CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The subject of taxation has received considerable intellectual and theoretical attention in the literature. Taxation is one of the most volatile subjects in governance both in the developing and developed nations. Tax refers to a “compulsory levy by a public authority for which nothing is received directly in return” (James and Nobes, 1992). According to Nightingale (2001), “a tax is compulsory contribution, imposed by government, and while taxpayers may receive nothing identifiable in return for their contribution, they nevertheless have the benefit of living in a relatively educated, healthy and safe society”. She further explains that taxation is part of the price to be paid for an organized society and identified six reasons for taxation: provision of public goods, redistribution of income and wealth, promotion of social and economic welfare, economic stability and harmonization and regulation. In other words, a tax is an imposed levy by the government against the income, profits, property, wealth and consumption of individuals and corporate organizations to enable government obtain the required revenue to provide basic amenities, security and well-being of the citizens. First detailed information about taxation can be found in Ancient Egypt (Webber and Wildavsky, 1986). The Pharaohs appointed tax collectors (called scribes) and paid them high salaries to reduce the incentives to enrich themselves. Furthermore, scribes working in the field were controlled by a group of special scribes from head office. Today, corruption of the tax agency is still a problem, especially in developing countries According to the traditional model of tax compliance by Allingham and Sandmo (1972), taxpayers choose how much income to report on their tax returns by solving a standard expected utility-maximization problem that trade o the tax savings from under-reporting true income against the risk of audit and penalties for detected non compliance.
In this framework, both the threat of penalty and audit makes people pay their taxes (Allingham and Sandmo, 1972). Some preliminary tax morale research was conducted during the 1960s by the Cologne School of Psychology, that tried to narrow the bridge between economics and social psychology by emphasizing that economic phenomena should not only be analyzed from the traditional neoclassical point of view but also from social psychology perspective. In particular, they saw tax morale as an important and integral attitude that was related to tax noncompliance. Tax morale is defined as the “intrinsic motivation to pay taxes”. Torgler (2002) and Fred (2003) stress its relevance to understand the high observed level of compliance. Three key factors are important in understanding tax morale: they are, moral rule and sentiments, fairness and the relationship between taxpayer and government. According to James, Murphy and Reinhart (2005), tax laws cannot cope with every eventuality and has to be supplemented with administrative procedures and decisions and just as importantly, in order to work, it has to have a reasonable degree of willing compliance on the part of the taxpayers themselves.
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