Factors Affecting for Compliance with Income Tax; Reference to Western Province, Sri Lanka

Abstract

Tax evasion and tax compliance can be considered as two sides of the same coin. Tax authorities have taken considerable actions to promote voluntary tax compliance but many taxpayers in developing countries, do not have such intention to comply with taxation laws in the country and Sri Lanka is no exception. The high levels of budget deficits and foreign exchange difficulties suggests that Sri Lankan tax compliance level was very low. The main reason for this is frequent changes done by the past governments to the taxation policy of the country has created an extremely complex tax system. The respondents mainly argue that there should be a simple and consistent tax system for the country. Voluntarily tax compliance is very important for developing countries to get rid from the prevailing fiscal difficulties of the country. When it comes to the Sri Lankan context, the country is undergoing a huge debt trap. Therefore, this has resulted some foreign exchange difficulties in repaying the borrowings. On this ground, the country should look for ways of reducing over dependency on foreign aid and debt. Encouragingvoluntarily tax compliance can be considered as a remedy for that. Therefore, based on the positivist research approach, five factors that affects for tax compliance have been selected for this study based on the literature to examine what factors are affecting for determining tax compliance. The study concludes that knowledge of the taxation system and the perceived behavior of the referent group has significant influence over tax compliance.   Keywords: Income Tax, Tax Compliance, Sri Lanka