CHAPTER I

INTRODUCTION

The Philippine government has the irrefutable right to impose taxes on the Filipino

citizens, for it is one of the country’s sources of funds. The basic function of this is to provide

source of funds used for development projects such as provisions of infrastructures like good

roads, stable power and water supply and etc. According to Tuay and Guvenc (2007), tax can be

explained as economic obligations imposed by the governments on natural and legal persons.

Taxation is also vital to businesses because the government can fund the money back to the

economy in the form of loans. With taxes, it helps raise the standard of living in a particular

country. But Oladipupo and Izedonmi (2013) stated that tax compliance depends on the citizen’s

awareness and knowledge on their tax law.

According to Nicoleta (2011), tax compliance has evolved into a major research topic in

economic psychology. It is because; few are aware why it is a need to comply on paying taxes

and deeply understand the process of taxation. The issue regarding the tax awareness has already

been approached from several viewpoints of different taxpayers. Based on the study conducted

by Nicoleta, the taxpayers’ attitude towards tax awareness may be influence by many factors,

which will ultimately affect their behaviour. Taxpayers’ motive for maximum income with

minimum expenses (Olowookere & Fasina, 2013) causes concern for the tax paid between the

state and the taxpayer. Therefore, there is a struggle for state objectives to rise up tax revenue

and to minimize tax incidence.

On the other hand, tax payers may fail to comply with tax laws and regulations

unintentionally due to lack of tax knowledge and poor tax awareness. Hence, on this note, the
researchers would like to know the level of awareness of the Notre Dame University Senior High

School faculty and staff towards incoime tax. Also, the researcher wants to gather substantial

information from the respondents.

RELATED LITERATURE

Tax

Tax is defined as a compulsory contribution by taxpayers irrespective of any

corresponding return of services or goods by the government (James & Nobes, 2007). Originally,

while tax was collected to finance the public spending, it has been used for economic and social

objectives starting the early 21st century (Cicek, 2006). By public spending, it means to include

the country’s debts and government projects. Taxpayer’s motive for maximum expenses

(Olowookeere & Fasina, 2013) causes the concern for the tax paid between the state and the tax

payer. Therefore, there is a struggle for state objectives to rise up tax revenue and minimize the

tax incidence. Tax compliance is defined as the process of fulfilling the taxpayers’ obligations

for tax payment and filing tax return including the provisions of needed documents and

explanations required by tax authority (Oyedele, 2009).

Income Tax

Income tax is the levy imposed on individuals and corporations. Individual income tax is

computed on the basis of income received. Usually it is categorized as direct tax because the

burden is presumably on the individuals who pay for it. According to Goode, McLure, Keith and

Pava (2017), individual income tax has played different roles in different countries at different
times, beginning in the Great Britain of 18th century, the personal income tax had come to be

regarded in a number of countries not only as an essential revenue instrument but also an aid in

achieving social reform through income redistribution.

In most countries it has been used to redirect economic decisions through special

treatment of various activities. It can also act as the stabilizer against economic fluctuations

because of its effect on purchasing power that varies inversely with the individual’s change of

income and employment.

Regarding the income taxes on corporations, all countries consider them but the

provisions and rates differ widely. Since, industrialized countries have larger corporate sectors

than other less – developed countries, corporation income taxes in developed countries tend to be

greater in relation to national income and total government revenue.

Income taxation acceptance as the fairest kind of tax is based on the principle that an

individual’s income is the best single index of one’s ability to support the government. Compare

to their tax such as sales or property tax, income tax is much easier to change when the

taxpayer’s ability to pay taxes is affected by various life – course circumstances. Also, based on

the study of Goode et al., they argued that income taxation proceeds from its relation to a

nation’s economic performance.

TRAIN Law

The Tax Reform for Acceleration and Inclusion (TRAIN) Act or the Republic Act No.

10963 presents a reform for the Philippines’ taxation system that aims to realize the “Build,

Build, Build” initiative – a government project that is expected to transform the country into a

globally competitive nation through building more infrastructures and better social services
program (BusinessTips, 2018). Also, the new tax reform raise responsibilities on fuel, cars and

sugar-sweetened drinks among others (CourseHero, 2018).

This new tax system’s regulation covers tax deductions, additional tax duties and tax

exemptions. The new reform highlights the zero tax dues for workers under a specific income

bracket. As stated in an article by BusinessTips (2018), the new tax policy exempts employees

from tax duties if their annual income sums up to not more than P250, 000. However, during the

first five years of the implementation, these employees are obliged to pay 30-32% income tax.

On the other hand, higher-earners with an annual income of P250, 000 – P400, 000 are subjected

to 20% in excess of over P250, 000. Taxpayers earning from a salary of P400, 000 – P800, 000

annually are to pay a basic amount of P30, 000, plus 25% additional amount of the excess of

P400, 000. Furthermore, employees with annual salary of P800, 000 – P2 million are responsible

for paying P130, 000 and additional 30% of the excess of P800, 000. Self-employed individuals

are given the option to avail an 8% tax on gross sales. It will also cover non-operating income in

excess of P250, 000. Employees who have an annual 13 th month bonuses will have zero tax

deductions as long as the amount does not exceed P90, 000. Lastly, low-earner employees

without dependents has the most benefits due to the removal of previous tax policies that

addresses the employees’ dependents and its corresponding tax relief (BusinessTips, 2018).

Tax Awareness

Awareness is the human element in the understanding of reality and how to react or

respond to the reality. Public awareness in terms of taxation means that taxpayers want to pay

taxes because they are not disadvantaged in the tax collection and do not felt the compulsion.

However, tax awareness is often a problem to collect the taxes in the society. It is because lots of
people who do not know the concrete form of compensation for the tax they have paid.

According to Santi (2012), tax awareness has a positive and significant impact on the tax

payers’ compliance. According to Ipek and Kaynar (2009), if the factors affecting the taxpayers’

behaviour are analysed clearly, legal arrangements to which the modern tax system has

developed can be shaped in order to increase the taxpayers’ ompliance.

On the other hand taxpayers’ awareness may vary depending on its profile. McGee

(2012) argued that some studies have indicated that people become more respectful of authority

and the law as they get older, thus improving their awareness and compliance behaviour,

whereas other studies have indicated otherwise. (as cited in Pretorius, 2015, p.31). Also studies

by Oberholzer and Stack (2009) and Lieberman (2002) found that the age of taxpayer has an

impact on the perceptions of tax in South Africa. World Values Survey also found out that in

most of the countries, (88%) tax awareness and compliance increase with age. The possible

reason for younger taxpayers to be less compliant is the fact that they are less knowledgeable

about tax matters, whereas Putnam (2000) states that younger taxpayers are more doubtful about

government authority which results in a lower trust in the system. Lastly, a lack of a well –

developed sense of moral obligation was found to be another reason why younger taxpayers are

less compliant. However, findings from different studies remain inconclusive.

Perception on Tax

According to Robbins (1996), perception is a process where individuals organize and

interpret their sensory impressions in order to give meaning to the surrounding environment. It is

an interpretation and an individual’s view of something. (Muliari & Setiawan, 2011).

 Depending again onto the respondents profile, the association between men and women

in which is more knowledgeable about tax based on their compliance is inconsistent, findings

vary across studies. Some studies found that men are more knowledgeable, but others found

otherwise. Although the agreement among the findings is still in discussion, the need to explore

this more fully is still relevant. In a comparative study by McGee, in which the genders’ ethical

views of 66 different studies were compared, it was found that more studies indicated women to

be more ethical than men. Ho and Wong (2008) found that tax compliance rate is higher when

taxpayers are fully aware that tax evasion is unethical. It is then submitted that the evidence

suggests that men would be more willing to be non – compliant (as cited in Pretorius, 2015).

While a study Richardson (2008) continues to find no association between gender and

compliance.

When considering civil status as a factor of awareness in taxation, married people are

likely to be more aware. McGee also argued that the perception exists that married people should

be more responsible than single people and therefore more likely to be tax compliant.

Alternatively, it could be said that married people may be more prone to tax evasion since they

have more expenses, which in turn affects their ability to pay taxes. These assumptions were

tested in the analysis of World Values Survey. The survey found that widows were the group that

are most tax compliant, followed by those who were married, separated, living together as

married, single or never married and lastly, divorced (McGee, 2012). In a similar study on South

African attitudes on tax evasion, McGee and Ross (2014) found that divorced people are most

opposed to tax evasion followed by married people and widowed people. Also, Spicer and Becer

(1980) argued that tax payers who are aware that the high tax rate is higher than average tax rate

paid by other have higher tendency of tax evasion.

 Hence, Eriksen and Fallan (1996) also argued that a tax payer should be given a better tax

knowledge to improve perception of fairness. With regards of the association of the taxpayer’s

perception towards government spending, if taxpayers perceive that the government is wisely

spending the tax revenue for public goods and services, it is expected that voluntary tax

compliance is enhanced.

Statement of the Problem

This study aims to determine the level of awareness and perception of NDU – SHS

faculty and staff on income tax. Specifically it seeks to find the answer to the following

questions:

1. What is the profile of the respondents in terms of:

a. Sex

b. Age

c. Department

d. Civil Status

2. What is the level of awareness of the respondents towards income tax?

3. What is the perception of the respondents towards income tax?

Significance of the Study

This section will provide brief description on the various significances of the study given

the level of awareness and perception of NDU – SHS faculty and staff. The findings of the study

will be beneficial to:

Students. The proposed study serves the students as their reference or guide in understanding

taxation. It will also help the students to gain knowledge about its importance in the economy.

Faculty and Staff. The proposed study will help the faculty and staff to have deeper

understanding of taxation that affect their tax awareness.

Individuals. The proposed study will give them additional information concerning the tax

system.

Future Researchers. The proposed study will benefit and help the future researchers by using the

findings of the study as their guide. The study is also open for development.

Tax Authorities. The study will help them know the level of awareness and perception of the

taxpayers. Depending on the findings, they will be able to identify the most appropriate action

regardig the taxpayers' awareness and perception of tax.

Scope and Delimitation

With the Notre Dame University Senior High School faculty and staff summing up to 54,

all individuals were expected to participate in the survey. This study limits its coverage on NDU
– SHS faculty and staff only. Its main purpose is to identify their common knowledge and

concerns about taxation and to determine the level of their own awareness. Additionally, to

gather their perception of income tax. This study considers every aspect of the respondents’

personal information. Each of the respondents is given the same questionnaires to answer. This

study focuses on the present year 2018 – 2019.

Definition of Terms

This research revolves around a number of key concepts, namely awareness, perception,

and the faculty and staff. The manner in which these key terms have been defined for the purpose

of this study is considered below.

Awareness. Defined as the respondents knowledge based on facts.

Perception. It is defined as how the respondents perceive income tax. Also, their knowledge on

income tax based on opinion.

Faculty and Staff. Used as an instrument to know the perception and behaviour of taxpayers,

which is necessary to determine the level of their awareness about tax.

 CHAPTER II

METHOD

This chapter provides information about the research design used, setting, respondents

involved, sample size and sampling technique used, instrumentation, data gathering procedure

and statistical treatment of data.

Research Design

The study is purely engaged in quantitative research. The research approach that will be

used in the study is descriptive research design. The study focuses on discovering the level of

awareness and perception of the respondents on tax.

Setting (Locale of the Study)

The study was conducted inside the premises of Notre Dame University Cotabato City,

9600, Philippines specifically in the Senior High School faculty office.

Respondents

From the total population of 54, all have participated as respondents of the study. These

respondents are from the Notre Dame University – Senior High School Faculty and Staff.

Sample Size and Sampling Technique

To obtain the samples, the researchers used the non-probability sampling using

consensus in selecting the respondents.

 Instrumentation

In conducting the study, a survey questionnaire was used in gathering data from the

respondents. The survey questionnaire has two parts. The first part includes the profile of the

respondents – their sex, age, department and civil status. The second part consists of questions

regarding the perception of the respondents and their tax awareness.

Data Gathering Procedure

The researchers have formally communicated with the principal of Notre Dame

University – Senior High School and asked permission to conduct a study and hand out the

questionnaires. The questionnaires were given to Notre Dame University – Senior High School

Faculty and Staff that totals to 54 respondents. After giving enough time to the respondents to

answer the question, the researchers have encoded and examined the data collected using

appropriate sampling method. Furthermore, the data gathered will be kept safe by the researcher

for confidentiality.

Statistical Treatment of Data

In conducting the study, the researchers applied the descriptive statistics such as

frequency, percentage, mean and standard deviation.

The frequency and percentage were used to analyse the profile of the respondents in

terms of sex, department ad civil status.

The mean and standard deviation were used to determine the level of awareness of the

respondents on tax and their perception of it.

 The following ranges of mean were used to determine the significant level of awareness

of the respondents on tax.

Scale Range Description Interpretation

4 3:50 – 4:00 Very Aware The respondent is highly

3 2:50 – 3:49
2 1:50 – 2:49
1 1:00 – 1:49
However, the following ranges of mean were also used to determine the significant effect
aware of the information
given about tax.
Aware The respondent is aware
of the information given
about tax.
Somewhat Aware The respondent is somewhat
aware of the information
given about tax.
Unaware The respondent is unaware
of the information given
about tax.

of the perception on tax of the respondents.

Scale Range Description Interpretation

4 3:50 – 4:00 Strongly Agree The respondents strongly

3 2:50 – 3:49
2 1:50 – 2:49
agrees to the given perception
of tax.
Agree The respondent agrees to the
given perception of tax.
Disagree The respondent agrees to the
given perception of tax.
1 1:00 – 1:49 Strongly Disagree The respondents strongly
disagrees to the given
perception of tax.
 CHAPTER 3

RESULTS AND DISCUSSION

This chapter presents the results of the field survey that was conducted. Accordingly, a

total of 54 questionnaires were distributed of which 54 were also filled and returned. After the

data were collected, checked for errors and completeness, it was analysed using descriptive

research techniques.

Profile of the Respondents

The profile of the respondents includes the gender, age, department and civil status. The

profile will contribute to categorizing and organazing each respondent's level of awareness and

perception.

Table 1.1: Frequency distribution of gender characteristics of respondents in the sample

Variable Frequency Percent

Male 26 48.1%
Female 28 51.9%
Total 54 100%
Source: Questionnaire, 2019

The Table 1.1 shows the frequency of the respondents’ sex. As indicated in the table,

48.1% of the 54 respondents are male, and 51.9% were identified as female. Therefore, it is

concluded that during the study period most of the respondents were females and males’

participation was quite lower.

Table 1.1.2: Frequency distribution of age of the respondets

Variables Frequency Percent

20 2 3.7%
 21 1 1.9%
22 10 18.5%
23 12 22.2%
24 6 11.1%
25 3 5.6%
26 3 5.6%
29 3 5.6%
30 2 3.7%
31 2 3.7%
41 1 1.9%
Total 45 83.3%
Missing System 9 16.7%
Total 54 100%
Source: Questionnaire, 2019

Table 1.1.2 shows the distribution of the respondents’ age. Accordingly, 22.2% of the

respondents were 23 year-olds, 18.5% were 22 year-olds, 11.1% were 24 year-olds, 5.6% were

aged between 25-29 years old, 3.7% were 20, 30 and 31 year-olds and 1.9% were 21 and 41

year-olds. Hence, as it shown in the above figure, the majority of the respondents aged from 23

years old that accounts 22.2%.

Table 1.1.3: Frequency distribution of the department of the respondents

Department Frequency Percent

Senior High School 24 44.4%
Religious Studies 4 7.4%
Research 5 9.3%
Language 7 13.0%
Physical Education 1 1.9%
ABM 3 5.6%
Science 2 3.7%
Math 2 3.7%
ICT 1 1.9%
Humanities and Social Sciences 4 7.4%
Philosophy 1 1.9%
Total 54 100%
Source: Questionnaire, 2019
 Table1.1.3 shows that 44.4% of the respondents came from the Senior High School

department, 13% came from Language department, 9.3% came from Research department, 7.4%

came from both Religious Studies and Humanities and Social Sciences department, 5.6% from

ABM department, 3.7% from both Science and Math department and 1.9% came from Physical

Education, ICT and Philosophy department. Hence, on this note, with the percentage of 44.4%,

most of the respondents came from Senior High School department.

Table 1.1.4: Frequency of distribution of the Civil Status of the respondents

Civil Status Frequency Percent

Single 45 83.3%
Married 9 16.7%
Total 54 100%
Source: Questionnaire, 2019

The Table 1.1 .4 shows the frequency of the respondents’ civil status. As

indicated in the table, 83.3 % of the 54 respondents are single, and 16.7% were married.

Therefore, it is concluded that during the study period most of the respondents were single and

the least respondents were married.

Table 2.1: Level of Awareness on Income Tax

Statement Mean Standard Description

Deviation
1. Tax is obligatory. 3.7963 .49065 Very Aware
2. Tax obligations vary depending on 3.7778 .50157 Very Aware

my income level.
3. Taxes are being collected and spent 3.7037 .63334 Very Aware
 by the government.
4. Taxes are for the betterment of 3.6481 .70463 Very Aware

services provided to the residents.

5. Retirees with almost no income are 2.7963 1.01646 Aware

tax-free.
6. The TRAIN Law is a new tax system 3.1296 .93256 Aware

that aims to support the improvement

of the country through building more

government infrastructure.
7. Based on the TRAIN Law, people 2.8148 1.06530 Aware

with the annual income of P250, 000

are exempted from paying income tax.

8. For the first five years of the TRAIN 2.2963 1.10964 Somewhat Aware

Law implementation, citizens earning

under P250, 000 annually are obliged

to pay 30-32% of their taxable

income.
9. Employees receiving the 13th month 2.5370 1.14452 Aware

pay that is less than 90,000 will have

zero tax deductions.

10. The TRAIN Law does not include any 2.2407 .98929 Somewhat Aware

policies regarding dependents and its

corresponding relief.

Overall Mean 3.07406 Aware

Source: Questionnaire, 2019
 The table 2.1 summarizes the results of the questionnaires. Under the level of awareness

on income tax, it is shown that the respondents have an overall mean of 3.07406 with the

description of aware. On the other hand, the statements that presents the top 3 highest mean with

3.7963, 3.7778 and 3.7037 are having the description of very aware.

The statement number 1 which is “Tax obligatory” has the highest mean of 3.7963 with a

description of very aware. As what James and Nobes (2007) said, tax is defined as a compulsory

contribution irrespective of any corresponding return of either goods or services by the

government. This means that the respondents are mindful that the tax imposed by the

government is required by the law.

The statement number 2 which is “Tax obligations vary depending on my income level”

has the second highest mean with also a description of very aware. As stated in the new taxation

system in the Philippines which is the TRAIN law, it covers tax deductions, additional tax duties

and also tax exemptions. The new reform highlights zero tax dues for employees under a specific

income bracket. According to BusinessTips (2018), the new tax system excuses employees from

tax duties if their annual income sum up to not more than P250,000. Furthermore, Goode et al.

(2017) have argued that income taxation proceeds from its relation to a nation’s economic

performance. This means that the respondents are very aware that their income level measures

their obligation on tax.

The statement number 3 which is “Taxes are being collected and spent by the

government” has the third highest mean with 3.0737 and with the description of very aware.

According to Cicek (2006), tax is collected by the government to finance public spending. By

public spending, it means to include the country’s debts and government projects such as
provisions of infrastructures, making roads and even stable power and water supplies.

Additionally, tax has been used for economic and social objectives starting the early 21st century.

This also means that the respondents of the study are aware of the basic function of tax and the

reason why government held it as mandatory.

Table 2.2: Perception on Income Tax

Statement Mean Standard Description

Deviation
1. Younger tax payers are less 2.5094 .82328 Agree

compliant.
2. Married people are prone to tax 2.3585 .92184 Disagree

evasion as they have more expenses.

3. Divorced people are most opposed to 2.1132 .72484 Disagree

tax evasion.
4. The higher the salary, the higher the 3.5769 .75006 Strongly Agree

tax is being collected.

5. Men are more knowledgeable on tax. 1.7885 .77552 Disagree
6. I have the ability to understand the 3.2115 .80041 Agree

laws and regulation of taxation.

7. Non-compliance to tax is an 3.0577 .80229 Agree

intentional failure to meet tax

obligations.
8. I am satisfied with current tax system. 2.7308 .71717 Agree
9. The TRAIN Law benefits the low- 2.7115 .84799 Agree

earners more.
 10. Tax does not help my country at all. 1.9231 .73688 Disagree

Overall Mean 2.59811 Agree

The table 2.2 summarizes the results of the second part of the questionnaires. Under the

perception on income tax, it is shown that the respondents have an overall mean of 2.59811 with

the description of agree. On the other hand, the statement that presents the highest mean of

3.5769 are having the description of strongly agree. While the second and third highest means of

3.2115 and 3.0577 has the description of agree.

The statement number 4 which is “The higher the salary, the higher the tax being

collected” has the highest mean of 3.5769 with the description of strongly agree. According to

BusinessTips (2017), the new tax system which is the TRAIN Law, had said that high-earners

with an annual income of P250, 000 – P400, 000 are subjected to 20%. Taxpayers earning from a

salary of P400, 000 – P800, 000 are said to pay a basic amount of P30, 000, with 25% additional

amount of the excess of P400, 000. On the other hand, workers who has an annual salary of

P800, 000 – P2 million are responsible for paying P130, 000 and additional 30% of the excess of

P800, 000. Which means that respondents are strongly agreeing to the idea of having higher

income level equates to higher tax rate.

The statement number 6 which is “I have the ability to understand the laws and regulation

of taxation” has the second highest mean with the description of agree. Based on what was

previously said, taxpayers’ awareness may vary depending on its profile. McGee (2012) argued

that some studies have indicated that people become more respectful of authority and the law as

they get older, thus improving their awareness and compliance behaviour, whereas other studies

have indicated otherwise. (as cited in Pretorius, 2015, p.31).. This means that as the respondents
have agreed they have the ability to understand the laws of taxation and that they are capable of

complying tax laws regardless of their profile.

The statement number 7 which is “Non-compliance to tax is an intentional failure to meet

tax obligations” has the third highest mean of 3.0577 with the description of agree. As Oyedele

(2009) said that tax compliance is the process of fulfilling the taxpayer’s obligations for tax

payment and filing tax return including the provisions of needed documents and explanations

required by tax authority. This means that the respondents agreed that as tax is mandatory, non –

compliance results from intended failure.

CHAPTER 4
 SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

In terms of the profile of the respondents, majority of the Senior High School faculty and

staffs are female that aged from 23 years old. Most of them come from the SHS Department and

are apparently single.

The level of awareness of the respondents in terms of income tax shows that they are very

aware that tax is obligatory, tax obligations may vary depending on the employees’ income level

and that the taxes being collected by the government are spent for its basic functions.

In terms of the respondents’ perception on income tax, it shows that they strongly agreed

that as the employees’ salary increases, the tax being collected is expected to be higher. And also

they agreed that they have the ability to understand the laws and regulations of taxation as well

as the non – compliance to tax is as intentional failure to meet tax obligations.

Conclusion

Based on the results and findings of the study, the researchers conclude that in terms of

the level of awareness on income tax, majority of the respondents are very aware on the tax’s

basic function. However, two on the statements of the questionnaire had a description of

somewhat aware which is in the first five years of the TRAIN Law implementation, citizens

earning under P250, 000 annually are obliged to pay 30 – 32% of their taxable income and also

the TRAIN Law does not include any policies regarding dependents and its corresponding belief.

This means that the respondents may have known how tax works, where it is used for and that

paying tax is mandatory but there are still aspects of the new tax system - TRAIN Law - that are

vague to them.
 Now in terms of the perception of the respondents toward income tax, majority had

agreed to the statements in the questionnaires. However, the portion to which they disagreed is

about the characteristics of different taxpayers. Example, they disagree that men are more

knowledgeable than men. Married people are prone to tax evasion as they have more expenses

and that divorced people are most opposed to tax evasion. Since majority of the respondents are

females and are singles, having these statements shows their own perception in terms of

taxpayers who paid taxes.

Recommendation

Based on the findings and conclusion of the study, the following are the researchers’

recommendations:

• Although people know what is tax and its process, tax authorities should inform the

society about the new implemented tax system which is TRAIN Law for people to

become aware on the changes. By doing this, the awareness of the citizens will increase

along their compliance.

• As citizens, it is our duty to have knowledge of how things work around us. This is to

prevent us from having decisions that are blindly made. Hence, educating ourselves about

the new tax system will enlighten us on where and how our taxes are spent.