Developing a sustainable tax efficiency model to reduce property tax non-compliance

Abstract

Property tax is one of the most important factors in contributing to the sustainability and function of local authorities. The revenue collected is vital in providing sufficient funding to accommodate the demand for services and facilities of population in the city. However, the effectiveness of tax administration practices in Malaysia is questionable due to the impact of non-compliance of tax payment. Various opinions and arguments in the literature have pointed out that the root cause of this problem lies in the weaknesses of current tax administration. The weaknesses identified from the literature can be categorised as are the taxation procedures, preparation of Valuation List, and governance and legislation. Therefore, the main objective of this research is to develop a sustainable tax efficiency model in tax administration to reduce the property tax non-compliance within the local authorities in Malaysia. In order to explore basic understanding about standard practices of tax administration to reduce property tax non-compliance at the preliminary stage, the interviews have been conducted with the experts in property taxation. This followed by comprehensive data collection through distribution of structured close-ended questionnaires to the valuation officers in Malaysian local authorities that classified as an expert. Delphi Method used for data collection is to obtain the expert’s consensus on relevant questions asked in 3 Rounds. There are 47 experts that have responded the questionnaires in the Round 1 from 149 Malaysian local authorities that been circulated. The sample has been scaled-down into 14 experts in Round 2 and 3, due to the accuracy reason of the feedbacks in Round 1. The responds were analysed descriptively based on Cronbach’s Alpha to test the level of consistency and reliability of the indicators, and Factor Analysis to cut-off the indicators into the most preferred by the experts. This followed by benchmarking approach for the experts to determine where their responses ranked compared to other expert’s responses. The findings have exposed the efficiency indicators to reduce the tax non-compliance. Three major findings in this research are firstly, revenue collection from property tax maintain as the main source of income, secondly, the revenue collection has contributed to the strong financial tool to the local authorities and thirdly, with strong financial tool, local authorities will be sufficient and efficient in providing the services and facilities to the taxpayers. The sustainable tax efficiency model has produced the economic principle o f efficiency indicators than based on social or environmental. In general, Malaysian local authorities have to strategize the valuation procedure and preparation of Valuation List effectively in order to strengthen governance and legislation to reduce the tax non-compliance. Hence, the sustainable tax efficiency model developed in this research can be implemented to reduce property tax non-compliance at local government level.