The Moderating Effect of Probability of Detection on the Determinants Influencing Excise Duty Non-Compliance in Malaysia

Abstract

Tax non-compliance in indirect taxes involving importers as taxpayers in smuggling and
illegal trade activities for cigarettes, liquor and imported vehicles exists as a complex
phenomenon in Malaysia. The purpose of this study is to examine the direct
relationship and probability of detection as moderator with tax audit, tax knowledge
and peer influence as independent variables to determine excise duty non-compliance
issue. The questionnaires were distributed using disproportionate stratified simple
random sampling technique. A total of 500 useable questionnaires collected for
analysis. The partial least square analysis applied to analyze the data. Analysis of data
involved throughout Malaysia indicates the tax audit, peer influence and tax
knowledge have a significant positive relationship. In addition, tax audit have
significant negative relationship and tax knowledge have significant positive
relationship with moderating effect. The findings from this study provided an
indication for the tax administration in maximizing tax collections and encourage
taxpayer’s compliance.