THE INFLUENCE OF TAX AWARENESS THROUGH AD

CAMPAIGN TOWARD TAX COMPLIANCE OF BUSINESS

TAXPAYERS IN TABUK CITY

ABSTRACT:
The objectives of this research are to test the tax awareness in relation to the
tax compliance and to examine ad campaign as a moderating variable to build a
relationship between the tax awareness and the tax compliance. This research was
conducted using survey questionnaires consisted of 50 respondents from individual
business taxpayers with transaction in Bureau of Internal Revenue Office, Tabuk City,
Kalinga. A questionnaire were prepared consisting of 15 questions and 50
respondents filled the questionnaire. During the process, contact was made with the
respondents, questionnaires administered and data recorded. Questionnaires were
given to the respondents prior to watching the ad campaign and another set of
questionnaires be given after watching the video. The result of this study revealed that
tax awareness affected the tax compliance. The ad campaign influenced the
relationship between the tax awareness and the tax compliance significantly and it
moderated the relationship between two variables.

INTRODUCTION:
Tax compliance is taxpayers’ willingness to pay their tax liability as per tax laws
and regulations. In general, complying with the tax laws and regulations means
reporting of the correct tax bases, timely filing of tax returns and payment of the
amount payable to concerned tax authority and correct determination of the tax
burden.
One of the major and basic concerns encountered by the Bureau is the poor
compliance of tax laws, rules and regulations of taxpayers which directly affects the
overall collection performance of the agency. To mitigate the violations committed by
taxpayers, stringent measures and enforcement programs such as Tax Audit, Oplan
Kandado, RATE (Run after Tax Evaders) and TCVD (Tax Compliance Verification
Drive) have been adopted.
With our study, we could learn about the constraints that lead to the main issue
of non-compliant taxpayers. Our main objective is to integrate the use of ad campaign
in conducting taxpayer briefing to achieve higher rate of voluntary compliance and
eventually collection performance. The ad campaign used was the previous BIR RFP
ad campaign which was launched in 2014 until the year 2016. This campaign merely
is well-suited to the purpose of this research. The taxpayers will be informed and
updated on their tax obligations to avoid imposition of penalties. It is not as such easy
to convince all taxpayers to comply with the tax laws. Hence, the amount of tax
noncompliance is still a challenge.
 Tax payer’s tax compliance attitude may depend on various factor such as tax
rate, probability of being audited, perception of tax payer’s towards the government
and taxation, tax penalty, culture, personal and social norms Tax payer’s tax
knowledge and awareness is imperative for the tax authority to get better the tax
system and for voluntary compliance.
Thus, this study investigates tax payer’s awareness about the taxation, tax
payer’s perception towards the tax system and their tax compliance decision and the
outcome of this study may use as an input for tax policy makers to design appropriate
strategies related to voluntary tax compliance.
The active role of the government to raise the public awareness of tax is
required both in the form of counseling and socializing routines or in the form of
intensive trainings so that the public awareness to pay taxes can be increased or
taxation policies can be used as a means to stimulate or excite the taxpayer in order
to implement and raise awareness in paying taxes.
The awareness and taxpayer compliance are important factors to increase the
tax revenue; it is necessary to study the factors that influence the tax compliance
intensively, in particular individual taxpayers’ businesses. Based on this background,
problems in this study arise in the form of questions as follows: (1) Does the awareness
of taxation affect the compliance of individual business taxpayer? (2) Does the BIR
RFP ad campaign strengthen or weaken the effects of taxation on compliance
awareness of an individual business taxpayer?
If the taxpayers are aware of the obligation to pay taxes, of course, the state
revenue from taxes will continue to increase because the number of potential
taxpayers tend to grow every year. The public awareness will encourage more and
more people to fulfill their obligation to register as taxpayers, file and pay their taxes
properly. Attempts have been made to improve the taxpayer compliance by the Bureau
of Internal Revenue Office, one of which was the launch of the BIR RFP ad campaign.
This ad campaign is expected to encourage the taxpayer’s awareness and
willingness to meet obligations.

OBJECTIVE OF THE STUDY:

a. To find out the general tax awareness level of taxpayer through BIR RFP ad
campaign.
b. To study the influence of tax awareness on tax compliance decision of
taxpayers.
c. To know how taxpayer’s perception influences their tax compliance
decision.
CONCEPTUAL FRAMEWORK:
Taxpayers with high taxation awareness will increase the ratio of taxpayer
compliance that will influence the state’s revenue from the tax sector. In addition, as
this study is mainly concerned, other factors can affect the moderating level of
taxpayer compliance. This moderating variable is the BIR RFP ad campaign.
Interactions discussed happen between the taxation awareness and the
taxpayer compliance. Further interactions in the BIR RFP ad campaign influence the
relationship between the taxation awareness and the taxpayer compliance, then the
schematic structure of conceptual framework can be described, as follows:

Tax Awareness Taxpayer

Compliance

BIR RFP ad campaign

RESEARCH METHODOLOGY:
Research Design In order to achieve the objective of the study, descriptive research
design was used. This design helps to describe the data at hand.
Data sources and Method of Collection Data were collected through close and open
ended questionnaires. Close ended questionnaires were prepared in the form of
“Agree” and “Disagree” and “Yes” and “No” form.
Sample Size and Sampling Method The target population of this study was the
individual business taxpayers in Tabuk City, Kalinga. Survey questionnaires was used
to individual business taxpayers. Hence, samples of 50 individual business taxpayers.
Data analysis and presentation This presents the results of survey study that was
conducted to individual business taxpayers, a total of 50 questionnaires were
distributed to of which 50 were filled completely and returned. This made the return
rate of 100%, indicating good response rate. After the data were collected, checked
for errors and completeness, it was analyzed using descriptive research techniques.
Analysis Method The quality of the data resulting from of research instruments can
be evaluated by using validity and reliability testing. The test is intended to determine
the consistency and accuracy of data collected from the use of instruments. Data
quality testing procedures are stated as follows:
a. Validity test is used to measure the validity of a questionnaire. A
questionnaire considered valid if the questions on the questionnaire were
able to reveal something to be measured to the questionnaire.
 b. Test Reliability is a tool used to measure the questionnaire, which is an
indicator of a variable or a construct. A questionnaire is said to be reliable if
someone answers the statement consistently.

DEMOGRAPHIC CHARACTERISTICS OF RESPONDENTS:

Table 5.1 Frequency distribution of gender characteristics of respondents
in the sample Variables
Variables Frequency Percent
Male 15 30%
Female 35 70%
TOTAL 50 100&

As indicated from the above table 1, 30% of respondents were males and 70 % of
respondents were females. Therefore, we can conclude that during the study period
most of respondents were females and males’ participation in business activity was
low during the study period.
Table 5.2 Frequency distribution of educational level of respondents
Variables Frequency Percent
Illiterate 2 4%
Primary Education 8 16%
Secondary Education 12 24%
Degree / Diploma Holders 23 46%
Master’s Degree Holders 5 10%
Total 50 100%

When we see the educational background of respondents as presented in table above,

4% of respondents were illiterate, 16% of respondents were completed primary
education, 24% of respondents were completed secondary education, 46% of
respondents were Degree/Diploma holders, and 10% of respondents were Master’s
Degree holders. Based on the above data, the educational level of most tax payers is
Degree/ Diploma Holders.
Table 5.3 Tax education and Tax Training
Statements Frequency Percentage
Yes No Total Yes No Total
I have attended formal education 22 28 50 44% 56% 100%
and tax training about taxation
Trainings arranged and given by 32 18 50 64% 36% 100%
BIR was relevant and practical to
know about tax
I will comply with the tax law if I 45 5 50 90% 10% 100%
have adequate tax knowledge
As indicated in the table above, for the question raised to know whether tax payers
have attended formal tax education and training about taxation or not, 44% of the
respondents’ replied that they have got the chance to attend tax training/education and
56% of respondents were responded that they did not got tax related
training/education. The reason why 56% of respondents did not yet have attended tax
training/education was due to the limited capacity of the tax authority in giving tax
training and the training schedules were not convenient for tax payers to attend. The
respondents were also asked whether trainings arranged and given by BIR was
relevant and practical to know about tax laws. Accordingly, majority of tax payers 36%
responded that the tax training which was given was not relevant and practical and
64% of respondents said that the training is relevant and practical. Respondents were
also asked whether tax knowledge is important to comply with tax laws and
regulations. Hence, majority of tax payers 90% agreed that they will comply with tax
laws if they have adequate tax knowledge and 10% of respondents were responded
that tax knowledge is not relevant to comply with tax laws. Tax knowledge also
increases the tax awareness of tax payers and to have positive attitude towards the
tax system.
Table 5.4 Frequency distribution of educational level of respondents
Variables Frequency Percent
To avoid punishment 6 12%
To get public utilities 18 36%
It’s an obligation 23 46%
I don’t know the reason 3 6%
TOTAL 50 100%

Table above shows responses of respondents why they pay tax. Accordingly,
respondents were asked why they pay taxes, 36% of the respondents said that they
pay taxes in expectation of public facilities from the government and 46% of tax payers
responded that because it is a duty to the government, 12% of tax payers replied that
they pay tax to avoid punishment, and 6% of respondents were responded that they
don’t know why they pay tax to the government. This indicates there is a positive
understanding by most taxpayers as to why people pay taxes and if successive works
are done probably better results can be registered. However, the response of others
who said they don’t know why they pay tax to the government and those who said to
avoid penalties indicates that they may have the intention not to pay if they have the
opportunity to do so or their compliance behavior is uncertain.
Table 5.5 Tax payer’s response for the reasons why tax payers are not
willing to pay tax
Possible Answer Frequency Percentage
Lack of Awareness 23 46%
Lack of ability to pay 10 20%
Intentional 2 4%
Negligence 7 14%
 Poor and tiresome 8 16%
collection system
Total 50 100%

As it’s shown from the above table 5, tax payers were asked to express their view
about the reasons why tax payers are not willing to pay tax voluntarily. Consequently,
46% of tax payers were replied that most tax payers do not pay taxes because of lack
of awareness about taxation, 16% of tax payers were responded because of existence
of poor and tiresome tax collection system, 14% of tax payers were answered because
of negligence of tax payers, 4% of tax payers were replied that because of intentional
non compliance of tax payers and 20% of tax payers responded that because of lack
of capacity to pay by tax payers. Therefore, from the this finding, we can conclude that
the main reason for tax non compliance by most tax payers is lack of awareness about
taxation followed by existence of poor and tiresome collection system, negligence,
intentional and lack of ability to pay respectively.
Table 5.6 Taxpayers’ response about tax audit and its contribution for tax
compliance
Item Response Frequency Percentage
Yes 66 66%
Does your organization audited for tax No 34 34%
purposes Total 100 100%
Probability of being audited has positive Agreed 80 80%
contribution for tax collection Disagreed 20 20%
Total 100 100%
Probability of being audited has positive Agreed 47 47%
contribution for voluntary complying with tax Disagreed 53 53%
laws and regulations Total 100 100%

Tax payers’ attitude and perception

Tax payer’s perception about the tax rate, the penalty rate, the government
spending and tax system fairness and simplicity may differ from one tax payer to the
other. Hence, this perception influences tax payers’ tax compliance behavior
negatively or positively. Therefore, under this section we will see the perception of tax
payers towards tax rate, the penalty rate, the government spending and tax system
fairness and simplicity as follows;
Table 5.7 Tax payers’ perception and their voluntary tax compliance
behavior
Item Response Frequency Percentage
The current tax rate is high Agreed Yes 26 52%
No 24 48%
Total 50 100%
Agreed 30 60%
 Tax rate doesn`t matter to comply with the tax Disagreed 20 40%
law Total 50 100%
The current tax laws and regulations are Agreed 29 58%
complex Disagreed 21 42%
Total 50 100%
If the tax laws and regulations are simple to Yes 38 76%
understand, I will comply with the tax law No 12 24%
Total 50 100%
The current tax system is fair Agreed 35 70%
Disagreed 15 30%
Total 50 100%
Fair tax system encourage voluntary Agreed 34 68%
compliance Disagreed 16 32%
Total 50 100%
The current penalty rate is high Yes 40 80%
No 10 20%
Total 50 100%
If the penalty is high everyone will comply Agreed 23 46%
voluntarily with the tax law Disagreed 27 54%
Total 50 100%
I believe that government spend tax money Agreed 34 68%
properly Disagreed 16 32%
Total 50 100%
If government spend money on basic needs Agreed 33 66%
wisely I will voluntarily comply with tax law Disagreed 17 34%
Total 50 100%

Respondents were asked a question to express their view about the tax rate. Majority
of the respondents 52% agreed that the rate was high, where as 48% were disagreed
that the current tax rate is high. In addition respondents were also asked to express
their perception towards the change in tax rate and their compliance attitude, 60% of
respondents agreed that tax rate has no impact on tax compliance behavior of tax
payers while 40% tax payers disagreed that the tax rate has no influence on tax
compliance behavior of tax payers. If tax payers perceive the tax rate is high, hence
their tax compliance level will decrease and vice versa. However, as per this study
finding majority of tax payers agreed that the change in tax rate has no influence in
their compliance decision. With regard to tax simplicity, respondents were asked about
their view regarding simplicity of tax system. The questionnaire seeks to find from tax
payers how easy it was to understand the current tax system, calculate and file tax
returns. As it’s shown in table above, Majority of the respondents 58% agreed that the
existing tax system is complex; where as 42% of tax payers believe that the current
tax system is complex. Besides, 76% of tax payers agreed that simplifying tax system
encourages tax payers to comply with tax laws and regulations voluntarily while 24%
of tax payers disagreed that simplifying tax system enhances voluntary tax
compliance.
Related to tax payer’s perception on tax fairness, consequently, respondents were
asked regarding the fairness of the present tax system to know their perception about
tax fairness. According to tax payer’s response result in table above, 70% of the
respondents believed that the existing tax system is not fair, 30%of tax payers agreed
that the tax system is fair. This implies that majority of the taxpayers perceived that
the tax system is not fair which discourages the level of compliance. As well 68%
respondents agreed that fair tax system encourages voluntary tax compliance while
32% of respondents disagreed that tax fairness encourage voluntary tax compliance.
Regarding to penalty rate, respondents were asked about the existing penalty rate.
Hence, as it is shown in table above, 80% of respondents agreed that the existing
penalty rate is high, majority 20% of respondents said that the existing penalty rate is
not high. Moreover, tax payers were asked to express their view towards high penalty
encourage tax compliance, 46% of taxpayers disagreed that high penalty encourage
tax payers tax compliance whereas 54% of respondents agreed that high tax penalty
encourage tax compliance. Hence, from this finding we can high penalty adversely
affects tax payer’s voluntary compliance. This gives a direction for the tax authority
that the severity of penalty imposed on any tax evasion has negative impact on the
level of voluntary tax compliance.
With regard to perception on government spending, it is expected that if the
government spends taxpayers’ money wisely, for example on basic facilities like
education, health and safety and public transportation, it is assumed that voluntary
compliance will increase. To see the perception of tax payers on government spending
and its influence on the level of compliance respondents were asked. Therefore, as it
is shown in table above, only 68% of tax payers were believed that the government is
spending tax revenue properly, conversely, 32% of tax payers do not believe that the
government spending tax revenue properly for public goods and services and were
not sure about whether the government spending tax revenue properly or not. Further,
66% of respondents said proper spending of tax revenue for productive activities will
encourage their tax compliance level whereas 34% disagreed that proper spending of
tax revenue by the government encourages tax compliance.

Efficiency and Effectiveness of tax authority

Evaluation of the tax authority by tax payers
Percentage
Parameters Excellent Good Poor Total
Creating Awareness 22% 24% 54% 100
Enforcing the tax law 20% 54% 26% 100
Giving Feedback on Issues 20% 47% 33% 100
Customer Handling 24% 29% 47% 100
Detecting Tax evasions 23% 49% 28% 100
Encouraging Taxpayers 18% 23% 59% 100
Adopting modern tax system 22% 47% 31% 100
Transparency 18% 30% 52% 100
From the above table it’s observed that, respondents rated the tax authority’s
awareness creation performance as Excellent 22%, good 24%, and poor 54%.
Respondents also evaluated the authority with respect to law enforcement activity as
an excellent 20%, good 54%, and poor 26%. Similarly, respondents rated the
performance of the authority related to giving feedbacks on issues as follows; excellent
20%, good 47%, Poor 33%. With regard to customer handling performance of the tax
authority, respondents rated the authority’s performance as excellent 24%, good 29%,
and poor 47% respectively. On the other hand, concerning to its tax detection ability,
they rated the authority as excellent 18%, good 49%, and poor 28%. In terms of tax
payers encouragement, the performance of the tax authority was evaluated by tax
payers as follows; excellent 18%, good 23%, poor 59%.
With regard to adopting modern tax system the performance of the tax authority rated
by tax payers as follows excellent 22%, good 27%, and poor 31%. With regard to tax
authorities’ transparency the performance of the tax authority was rated as follows
excellent 18%, good (30%), and poor 52%. In addition, as we have seen from the
above finding, in all the parameters significant number of respondents rated the
authority’s effort as good and below that. Specifically, majority of tax payers give poor
performance result for tax authority’s tax awareness, tax authority’s effort in
encouraging tax payers and transparency performance. Hence, this result signals that
the tax authority is not that much effective in providing satisfactory service for
taxpayers with regard to the above parameters especially in terms of awareness
creation, in encouraging tax payers, in transparency and customer handling.

CONCLUSION:
Based on the analysis of 50 respondents used in the sample in this study, it can
be concluded that there is a positive effect on the taxation awareness of Taxpayer
Compliance. This means that the higher the level of awareness of taxation, the higher
is the level of Taxpayer Compliance.
According to tax payer’s response, the major reason of tax non compliance is
lack of awareness by tax payers followed by lack of capacity to pay, intentional non
compliant tax payers, negligence, existence of poor and tiresome collection system,
and expectation amnesty of tax penalty respectively.
Most of tax payers were said that the current tax penalty is high and this also
discourages them to voluntarily comply with the tax system though it may force them
to comply just because of fear of the penalty. Hence, according to their response high
tax penalty discourages voluntary compliance, Tax payers also said the current tax
rate is high and beyond their capacity. However, according to majorities’ response,
even if the current tax rate is high, the rate did not influence on their tax compliance
attitude.
Regarding to the probability of auditing, tax payers were responded that
probability of audit can enhance tax compliance but it’s because of fear of detection
and penalty. Hence it may discourage voluntary compliance and it may create distrust
between tax payers and tax authority. Taxpayers were also asked about the simplicity
of tax returns and administration and more than half of tax payers replied that, the
existing tax system is complex and if the tax system becomes easy it encourages them
to voluntary comply with tax laws. Tax payers were also asked about their perception
on tax fairness and equity.
Most of tax payers believed that the current tax system is not fair. Therefore,
fair and equitable tax system can encourage them to voluntarily comply with the tax
system. They were also asked about their awareness about their perception on
government spending and significant number of tax payers believed that the
government is spending tax money unwisely and other have no idea whether the
government is spending tax money properly or not. And tax payers also said that if the
government spends tax money properly for necessary things, this encourages them
to voluntarily comply with tax laws.

RECOMMENDATIONS:
This study forwarded the following recommendations;
• The role of tax awareness and perception of tax payers towards the tax system is
pivotal for voluntary tax compliance decision; hence, the authority should continuously
work on tax payer’s awareness creation and tax knowledge by giving adequate tax
training and education to tax payers and practical trainings to taxpayers by using tax
campaign media such as and by arranging training sessions through integration of
multimedia or it is also recommendable to incorporate tax course in educational
curriculums as a common course just to create tax awareness to citizens sustainably.
• In addition, it’s important to create awareness about taxation, how the government
spends tax revenue by disclosing the government budget and expenditure and the
total amount collected from the tax to citizens transparently.
• Voluntary taxpayers may be discouraged if they believed that the current tax system
is unfair and inequitable or if they perceive others escaping tax burden. This can be
done by encouraging and caring truthful and loyal taxpayers by adopting fair
competition and fair treatment. Hence, Bureau of Internal Revenue should maintain
tax fairness through treating all tax payers fairly at the time of levying tax, registration,
collection and so on. In addition, bringing non taxpayers to tax system has to be
considered as a measure of ensuring tax equity and this can also protect honest and
loyal tax payers. In general, the tax authority should try to ensure tax fairness and
equity so as to encourage voluntary compliance behavior.
• Bureau of Internal Revenue should also try to make the tax system as simples as
possible for calculating and filing tax returns such as by providing simple tax return
forms and by revising complex tax laws and regulations, or by adopting economical
modern technologies that facilitate tax collations.