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ISSN : 1598-7248 (Print)
ISSN : 2234-6473 (Online)
Industrial Engineering & Management Systems Vol.18 No.3 pp.551-562
DOI : https://doi.org/10.7232/iems.2019.18.3.551

Developing Business Management Strategy Based on the Factors that Affecting Willingness to Pay Tax: Evidence from Indonesia

Vitra Yozi*, Sri Mulyani, Citra Sukmadilaga, Hamdi A Pertama
Faculty of Economics and Business, Universitas Padjadjaran, Jawa Barat, Indonesia
Directorate General of Taxation (DGT), DKI Jakarta, Indonesia
Corresponding Author, E-mail: azadsorooshgh@gmail.com
June 3, 2019 June 17, 2019 June 20, 2019

ABSTRACT


This study aims to prove the relationship between just implementation of taxation regulations and tax law enforcement and tax evasion rates and willingness to pay taxes in Indonesia. Data analysis using the structural equation modelling approach. The results of this study prove that (1) just implementation of tax regulations affects the level of tax evasion but does not affect taxpayer willingness to pay; (2) tax law enforcement lowers the rate of tax evasion and increases taxpayer willingness to pay; and (3) a decrease in the tax evasion rate has an impact on increasing taxpayer willingness to pay.



초록


    1. INTRODUCTION

    Taxes are the largest source of state income and constitute one tool for realizing economic justice in society. Taxes have an important role in the national economy and state revenues (Gunadi, 2013). The problem is that paying taxes is still not fully realized by the community, which is reflected in an unfulfilled tax revenue target for the last 5 years.

    The Directorate General of Taxes cannot secure the National Tax Revenue Plan established either nationally or regionally through the Regional Office of the Directorate General of Tax (DGT) of West Java I. An increase in the ratio of compliance and submission of the annual tax return is not directly proportional to the rise and fall of tax revenues during the last 5 years, as shown by Table 1. The low compliance of taxpayers in submitting their annual tax returns is exacerbated by the increase in tax avoidance and tax evasion cases, either by taxpayers or in cooperation with tax officers.

    Tax evasion is done through various means. Data from the Directorate of Law Enforcement, Directorate General of Taxes (2016) state that for open cases these methods have included (1) tax invoices not based on actual transactions (as many as 39 cases); (2) incorrect tax reporting (11 cases); (3) uncollection (4 cases); (4) not submitting tax reports (2 cases); (5) criminal money laundering related to tax crime (as many as 2 cases). All of these cases have now reached the level of a trial. Doerrenberg (2015) explained that the government’s use of tax money often determines the desire or behaviour of people to obey or not obey tax requirements. Abiola and Asiweh (2012) concluded that fairness in the application of tax laws greatly affect the level of tax evasion and tax revenue. Célimène et al. (2014) concluded that tax evasion and corruption led to people’s reluctance to pay taxes.

    Taxpayers’ perception of justice, such as high tax rates and non progressive tariffs and government corruption, encourages taxpayers’ tax behaviour (Khan, 2014). The theory of planned behaviour explains that one’s behaviour al tendency is influenced by the environmental circumstances (Tiraada, 2013). If the taxpayer gets unfair treatment, then it will motivate him or her to evade taxes. The higher the tax rate, the higher the tax evasion tendency (Kurniawati and Toly, 2014;Adem et al., 2015). Syahrina and Pratomo (2015) concluded that tax justice significantly affects tax evasion and indicates a positive relationship direction. Endrianto (2015) concluded that the imposition of a 1% income tax can educate entrepreneurs of small and medium enterprises to be obedient in carrying out their tax obligations because it facilitates the calculation, deposit, and reporting of income taxes. Khan (2014) explained that the causes of tax evasion, among others, include the absence of the concept of progressive taxation, high tax rates, and corruption of government officials.

    This is in line with the results of research by al. Alm et al. (2016), concluding that corruption among tax officers is very influential in tax evasion. Fiscal, monetary, and demographic and administrative policies are statistically significant in affecting the behaviour of individuals who under take tax evasion (Aliyu and Samba, 2016).The other causes of tax evasion are, due to lack of control over tax information presented in the financial statements. According to Mulyani and Fettry (2016) the quality of financial statements is strongly influenced by supervision of these financial statements. Meanwhile Mulyani and Arum (2016) explained that the information quality of financial statement as a tax object is influenced by how well internal control is carried out by the organization. Mardiasmo (2016) identified three forms of tax collection systems: (1) official assessment, (2) self-assessment, and (3) withholding tax. Since the first tax reform in 1984, Indonesia has changed the tax collection system from official assessment to self-assessment in order to provide a sense of justice to the taxpayer to calculate, pay, and report his or her own tax.

    Levaggi and Menoncin (2012) concluded that although a change in tax rates could reduce tax evasion, the opposite would happen if fines were defined as embezzled income; this would result in a positive relationship between tax rates and tax evasion. Paramartha and Rasmini (2016) concluded that tax sanctions have a positive effect on taxpayer compliance. Zirman (2015) also concluded that tax law enforcement has a positive effect on tax morale, which means that increased law enforcement will increase the tax morale of the taxpayer, which can ultimately lower the rate of tax fraud. Tenidoua et al. (2015) concluded that tax evasion can be avoided through (1) improving oversight of tax evasion; (2) accountants being jointly responsible for tax evasion by their customers; (3) the tax mechanism that is responsible for tax evasion; and (4) constant vigilance in the face of tax evasion.

    Based on the empirical facts and previous studies, it becomes a question of whether justice in terms of implementing tax regulations and tax law enforcement can decrease the level of tax evasion. Furthermore, with a low rate of tax evasion, will the number of taxpayers increase? To answer these research questions, it is important to know the relation of justice in the application of taxation regulations and tax law enforcement with decreasing tax evasion rates as a stimulus of taxpayer willingness to pay.

    2. LITERATURE REVIEW

    2.1 Justice in the Implementation of Tax Regulations

    Justice in the application of tax laws is defined as fairness in legislation related to tax obligations in general, in accordance with the conditions of each taxpayer’s ability. Fairness in implementation includes, among other things, giving the taxpayer the right to file an objection or appeal and to delay payment or implement payment instalments (Mardiasmo, 2016;Al-Qayoudhi et al., 2017). Justice in the application of tax laws in this study is measured using these indicators: (1) tax provisions published through various media; (2) the suitability of the tax administration by officers employing the applicable provisions; (3) the guarantee of justice to the taxpayer obtained from the legal certainty of taxation; (4) the ease in understanding the provisions of tax legislation; and (5) compatibility between the various tax regulations (Widodo, 2010;Rahmanto et al., 2018;Sharif and Butt, 2017)

    2.2 Tax Law Enforcement

    Prodjodikoro (1989) defined law enforcement as an attempt to enforce norms or rules in the field of constitutional law and state administrative law through administrative and civil sanctions. If administrative and civil sanctions are not sufficient to achieve the goal, then criminal sanctions should ultimately be applied as the ultimum remedium.

    Tax law enforcement in this study is measured using these indicators: (1) supervisory fulfilment of tax obligations made by an account representative; (2) tax audits conducted by functional examination of taxes; (3) tax collection made by the state taxpayer; (4) examination of initial evidence conducted by a tax investigator; (5) tax investigations conducted by tax investigators (Zirman, 2015). All of these indicators are in accordance with the explanations provided by the Law of the Republic of Indonesia Number 28 of 2007 concerning general provisions and taxation procedures.

    2.3 Tax Evasion Rate

    Tax evasion is a taxpayer’s attempt to lighten the tax burden by using unlawful means and to ignore the formal taxation provisions that are obligatory, such as falsifying documents, or filling in incomplete or incorrect data (Mardiasmo, 2016). Tax evasion in this study is measured using these indicators: (1) not registering as a taxpayer; (2) abuse of the taxpayer’s principal number; (3) failure to submit a tax notice; (4) delivering tax letters incorrectly; (5) unwillingness to be examined related to taxation; (6) presentation of bookkeeping, recording, or other documents that are not actual; (7) failure to organize bookkeeping or recording in Indonesia; (8) failure to store books, records, or documents on which books are based; and (9) failure to deposit any withholding or withholding tax. The indicators are based on Article 39 of the Law of the Republic of Indonesia Number 28 of 2007 concerning general provisions and taxation procedures.

    2.4 Tax Evasion Rate

    Tax evasion is a taxpayer’s attempt to lighten the tax burden by using unlawful means and to ignore the formal taxation provisions that are obligatory, such as falsifying documents, or filling in incomplete or incorrect data (Mardiasmo, 2016). Tax evasion in this study is measured using these indicators: (1) not registering as a taxpayer; (2) abuse of the taxpayer’s principal number; (3) failure to submit a tax notice; (4) delivering tax letters incorrectly; (5) unwillingness to be examined related to taxation; (6) presentation of bookkeeping, recording, or other documents that are not actual; (7) failure to organize bookkeeping or recording in Indonesia; (8) failure to store books, records, or documents on which books are based; and (9) failure to deposit any withholding or withholding tax. The indicators are based on Article 39 of the Law of the Republic of Indonesia Number 28 of 2007 concerning general provisions and taxation procedures.

    2.5 Willingness to Pay Taxes

    Willingness to pay tax is defined as a value, a willingness to contribute as an individual (defined by regulations) toward financing the general expenditures of the state when not directly receiving lead services (Mardiasmo, 2016). The willingness to pay taxes in the context of this study is measured using these indicators: (1) consultation before making tax payments; (2) preparation of required documents in paying taxes; (3) availability of information on the manner and place of payment of taxes; (4) availability of information regarding the tax payment deadline; and (5) allocation of funds to pay taxes (Hardiningsih and Yulianawati, 2011).

    2.6 The Influence of Justice in Implementing Tax Regulations on Tax Evasion Rates

    The fairness of applying tax laws is very important in tax collection. If the taxpayer is treated fairly according to the prevailing rules and regulations, this can prevent the taxpayer from disobeying the law (Kurniawati and Toly, 2014;Ahmadi et al., 2018). If justice in the application of tax laws is solely determined by the views and perceptions of society itself, then the level of justice is doubtful; thus if the application of tax laws according to taxpayer perceptions is considered bad, then the level of compliance will decrease and the tendency to evade taxes will be higher (Syahrina and Pratomo, 2014;Araya- Guzmán et al., 2018). Thus the researcher can hypothesize:

    • Hypothesis 1: Justice in the implementation of tax regulations influences the tax evasion rate.

    2.7 The Influence of Justice in Implementing Tax Regulations on Willingness to Pay Taxes

    Endrianto (2015) concluded that justice in taxation could educate entrepreneurs to abide by tax obligations, so as to facilitate the calculation, deposit, and reporting of taxes (Widodo, 2010;Adedeji, 2018). The fairness of the application of tax laws in the form of tax provisions for small taxpayers should result in a reduction in compliance costs and a reduction of the tax administration burden. This will affect the increase in taxpayers’ willingness to pay taxes. Thus the researchers hypothesize:

    • Hypothesis 2: Justice in the implementation of tax regulations influences the willingness to pay taxes.

    2.8 Effect of Tax Law Enforcement on Tax Evasion Rates

    Although the state grants full rights to the taxpayer to carry out tax obligations through the self-assessment system, the right must be controlled so as not to be abused by the taxpayer to avoid payment of taxes (Zirman, 2015). Research by Ardian and Pratomo (2015) found that the better the tax audit as a form of tax law enforcement, the lower the rate of tax evasion. Levaggi and Menoncin (2012) argued that tax law enforcement is able to detect tax fraud and will reduce tax evasion rates. Thus the researcher can hypothesize:

    • Hypothesis 3: Tax law enforcement has an effect on the tax evasion rate.

    2.9 Effect of Tax Law Enforcement on Willingness to Pay Taxes

    Law enforcement may be a signpost for taxpayers to carry out their tax obligations in accordance with applicable provisions, which may foster a willingness to pay taxes (Liu, 2011). Research by Susmita and Supadmi (2016) found that tax sanctions have a positive effect on taxpayer compliance in paying taxes. At the National Symposium on Accounting XIX in Lampung, Purnamasari (2016) concluded that tax penalties have a significant positive effect on taxpayer compliance in paying tax in the Banjar District of West Java. This means that law enforcement leading to the imposition of sanctions can increase the willingness of people to pay taxes. Thus the researcher can hypothesize:

    • Hypothesis 4: Tax law enforcement has an effect on willingness to pay taxes.

    2.10 Effect of Tax Evasion Rate on Willingness to Pay Taxes

    According to Levaggi and Menoncin (2012), tax evasion reactions due to unfair tariffs can be controlled by tax audits and will have an impact on the decrease in the rate of taxpayer willingness to pay. In the Comprehensive Income Tax Guide, Gunadi (2013) explained that aggressive tax evasion and tax evasion can injure a sense of justice and undermine taxpayers’ trust in tax administration law enforcement, which may lead others to deny tax evasion and which can ultimately disrupt state revenue. Thus:

    • Hypothesis 5: The tax evasion rate has an influence on the willingness to pay taxes.

    Hypothesis testing in this study will be performed empirically, measuring the variables according to the conceptual model shown in Figure 1.

    3. METHODOLOGY

    3.1 Population, Sample, and Respondent Research

    The research population includes all taxpayers under the jurisdiction of the Regional Office of DGT West Java I, which is spread across16 tax service offices; this totals as many as 78,415 taxpayers (DGT, 2017). Data will be analysed using the structural equation modelling (SEM) approach, so that the determination of the correct sample quantity is made according to accepted standards. According to Hair et al. (2014), the minimum sample is 10 times the number of formative indicators of the latent variables of the study. The number of formative indicators of latent variables in this study is 5; thus the minimum required sample is 50. To obtain more precise results, the sample in this study should represent 16 tax offices for the study population. The number of samples to be used in this study—as many as 234 respondents—exceeds the minimum sample required in the SEM method.

    The Regional Office of DGT West Java I covers the city of Bandung and its environs. The reasons for using this tax agency in this study include the breadth of its scope of business, the complexity of its taxation obliga-tions, and its large turn over, as well as the fact that its economic entity is clear and that it must prepare financial statements.

    3.2 Operationalization of Variables

    Operationalization of variables presents measure-ments consisting of two endogenous variables, two exogenous latent variables, and 24 indicators, as presented in Table 2.

    3.3 Data Analysis Method

    The data in this research were analysed using SEM, with three types of tests performed: (1) model fit testing using goodness of fit index; (2) testing of measurement model to test the validity and reliability of research in-struments using standard loading, construct reliability, and variance extracted; and (3) testing structural model aims to test the research hypotheses and determine the extent of exogenous latent variable influence to endogenous latent variables.

    4. RESULTS AND DISSCUSSION

    4.1 Measurement Model Tests

    Testing the measurement model is done to measure the validity and reliability of research instruments and to confirm that they are valid and reliable in explaining the research variables. According to Hair et al. (2014), a valid size is seen from the relative importance and sig-nificance of factor loading of each item; a standard factor loading (SFL) value ≥ 0.50 indicates validity and significance. In this case all indicators had a SFL value ≥ 0.50.

    To measure the reliability of the construct, the con-struct reliability (CR) value should be ≥ 0.70, and the variance extracted (VE) value should be ≥ 0.50 (Hair et al., 2014). Test results indicated that all indicators were valid for each construct, with the SFL value ≥ 0,50. The reliability test construct showed CR ≥ 0.70, and the VE ≥ 0.50. So the instruments in the research model were declared valid and reliable

    4.2 Structural Model Testing

    Structural Model Testing The results of Goodness of Fit Statistics shown in Table 3 obtained p-value is .58 ≥ .05 and value of SRMR = 0.14 ≥ 0.05 meaning the model has a good match. The model had RMSEA = 0.089 (> 0.08), indicating quite good model fit. The values of other fit indices (AGFI, GFI, NNFI, NFI, RFI, CFI and IFI) were all ≥ .90, indicating good fit. All indicators had SFLs ≥ .50, showing good validity. The reliability of a measurement model is indicated by a CR ≥ .70 and VE ≥ .50 for all indicators stated good, so it can be concluded that indicators x1, x2, x3, x4 were valid and reliable as indicators of the use of tax information systems.

    The goodness of fit statistics in Table 3 show values of NFI, NNFI, CFI, IFI, RFI, and AGFI ≥ 0.90 and RMSEA value ≤ 0.08, meaning that the model is good. SRMR = 0.053 ≤ 0.05 indicates an acceptable fit. P-value = 0.0002 ≤ 0.05 indicates a poor match. The combination of the different match sizes and all test criteria show good results.

    Once the overall model is considered fit, subsequent evaluation or analysis of the structural model includes examining the significance of the estimated coefficients. By specifying a significant level (usually α = 0.05), then any coefficient representing the causal relationship can be tested for statistical significance to see the magnitude of influence between latent variables through the standard estimation of the resulting model. The results of the structural model analysis in Figure 2 show the magnitude of the overall model estimation values expressed in the following equation:

    Y = -0.28 × X1 - 0.21 × X2, Errorvar = 0.27, R2 = 0.23
    (1)

    Z = -0.28 × Y + 0.06 × X1 + 0.29 × X2, Errorvar = 0.23, R2 = 0.27
    (2)

    Goodness of fit statistics are shown in Table 4. The model had p = .035 (≤ .05), SRMR = 0,053 (≥ .05), RMSEA = .077 (≤ .08), indicating good fit. Other fit indi-ces (AGFI, GFI, NNFI, NFI, RFI, CFI and IFI) all had values ≥ .90, also indicating good fit. All indicators had SFLs ≥ .50, indicating good validity. Satisfactory meas-urement model reliability is indicated by CR ≥ .70 and VE ≥ .50; these criteria were met in the case of all indicators, so we can conclude that the indicators Z1, Z2, Z3, Z4, Z5 are valid and reliable indicators of the willingness to pay taxes construct.

    4.3 Hypothesis Testing

    After evaluating the overall fit of the structural model, the next process is to test hypotheses and causal relationships among variables. The results of the causal relationships are summarized in Table 4.

    The hypothesis is accepted when the t-count is greater than 1.96 at the level of confidence (significance) of 95%.The data in Table 4 indicate 1 rejected research hypothesis.

    5. ANALYSIS OF RESULTS

    5.1. Justice in the Implementation of Tax Regulations Negatively Affects the Tax Evasion Rate

    Statistical tests show that the value of t arithmetic of 3.10 exceeds the threshold +/- 1.96 at the level of 95% significance and estimated factor-loading value of -0.28. This shows that justice in the implementation of tax regulations has a negative effect on the rate of tax evasion by 28%. This means that the higher the perception of justice in the implementation of tax regulations in the Regional Office DGT West Java I, the lower the rate of tax evasion. This confirms previous research by Kurniawati and Toly (2014), which explained that one’s behaviour is influenced by the environmental circumstances. Unfair treatment will motivate a taxpayer to commit tax evasion.

    Differences in understanding between tax authorities and taxpayers in interpreting a taxation law in the field can lead to feelings of unfairness by taxpayers. There must be no differentiation in treatment among taxpayers; equal treatment must be given for all common problems and conditions. Differences in understanding between tax authorities and taxpayers often occur in determining the amount of fees that may be charged in calculating the tax. The size is clear, the more taxpayers who propose such legal efforts objection and appeal, the higher the sense of injustice felt by the taxpayer. If this condition if not resolved fairly, it could trigger taxpayers to evade taxes in the future. But it must be admitted that sometimes the sense of justice is strongly influenced by subjective elements. If this condition of injustice is allowed to drag on, it could cause a financial decline of a country.

    5.2 Justice in the Implementation of Tax

    Regulations Does Not Affect the Willingness to Pay Taxes

    Statistical tests show that the value of t arithmetic of 0.74 does not exceed the threshold +/- 1.96 at the level of 95% significance and the estimated factor loading value of 0.06. This shows that justice in the implementation of tax regulations does not affect the willingness to pay taxes. This is in line with the research of Lestari and Kusmuriyanto (2015) on the influence of justice, tax administration, knowledge, and taxpayer understanding on tax avoidance in Semarang; the conclusion was that justice has no effect on tax evasion or willingness to pay taxes.

    Willingness to pay taxes, in addition to being influ-enced by the availability of funds and awareness of the obligation, is also influenced by the legal and governmental system. Therefore the use of tax money must be fair and on target, with no impression of waste or especially misuse of funds (Fahluzy and Agustina, 2014). Giving taxpayers an opportunity to file objections and deductions as well as instalment tax payments are examples that may add to the awareness of taxpayers in paying taxes, and this qualifies justice (Mardiasmo, 2016;Al-Khalifah, 2018). Justice in the application of the rules must not stand alone but must be initiated from justice in preparing tax laws and fairness in using the money from the tax revenue (Kondubaeva et al., 2018).

    Tax laws should be in line with other regulations, and vice versa. In fact there is often disharmony, for example in registration for a Taxpayer Identification Number (NPWP). Article 2 of Law Number 28 of 2007 concerning General Provisions and Procedures of Taxation requires NPWPs to meet subjective and objective elements. In fact many taxpayer candidates do not meet the objective requirements but register to have a NPWP for the sole purpose of applying for a job or borrowing money from the bank. This condition creates a dilemma because taxpayers still want to be given a Taxpayer Identification Number even if they are ineligible because of income. If they are not allowed to, this causes citizens to feel that getting it is too complicated.

    The willingness to pay taxes is also influenced by awareness of the misuse of tax money through public corruption. This is in accordance with the research conclusion reached by Doerrenberg (2015) in Germany, that the use of tax money strongly affects taxpayers’ desire or behaviour in obeying or disobeying tax payment. Chaudhry and Munir (2010) concluded that the causes of tax revenue or willingness to pay low taxes are a narrow tax base, more dependence on the agriculture sector, devaluation of money, foreign aid, the informal economy, and a low literacy rate. Another thing that affects the willingness to pay taxes in West Java is an electronic billing system that makes it difficult to pay taxes due to trouble in understanding the bilingual code before paying taxes. This is in accordance with research by Ibrahim (2014) in Malaysia concluding that an electronic taxation system is not always easy when compared to a manual system.

    5.3 Tax Law Enforcement Negatively Affects the Tax Evasion Rate

    Statistical tests show that the value of t arithmetic of -2.57 exceeds the threshold +/- 1.96 at the level of 95% significance and estimated factor-loading value of -0.21. This shows that tax law enforcement has a negative effect on the rate of tax evasion by 21%, meaning the higher the quality of tax law enforcement felt by taxpayers in the Regional Office of DGT West Java I, the lower the rate of tax evasion. Law enforcement efforts have an effect on the rate of tax evasion. Where there is a decrease in the number of appeals sent by an account representative, this indicates a decline in the number of taxpayers detected of early tax evasion. In general there is a decrease in the number of taxpayers detected of tax evasion, evidenced by the decrease in the level of tax law enforcement.

    This confirms Zirman’s research (2015) that law enforcement influences tax morale, meaning that law enforcement will increase the morale of taxpayers, which ultimately reduces tax fraud. The findings of this study support research by Levaggi and Menoncin (2012) that good tax law enforcement will suppress the tax evasion rate. Very high tax rates have the potential of driving people’s desire to fail to pay taxes, but a sound tax audit process can reduce this desire. Good tax law enforcement is proven to reduce the rate of tax evasion (Arbex, 2013;Hokamp, 2014) Fukofuka (2013) concluded that there are four aspects of tax audits that prevent tax evasion: an audit policy with a random standard; a reward program to encourage the capture of tax evasion; a policy that implements a tax audit frequency rule; and a policy that firms that are less independent in governance are subject to higher audit probabilities. The rules and implementation of a good tax audit can prevent tax evasion (Tan and Yim, 2014).

    5.4 Tax Law Enforcement Positively Affects Willingness to Pay Taxes

    Statistical tests show that the value of t arithmetic of 3.43 exceeds the threshold +/- 1.96 at the level of 95% significance and the estimated factor loading value of 0.27. This shows that tax law enforcement has a positive effect on the willingness of taxpayers to pay a tax of 29%. That is, the better the perception of tax law enforcement in the Regional Office of West Java I the higher the willingness of taxpayers to pay taxes. Susmita and Supadmi (2016), in research on the influence of service quality, tax sanctions, tax compliance costs, and the application of e filing on taxpayer compliance, concluded that tax penalties have a positive effect on compliance reporting by individual taxpayers. This means the imposition of sanctions (law enforcement) on an individual taxpayer who violates the tax rules may raise taxpayer compliance. At the National Symposium on Accounting XIX in Lampung, Purnamasari (2016) concluded that tax penalties have a significant positive effect on taxpayer compliance. This means that law enforcement that leads to the imposition of sanctions can increase the willingness of people to pay taxes.

    Measurable law enforcement can reduce tax evasion and ultimately increase taxpayer willingness, in line with Liu’s research (2011). This is in line with the definition in laws and regulations which state that tax collection in Indonesia must be based on law and so tax law enforcement is necessary. Doran (2009) concluded that tax law enforcement not only encourages taxpayers to pay taxes but also can determine the standards of taxpayer behaviour—obedience and noncompliance. Consistent and measurable tax audits have a positive effect on taxpayer compliance (Koglera et al., 2016).

    5.5 Tax Evasion Rates Negatively Affect Willingness to Pay Taxes

    Statistical tests show that the value of t arithmetic of -3.72 exceeds the threshold +/- 1.96 at the level of 95% significance and estimated factor-loading value of -0.28. This indicates that a reduction in tax evasion positively affects taxpayers’ willingness to pay tax of 20%. This means that the higher the level of tax evasion redemption felt or done by taxpayers in the Regional Office DGT Jawa Barat I, the higher the willingness of taxpayers to pay taxes.

    Yalama and Gumus (2013) concluded that if there is a large gap between the amounts of tax indebted to the amount of tax paid by the taxpayer, one of the causes is tax avoidance behaviour. This result supports the research of Abrahams and Kristanto (2016) on the perception of the taxpayer and tax emotion ethics, concluding that taxpayers have responded positively to tax evasion ethics in Indonesia. Taxpayers and prospective taxpayers consider that tax evasion is unethical. Mehrara and Farahani (2016) concluded that high tax revenues have a positive effect on economic stability and a high rate of tax evasion has an adverse effect on economic stability. This shows that countries with high tax revenues have good economic stability. Tax evasion may threaten the state’s revenues from the taxation sector, which means that hightax evasion will lead to a decline in state revenues (Dharmapala, 2016).

    Tax evasion, especially when aggressive, can injure the sense of justice and undermine the taxpayer’s trust in tax administration law enforcement, which may lead others to deny taxes, which ultimately disrupts state revenues (Gunadi, 2013). Although the personal nature of taxpayers is irreversible, social norms and rationalizations can influence their views on taxes (Pickhardt and Prinz, 2014) This study supports the opinion of Vargas-Hernández (2016) and also is in line with results by Otusanya (2011) concluding that tax evasion can reduce state revenues, meaning that if the level of tax evasion increases then state revenues will decrease, and vice versa. It also supports the results of Litina and Palivos (2015) on corruption, tax evasion, and social values. Ahamed (2016) concluded that the impact of tax evasion is greatly felt by developing countries and can disrupt their economic growth; therefore, tax revenue leaks due to tax evasion must be reduced. Additionally, maximal increase in tax revenue depends on the administration of taxation (Oriakhi and Ahuru, 2014).

    6. CONCLUSIONS

    This study has reached empirical conclusions on issues related to taxation in Indonesia, especially for the province of West Java, with some important points as follows:

    1. Justice in the implementation of tax regulations has a negative effect on the tax evasion rate. The better the taxpayer’s perceived fairness, the lower the tax evasion rate. The perception of the taxpayer on the application of a fair tax regime makes taxpayers honour their tax commitments because they feel justice in accordance with ex-isting conditions, and the tax burden to be paid is in accordance with the provisions in the con-stitution.

    2. Justice in the implementation of tax regulations does not affect the willingness to pay taxes. This can be explained that the willingness to pay taxes depends on how well the tax laws are enforced, because the perception of justice is very subjective for each taxpayer. Conversely, better tax law enforcement will encourage the growth of taxpayers’ willingness to pay taxes.

    3. The enforcement of tax law negatively affects the tax fraud rate. That is, the better the enforcement of tax law, the lower the level of tax evasion. This can be explained that the enforcement of tax law is an important thing for taxpayers in the region of West Java. Good and just law enforcement is capable of motivating a dedication to the tax regime, both for taxpayers and tax officials. Many cases of tax evasion have led to the court’s being proved able to suppress the wishes of taxpayers to conduct tax evasion.

    4. Enforcement of tax laws positively affects taxpayer willingness to pay. This means the better the tax law enforcement by the government, the higher the willingness of taxpayers to pay taxes. This can be explained especially that in the West Java region, with a law-abiding community culture, law enforcement will bring justice for taxpayers and thus an interest in paying taxes. Good social perceptions of law enforcement proved able to increase tax revenue.

    5. The lower the level of tax evasion, the higher the willingness of people to pay taxes. This is evident from the last 3 years of tax revenue in West Java, which has always increased, while the level of tax evasion has decreased. Thus the findings of this study prove that there is a negative correlation between the level of tax evasion with the level of willingness to pay taxes.

    The practical findings of this research approved that for the central government, especially the DGT, to increase tax revenue, it is needed to continue to improve the existing tax laws. Tax laws should contain a sense of justice for the community. Another aspect, no less important, was the just law enforcement for taxpayers and tax officials. Strict enforcement would reduce tax evasion, increase taxpayers’ wages, and ultimately continue to increase tax revenues.

    Figure

    IEMS-18-3-551_F1.gif

    Conceptual model.

    IEMS-18-3-551_F2.gif

    Full structural research model.

    Table

    Realization of tax receipts and compliance, annual report delivery

    Operationalization of research variables

    Evaluation of fit indices of structural models

    Hypothesis test results

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