with current tax laws, regulations, and judicial rulings.
Tax compliance, a widely recognized concept since the beginning of taxation, is challenging to define succinctly As noted by Andreoni et al (1998), tax compliance is a dynamic notion that can be interpreted in various ways depending on the perspective taken.
Tax compliance is a multifaceted topic that intersects various disciplines, including law, accounting, economics, public policy, and political science (2004) Researchers continue to explore whether tax compliance is voluntary or involuntary Kirchler and Wahl (2010) distinguish between voluntary compliance, which stems from the taxpayer's intention, and mandatory compliance, which results from enforcement activities Therefore, tax compliance for enterprises can be defined as the timely and voluntary adherence to tax obligations as mandated by law.
In many developing countries, weak administration leads to significant tax evasion and avoidance, resulting in low overall tax compliance, particularly within the informal sector (Bautigam et al., 2005) Additionally, inaccuracies in tax laws and overly complex regulations contribute to this issue, as they encourage taxpayers to seek ways to minimize their tax burden, often through evasion or avoidance strategies (James et al., 2004).
Depending on the research purpose, taxpayers' tax compliance is reviewed, evaluated, and divided into many groups according to different criteria.
According to previous studies: Factors affecting tax compliance can be divided into two groups: macro factors and micro factors.
Macro factors influencing tax compliance encompass economic, legal, and social elements Economically, compliance costs serve as a positive driver for tax adherence, while state budget revenue, tax rates, and penalties also significantly impact taxpayer behavior Legally, the complexity of tax policies often leaves taxpayers lacking the necessary skills and knowledge for compliance, complicating efforts to manage non-compliance Socially, perceptions of unfairness play a critical role in tax compliance; when taxpayers feel treated unjustly or distrustful of the system, they are more likely to intentionally evade their tax obligations and face challenges in accessing information.
Micro factors influencing taxation encompass business dynamics, industry traits, psychological elements, and taxpayer-related aspects, including tax knowledge, trust in tax authorities, and overall satisfaction Research by Supadmi and Sondakh highlights the significance of psychological factors in tax ethics, emphasizing the impact of revenue utilization, ethical standards, and individual, social, and national influences on taxpayer behavior.
Tax compliance can be categorized into two main types: mandatory and voluntary compliance Understanding these distinctions allows tax authorities to develop effective policies aimed at improving tax management.
Voluntary lax compliance is crucial for taxpayers aiming to effectively implement tax policies, as errors may arise during the process This strategy is enhanced by support services and advanced information provided by tax authorities According to Gobena and Van Dijke, fairness plays a significant role in promoting voluntary tax compliance, as taxpayers tend to respond positively and exhibit higher levels of compliance when they perceive high procedural justice, fostering trust in the government’s exercise of power.
Theoretical basis
2.2.1 Theory of Planned Behavior (TPB)
The Theory of Planned Behavior, established by Ajzen in 1991, evolved from the earlier Theory of Reasoned Action by addressing its limitations regarding the assumption of complete rational control over individual behavior This theory posits that the intention to comply with tax regulations is influenced by three key factors: the individual's attitude toward the behavior, the subjective norms surrounding it, and their perceived behavioral control.
Attitude toward behavior reflects how individuals assess that behavior as positive or negative (Ajzen & Fishbein, 1985) In the context of tax compliance, attitudes are linked to the overall tax spirit, where taxpayers recognize their duty to pay taxes and willingly fulfill this obligation.
According to Ajzen (1991), an individual's intention to engage in a behavior is shaped by the influence of their social circle and the observation that many around them exhibit the same behavior This suggests that when individuals in close relationships, such as friends or family, hold a favorable attitude towards tax compliance, it is likely that the taxpayer will adopt a similar positive perspective on fulfilling their tax obligations.
Figure 2.2 'Theoretical model of planning behavior (Ajzen, 1991)
2.2.2 Theory of Reasoned Action (TRA)
The Theory of Reasoned Action (TRA), developed by Ajzen and Fishbein in 1975, addresses human behavior by exploring the connections between beliefs, attitudes, motivations, intentions, and actions According to TRA, intention is the key precursor to behavior, as individuals weigh potential outcomes and consequences before making decisions This theory posits that people are more likely to engage in behaviors that they believe will yield favorable results Ajzen and Fishbein identify two critical factors that shape the intention to act: the individual's attitude toward the behavior and the influence of subjective norms, which encompass societal opinions and attitudes toward that behavior.
Figure 2.3: Rational action theory model (Ajzen and FishbeinJ975)
The Theory of Reasoned Action (TRA) and the Theory of Planned Behavior (TPB) are crucial in understanding tax compliance behaviors Established by Ajzen and Fishbein in 1970, these theories have been widely utilized in tax compliance research, as demonstrated by studies from Bobek and Hatfield (2003) and Benk et al.
Empirical studies indicate that taxpayers' behavioral intentions are shaped by various factors, including beliefs, culture, social norms, and opportunities for tax evasion According to Kirchler (2007), taxpayers' attitudes reflect their tax consciousness, which is essential for understanding tax compliance and the consistency of compliance behavior The introduction of the Taxpayer Reasoning Approach (TRA) has equipped researchers with a valuable framework for analyzing tax compliance behavior Many studies suggest that fostering mutual trust and understanding among taxpayers significantly influences their compliance Additionally, the use of fines and sanctions may sometimes hinder rather than promote positive tax compliance behaviors.
2.2.3 Prospect theory (Daniel Kahneman and Amos Tversky)
The theory posits that individual decision-making regarding profit or loss is influenced by varying attitudes Human behavior exhibits three key traits: first, it can demonstrate either risk aversion or risk preference based on the nature of prospects; second, individuals assess gains and losses in relation to a reference point aligned with their current circumstances; and third, the emotional impact of losses tends to be more profound than that of gains, leading to a heightened fear of loss.
According to Ackert & Deaves (2010), human decision-making is characterized by risk aversion when it comes to gains and risk preference regarding losses This indicates that the value function is convex for positive outcomes and concave for negative ones Decisions are influenced by changes in income rather than absolute income levels, highlighting that individuals have a strong aversion to losses, which is reflected in the steeper slope of the value function for losses compared to gains.
Prospect Theory has been utilized in tax compliance research, particularly by Chang (1984), to analyze how penalties and audits influence taxpayer behavior An empirical study by Jackson and colleagues (1984) investigated the connection between the risk of detection and the severity of punishment for tax evasion Their findings suggest that when the likelihood of being detected is low, individuals tend to focus more on the potential losses rather than the chances of being caught.
The Economic Deterrence model, rooted in Expected Utility Theory and deterrence theory, plays a significant role in tax compliance research (Devos, 2014) This model posits that taxpayers are ethical and risk-averse individuals aiming to maximize their benefits, often opting to evade taxes when it seems advantageous, as indicated by the principle that expected profits should surpass costs (Jackson & Milliron, 1986) Deterrence theory suggests that individuals decide to comply with or break the law based on a calculation of the potential benefits and consequences of their actions.
In addition,this theory is also a criminological theory developed by Becker
The deterrence theory, established in 1968, suggests that individuals are discouraged from committing crimes when the perceived benefits outweigh the potential consequences This principle applies to tax evasion, where taxpayers may devise elaborate plans to evade taxes if they believe the advantages surpass the risks of detection and punishment Effective deterrence can be achieved through punitive measures, such as implementing stricter penalties and minimizing non-detection rates, which can dissuade taxpayers from evading taxes Additionally, a persuasive approach that includes educating taxpayers about their rights and obligations, simplifying compliance processes, and facilitating tax return submissions can further enhance compliance and reduce tax evasion.
The tax compliance model, introduced by Braithwaite & Grabosky in 1986 and successfully implemented by the Australian Tax Authority (ATO) in 1990, has undergone numerous reforms to enhance tax management according to taxpayers' compliance levels This model emphasizes compliance management as a process rooted in taxpayers' awareness and understanding of legal obligations.
The tax compliance model is divided into two main components: the left part outlines the factors influencing tax compliance behavior, categorized as business characteristics, industry characteristics, social characteristics, psychological characteristics, and economic characteristics, collectively known as BISEP Meanwhile, the right part illustrates the spectrum of taxpayer attitudes and behaviors, ranging from a willingness to comply to a decision not to comply, alongside the corresponding strategies employed by tax authorities, which range from fostering favorable conditions to implementing strict legal measures.
Countries such as the UK, Canada, and Thailand have gained valuable insights from the ATO tax compliance model, which serves as a framework for understanding the factors that contribute to lax tax compliance (Braithwaite, 2003) This model not only highlights the elements influencing compliance but also provides a foundation for tax authorities to develop effective management strategies to address compliance issues.
2.2.6 Allingham & Sandmo tax compliance model
In 1968, Becker introduced the economic theory of crime, which laid the groundwork for Allingham and Sandmo's economic model of tax compliance behavior in 1972 Their model posits that taxpayers, possessing an income (I), must decide how much of that income to report to tax authorities for personal income tax calculations The reported income (D) is subject to a tax rate (t), while any unreported income remains untaxed Additionally, taxpayers face a probability of detection (p) and potential fines (f) for fraudulent activities, influencing their reporting decisions.
Taxpayers will have two options:
(1) Who will report their actual income;
(2) Taxpayers will report an amount of income that is less than their actual income;
Research hypothesis and proposed research model
Research highlights the critical role of tax education in enhancing taxpayer awareness and compliance Eriksen and Fallan (1996) emphasize that a taxpayer's education level significantly influences their understanding of tax regulations, enabling them to self-assess and meet their obligations effectively, thereby reducing the risk of legal violations Improved tax knowledge correlates with increased compliance, as noted by Palil (2010), which addresses ongoing challenges in the tax sector Moreover, for small and medium-sized enterprises (SMEs), tax knowledge serves as a vital tool for adhering to tax laws However, Inasius (2015) and Young indicate that heightened pressure from tax inspections can diminish taxpayers' willingness to comply.
Tax knowledge significantly enhances taxpayers' understanding of lax laws and policies, facilitating easier compliance with tax regulations (Musimenta, 2017) It is a crucial factor in fostering tax compliance behavior (Saad, 2014) To boost taxpayers' awareness of their obligations, it is essential to improve their understanding of tax regulations through effective tax services provided by tax authorities, which can motivate voluntary compliance and enhance overall tax adherence (Savitri, 2015) Based on this discussion, the author hypothesizes:
HI: Understanding of Taxes has a relationship with tax compliance behavior SMEs in HCMCity.
Fairness is key for taxpayers When the tax system is judged to be fair, taxpayers will voluntarily contribute their obligations to the state budget.
A fair tax distribution system is crucial for ensuring compliance, as individuals desire evaluations based on their unique achievements and needs (Kirchler et al., 2008) When taxpayers perceive that they are subject to higher tax rates than others with similar financial situations, it can lead to reduced compliance Fairness in the tax system is essential, as individuals expect those within the same income bracket to contribute equivalently, and any disparities between income groups should be justified (Spice and Becker, 1980) If a group feels overburdened by taxes, they may resort to tax avoidance strategies Ultimately, trust in the tax system significantly influences compliance levels; perceived unfairness often results in a reluctance to pay taxes (Allingham and Sandmo, 1972; Barjoyai).
1987) On the contrary, when society believes in the fairness of the tax system, the likelihood of people voluntarily paying taxes will be higher.
Fair punishment is crucial for motivating taxpayer compliance, as traditional studies indicate that the severity of penalties significantly impacts adherence to tax laws According to Frey and Torgler (2007), the general aversion to paying taxes means that deterrence policies are essential for fostering legal compliance Numerous empirical studies have shown that the likelihood of detection and punishment plays a vital role in influencing tax compliance behavior.
Research indicates that the possibility of being fined and the fear of future penalties significantly motivate taxpayers to comply with tax laws Studies show that tax compliance is less influenced by the severity of fines and more by the likelihood of detection for tax evasion A high fine coupled with a low probability of detection may deter tax evasion more effectively than a low fine with a high detection probability.
Fair tax procedures are essential for ensuring taxpayer trust and compliance Key factors contributing to perceived fairness include the neutrality of tax collection processes, the reputation of tax authorities, and the professionalism of tax officials A lack of information regarding tax regulations can lead to inaccurate declarations, undermining taxpayer rights Therefore, it is crucial for tax authorities to provide comprehensive, accurate, and timely information about tax regulations, enabling taxpayers to meet their obligations correctly.
From the above reasons, the author hypothesizes:
H2: Perception of fairness has a relationship with tax compliance behavior of SMEs in HCMCity.
The nature and scope of compliance requirements differ significantly based on the ownership type of an enterprise Single-owner businesses typically face fewer regulations and compliance procedures compared to multi-owner enterprises Additionally, private enterprises generally encounter less stringent constraints than state-owned enterprises, which are subject to closer government oversight and control.
The size of a business significantly influences its compliance with tax laws, as larger companies often utilize complex regulations to minimize their tax obligations while contributing substantially to state budgets In contrast, mid-sized businesses may struggle with limited accounting capabilities, making them susceptible to scrutiny from tax authorities and resulting in unfavorable agreements Additionally, many small businesses, particularly in the retail sector, frequently fail to maintain proper accounting records or register for taxes, leading to unpaid tax liabilities The high costs associated with tax compliance further exacerbate this issue, prompting many businesses to seek simple methods to avoid taxes.
Profitable businesses prioritize timely compliance with tax obligations, while those facing challenges often redirect resources to core activities, potentially neglecting payments for taxes, fees, and loans This shift in focus can lead to delayed or incomplete payments, impacting overall business efficiency.
From the above reasons, the author hypothesizes:
H3: Characteristics of business operations have a relationship with tax compliance behavior of SMEs in HCM City.
Numerous empirical studies have highlighted the strong relationship between social ethical standards and the level of tax compliance among individuals, indicating that higher ethical standards correlate with increased willingness to comply with tax obligations (Battiston and Gamba, 2013; Traxler, 2010; Fjeldstad and Semboja, 2001).
Tax compliance is significantly influenced by taxpayers' perceptions of social norms and the behavior of those around them When individuals believe that tax evasion is widespread, they are less likely to adhere to tax laws Conversely, if they perceive that most people pay their taxes honestly, they are more inclined to comply The expectations of important individuals in their lives also play a crucial role; if they feel that these individuals expect them to pay taxes, their compliance increases Social norms reflect community attitudes towards tax payments and can greatly impact individual decisions to follow tax laws Research indicates that when taxpayers see their peers complying with tax regulations, they are more likely to do the same, driven by a desire for social acceptance and to avoid discrimination Despite various government initiatives aimed at improving tax compliance, these measures have not significantly altered public awareness or behavior regarding tax obligations.
Compliance costs significantly impact businesses, as they must manage various expenses associated with meeting tax obligations These costs elevate the overall tax burden beyond the actual taxes paid into the state budget, encompassing areas like tax declaration, payment, and financial report submission Additionally, mental costs, including stress and anxiety stemming from uncertainty about compliance, fear of penalties, and guilt over potential errors on tax returns, are often overlooked The time and effort required to fulfill tax obligations contribute to the challenges businesses face in adhering to tax laws.
Interest rates significantly influence a business's tax compliance, as higher market and bank interest rates may lead less ethical businesses to delay tax payments intentionally These businesses often resort to fraudulent methods to conceal income and exploit legal loopholes to reduce their tax liabilities Therefore, the choice to comply with tax obligations is a critical decision that must be evaluated thoroughly, taking into account various economic and risk factors.
A robust economy, low inflation, and political stability enhance tax compliance among taxpayers However, inflation can complicate adherence to tax laws, particularly when tax rates remain unchanged, potentially leading to taxpayers paying more than their actual income On the other hand, moderate inflation can foster a conducive business climate, motivating businesses to meet their tax obligations effectively.
The financial burden of debt significantly impacts an individual or business's capacity to meet tax obligations, often resulting in tax evasion or underpayment This adverse effect on tax payment behavior can lead to decreased tax compliance, ultimately affecting the overall tax revenue collected Some businesses may attempt to mitigate their tax liabilities by manipulating reporting figures, but such actions carry substantial risks and potential legal repercussions Therefore, the author posits a hypothesis for further research on the intricate relationships between financial burden, debt, and tax compliance.
H4: Socio-economic factors have a relationship with tax compliance behavior of SMEs in H CM City
2.3.1.5 Tax laws and other legal considerations