The Effect of Economic Sanctions on Tax Reporting Decision
Asian Tax Journal Vol. 9 No. 4 (2008), pp. 195-222
Abstract
This study is to investigate the effect of economic sanctions on tax reporting decisions of Korean tax preparers. The two kinds of penalty, the penalty on tax preparers and the penalty on tax payers, were included in this paper. I manipulated three levels of the tax preparer penalty, and two levels of tax payer penalty, respectively. To know the effects of these penalties, I used a 3×2 experiment design using a questionnaire, which included four ambiguous tax scenarios. The questionnaires were sent to Korean tax preparers in Seoul. Each subject was asked to indicate that they would report the tax issue in the manner favorable to their clients. Based on the data analysis, the subjects tend to be more aggressive when the level of these two penalties increased. However, the penalties of this study did not affect significantly the reporting decisions of the subjects. This means that the Korean tax administration is more prudent in adopting tax prepare penalty or in increasing penalty rate.
Keywords
- Tax compliance
- Tax preparer penalty
- Penalty rate
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