Economic versus Non-Economic Factors: Which is More Relevant to an Individual's Tax Compliance Decisions in a Developing Economy?

Tax compliance study, which is linked with the study of human behavior, remains complex and evolving. The complex nature of taxpayers who are humans coupled with the inconsistencies in the methodologies and approaches used by tax compliance researchers have added to the complexity. Again, it remains unclear as to what motivates a typical taxpayer in a developing economy to honor their tax obligations voluntarily. To understand this complexity, a survey was conducted using questionnaires containing a list of economic and noneconomic tax compliance factors. A total of five hundred (500) respondents who are taxpayers located in four different developing economies were selected. The study found that understanding tax compliance decisions of taxpayers in developing economies requires at least some appreciation of the underlying factors which influence individual taxpayer’s decision about whether to pay or evade taxes. The findings from this study prove that tax compliance decisions of individual taxpayers in developing economies are highly influenced by non-economic factors. However, to achieve improved tax compliance among individuals in a developing country, equal attention would be required for both factors. Further, the study provides some preliminary evidence that paying attention to the noneconomic factors could play a vital role in improving tax compliance level among individuals by up to 89% whereas compliance level could improve by only 11% if attention is paid to only the economic aspects of tax compliance decisions.