Enhancement of Tax Compliance Among Online Business Owners: Quadrant Analysis

Purpose: Although the Covid-19 pandemic has decreased economy-related activities, e-commerce is on the rise and the digital transformation is consequently accelerated. The growth of online businesses positively impacts a nation's economy and development, thereby contributing to more collection of tax revenue from these businesses. However, the explosion in technology, especially in e-commerce transactions, has led to the scope of charge derives and remittances of the Malaysian income tax system that is unable to maximise tax collection from e-commerce businesses. In fact, e-commerce may cause difficulty to the tax authority in terms of how tax can be imposed on online business owners due to the nature of online businesses that operate without a physical store. Hence, this study employed a quadrant analysis to identify the factors that need urgent attention from the Malaysian tax authority to rectify the issue of low tax compliance among online business owners in Malaysia. Design/methodology/approach: The three variables affecting the tax compliance of online business owners (tax morale, tax audit, and tax penalty) have been assessed by collecting data from 140 respondents through a set of questionnaires distributed by hand and via an online survey platform. The study used a simple random sampling technique and the sampling frame entails online business owners in Malaysia who are operating on social media. Quadrant analysis was employed to assess the strength and weaknesses of tax compliance attributes. Findings: The results showed that the taxpayers only declared their income from employment, but they had the intention to hide or not report any side income from their online businesses. Further investigation revealed that this individual behaviour is due to trust issues with the government in managing the collected taxes. Some taxpayers also thought that they have fulfilled tax obligations by paying zakat and they no longer need to declare their income or pay taxes henceforth. However, the taxpayers are mostly cognizant of their tax responsibilities and the tax penalty to be imposed if they fail to comply with the tax rules. Research limitations/implications: The findings may help the IRBM identify the areas to be improved in increasing the tax compliance level of Malaysian online business owners. Keywords: Tax Compliance, Tax Audit, Tax Morale, Online Business Owner