THE EXPERIENCE OF SELF-ASSESSMENT TAX SYSTEM ADOPTER ACROSS

THE GLOBE
1. Introduction
A major concern that tax administrators across the globe brood over is finding ways through
which the tax assessment system can be improved to encourage voluntary compliance while
minimizing administration cost and tax payer compliance cost (Okello, 2014). To this end,
few countries (United State, New Zealand, Australia, Indonesia, Thailand, Philippines and
Malaysia) have moved from the official assessment system to the self-assessment as a
remedial action. Under the self-assessment tax administration regime, the tax liability of tax
payers is solely based on the information that the tax-payer voluntary provides to the tax
authority (Marshall, Smith & Armstrong 1997). The self-assessment system thrives on the
assumption that that under the assumption that there can never be efficient way of arriving at
the correct tax liability of all tax payers due to limited resources (Okello, 2014). In addition,
it assumed that with necessary assistance from the tax authority, the tax payers themselves
have better knowledge of their tax liabilities because they are privy to information about
themselves which the tax authority does not have access (Okello, 2014). Therefore, under the
system, the tax payers disclosed their gross income and allowable deduction in the tax return
form which is submitted onward to the tax authority. Based on the computation contained in
the tax return the tax payers settle their tax liabilities. Accordingly, the burden of tax
assessment has been shifted from the tax authority (tax assessors) to the taxpayer and thus for
the effective operation of the self-assessment system, the tax payers need to acquire a deep
understanding of tax laws and changes to tax regulation is essential. However, the tax
authority has the responsibility to educate the tax payers about their rights and obligations
under the system.
The self-assessment system has been in forced time immemorial and a such is not a new
phenomenon. However, in the recent time there has been gradual shift from the hitherto
known traditional assessment system to the self-assessment system across the globe. As far
back as 1910, Canada and the United State of America implemented the self-assessment
system while the system is firmly established as part of the Japan tax regime since 1947.
Over the last four decades, countries like Sri Lanka (1972), Pakistan, (1979), Bangladesh
(1981), Indonesia (1984), Australia (1986-87), Ireland (1988), New Zealand (1988), United
Kingdom (1996-97) and Malaysia (2005) all have adopted the self-assessment system as part
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of their tax reform agenda to improve revenue performance through better compliance and
more efficient tax administration (Noor et al., 2013). Among the OECD countries more than
half the countries that form the body already adopt the self-assessment system (OECD,
2013). Thus far the impact of the self-assessment system has varied from countries to
countries. The objective of this write up is to seek an understanding about the compliance
behaviour and the challenges being faced by countries have adopted so far and make
recommendation for a way forward.
2. Compliance behaviour and Challenges of Self-Assessment System Regime around the
World.
The effectiveness and efficiency recorded in any tax regime depends to some extent on the
willingness on the part of the tax payer to comply with extant tax law (James & Alley, 2002).
However, compliance has been a major problem facing many tax authorities most especially
under a regime where tax payers rather than the tax authorities estimates their tax liability.
Different perception arises when defining what constitute tax compliance. In it very simple
form, the compliance behaviour of tax payers is the extent to which they comply with the tax
law. According to the US internal Revenue Service, tax compliance is the accurateness (the
preciseness of reported income and deductions) and the timely remittance of tax liability by
tax payers as at when due. Tax compliance behaviour of tax payers could be assessed and
measured based on the difference between the actual tax revenue collected and the amounted
estimated to be collected under 100 percent compliance regime (James & Alley, 2002). This
is otherwise called the tax gap.
As earlier mentioned the essence of self-assessment system in most countries is to improve
tax compliance. The extent of compliance as varied with the mode of adoption. Notably, even
in the developed country, such as, Australia and the United Kingdom (UK), the
implementation of SAS was overwhelmed with various problems and criticisms at the
beginning. In the USA, programmes such as Public Information Programme, Free Tax Return
Preparation For You and so many others were introduced to encourage tax compliance under
self-assessment system (IRS, 2008).

Similarly, the issues relating to tax return and

instruction that gives problem to taxpayer were identified and resolved through national
surveys. Consequently, tax forms were issued in different colours based on individual tax
payer need (IRS, 2008). Despite the effort taken, compliance under the self-assessment
system has been an issue (IRS, 2009). The amount of revenue not reported and paid are on
the high side and as at 2009 the gross tax gap stood at an approximation of $345 billion. In
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the UK, high compliance cost, the flexibility in the marginal tax rate and the feasibility of the
local income tax necessitate the adoption of the self-assessment system in 1996. Compliance
is as well an issue bedevilling the UK tax system as tax administrators faced serious
challenges. Some of the challenges arises from the ways the self-assessment system was
implemented. All this issues were highlighted by Hansford (1999). According to the
Developing Methodologies for Measuring Direct Losses published in 2007, the UK tax
authority recorded significant tax losses in the year 2007 from non-payment of tax by
individual and large corporation as well as tax avoidance to reduce tax liability. In addition,
the report revealed that in 2002, 13% of tax due by those subjected to self-assessment was
lost.
In the OECD, the penalty imposed for tax default is strict such as imposition of interest
charge on tax defaulter arising from failure to file penalties or additional tax liabilities or
apply rate of tax liability to delayed period (OECD, 2007). Similarly, in some of the OECD
countries like Estonia, Finland, Norway and Sweden the tax forms are pre-filled to ease the
burden of tax-payers when meeting their tax obligation (OECD, 2007). This practice has
substantially encouraged the tax payers under the self-assessment system to as its reduce the
burden of tax filling, uncertainty of tax payers in claiming their deductions and claiming their
deductions and calculating their tax liabilities, faster processing of tax returns, quick refunds
and minimised unintended errors made by tax payers (OECD, 2007). Hence, the
implementation of self-assessment system in OECD countries have improve tax
administration in more than 60% of the OECD countries most especially in improving the
degree of tax payer compliance with tax laws and efficiency in tax collection (OECD, 2007).
In Australia, the Australian Treasurer reformed the self-assessment system due to the
concerns raised by tax payers (Paddock & Oates, 2003). Similarly, the self-assessment
system is not really successful in Australia due to changes to tax law in the country which has
prevented tax specialists and tax assessors to understand (Inglis, 2002).
Just like the developed countries the success of the adoption of self-assessment system in the
developing countries have been mixed. In Malaysia, since the implementation of SAS, the
Malaysian tax defaulters has increased by almost 10 times within two years time, from
25,160 in 2003 to 239,666 in 2005 (Krishnamoorthy, 2006). The offences included failure to
submit returns, declaring false returns and not providing sufficient information etc. According
to the chief executive officer of the IRBM, around one-third of Malaysians eligible to pay tax
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did not pay tax. Whist, in 2005, 1.3 million potential taxpayers did not file their tax returns
(Krishnamoorthy, 2006). Related to this, it was estimated that the Malaysian government has
lost approximately MY$307.7 million due to tax non-compliance. In the case of Cambodia,
the self-assessment system was introduced in 1994 with the intention to increase tax
efficiency (Eang & Seiha, 2006). And since the implementation of the system several
measures has been taken to enhance tax collection through clear strategic, clear
organizational structure, controlling of large taxpayers and several others. Despite this
measures the self-assessment system has suffered compliance issue just like other countries.
According to Riahi-Belkaoui (2004), Cambodian recorded the lowest test compliance index
among the Asian countries with 3.12 when compared with countries like Malaysia (4.34),
Thailand (3.41), Japan (4.41) and Philippines (3.83). In Sri Lanka, the self-assessment system
was introduced in 1972. The self-assessment system in Sri Lanka provides tax payer with the
incentive to comply with tax law by accurately disclosing their income, paying the exact
amount due and informing the tax authority as at when due. In addition, the to prevent noncompliance Cambodia tax law imposed stiff penalty and aggressive tax audit. Despite the
effort to improve compliance, the operation of the self-assessment regime has not been really
successful (Dissanayake, 2009). According to Dissanayake (2009), the self-assessment
system is more applicable to developed countries and not a country like Sri-Lanka. Statistic
available showed that more 97% of tax return remain unaudited due to lack of human
resources. This has practically increase the number of tax defaulters and amount collected as
tax (Dissanayake, 2009).
The major challenge facing the administration of self-assessment system across the globe is
tax knowledge. Substantial number of literature from different countries proved the
significance of tax knowledge of the tax payers to influence their compliance behavior
(Mohammed Ali, et al., 2007). Therefore, to ensure tax compliance, the literacy level of
taxpayer is very essential most especially under the self-assessment system where the burden
of tax assessment has been shifted to the tax payers. To be tax complaint, the taxpayer under
the self-assessment system need at the minimum knowledge about personal taxation, taxable
income, deductible expenses, entitlements, relief, rebate and exemptions. For large
corporation, basic understanding on taxable income from income accruing from business and
non-business activities as well as deductible expenses is very important. In the UK, the
Association of Certified Charted Accountant revealed that 36% of its members have problem
with self-assessment system.

3. Way forward
Based on the preceding discussions, it can be concluded that the adoption of self-assessment
system in many countries where it has been adopted as part of their tax reform is to improve
tax compliance and increase the amount of collected. The burden of assessing tax liability
under the self-assessment system is on the tax payer. Therefore, tax payer knowledge relating
to income tax law and tax legislation is very critical to voluntary compliance under the selfassessment system. In addition, it can be gleaned that the major challenge of self-assessment
system is compliance issue arising from lack of tax payer knowledge, frequent changes to tax
law and in some instances inadequate tax administrators as the case in Cambodia. In fact, in
countries where self-assessment system has not been adopted is linked to the fear of possible
drop in revenue due to poor tax paying culture and low literacy level of tax payers. As a way
forward this write suggests that more public relations, tax education, tax consultation as well
as guidance and examinations should be embarked upon by tax administrators to improve
compliance under the self-assessment regime. For countries that yet to adopt, the successful
implementation of self-assessment system is subject to some factors among which is the
process of deciding the amount of tax return, non-compliance should be severely dealt with to
avoid default. Likewise, the process of detecting fraud and non-compliance need to be
effective therefore, it is important to have a strong data base of taxpayers. The absence of a
strong tax payer data base will make compliance under self-assessment herculean task.
Finally, for businesses the sense of proper record keeping in the case of small businesses and
the adoption of appropriate accounting standard is very important. The absence of this
(proper recording keeping) will lead to inadequate disclosure of income and a such the tax
authority will not be able to carry out an accurate tax audit.
Reference
Dissanayake, D. (2009). Self-assessment suits an advanced tax culture, but not this country.
The Sunday Times. 19 Oct. 2009. Retrieved 9 Nov. 2009, from
http://sundaytimes.lk/091018/News/nws_10.html
Eang, S., and Seiha, U. (2006). Cambodia tax reform and self-assessment system. Tax
administration Asian Development Bank Institute course III. Siem Reap, Cambodia, 21-23
March.
Hansford, A. (1999). Self Assessment: Working Towards Best Practice: A Research
Perspective. Chartered Institute of Taxation.
Inglis, M. (2002). Is self-assessment working? The decline and fall of the Australian income
tax system. Australian Tax Review, 31(2), 64-78.
James, S., & Alley, C. (2002). Tax compliance, self-assessment and tax administration.
Krishnamoorthy, M. (2006). 1.3 million did not pay tax.

Marshall, R., Smith, M., & Armstrong, R. W. (1997). Self-assessment and the tax audit
lottery: the Australian experience. Managerial Auditing Journal, 12(1), 9-15.
Okello, A. (2014). Managing Income Tax Compliance through Self-Assessment.
Riahi-Belkaoui, A. (2004). Relationship between tax compliance internationally and selected
determinants of tax morale. Journal of International Accounting, Auditing and Taxation, 13,
135-143.
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