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32 Int'l Tax J. 29 (2006)
The Impact of Tax Fairness Dimensions on Tax Compliance Behavior in an Asian Jurisdiction: The Case of Hong Kong

handle is hein.journals/intaxjo32 and id is 31 raw text is: Winter 2006 The Impact of Tax Fairness Dimensions on Tax Compliance Behavior in an Asian Jurisdiction: The Case of Hong Kong By Grant Richardson* Grant Richardson reports the methodology and results of a study on tax fairness dimensions on tax compliance behavior in Hong Kong. he purpose of this study is to investigate the impact of tax fairness dimensions on tax compliance behavior in Hong Kong. A survey questionnaire was administered to a sample of 302 postgraduate business students at two Hong Kong Universities. Factor analysis and reliability analysis identify six robust tax fairness dimensions concern- ing: general fairness, tax rate structure, middle income earners tax share/burden, exchange with the government, self interest and special provisions for high income earners. The impact of the tax fairness dimensions on tax compliance behavior is assessed by OLS multiple regression analysis. The results show that after controlling for demographic variables, the general fairness, middle income earners tax share/burden and exchange with the government tax fairness dimensions are statistically significant. Tax fairness dimensions have varying effects on tax com- pliance behavior in Hong Kong. Policies instigated to improve tax compliance should consider the cultural context in which they are implemented. Introduction Fiscal psychology has considered the effects of noneconomic variables on tax compliance behav- ior over a long period of time. In fact, Jackson & Grant Richardson is a member of the Business Faculty in the Department of Accountancy at the City University of Hong Kong. Milliron (1986) have identified tax fairness as a key noneconomic variable in this regard., Moreover, tax fairness has been recognized in surveys of American taxpayers as the most important objective of the U.S. tax system (Milliron etal., 1989; Copeland & Harmel- ink, 1995). Prior research in this area has occurred mostly in the United States. However, tax fairness and noncompliance with tax laws represents a significant problem facing revenue authorities throughout the world, including those in Asian jurisdictions such as Hong Kong.2 Hong Kong provides an ideal opportunity for comparative analysis with previous U.S. research. Despite similar capitalistic economies, structural differences do exist between the Hong Kong and U.S. tax systems. For instance, the tax rate structure in Hong Kong is effectively a flat tax rate, there is no periodic tax withholding from salary income, Hong Kong residents are required to pay provisional tax based on net chargeable income, there is no tax on capital gains or dividends, and only Hong Kong sourced income is taxable (Lee & Ho, 2003). Also, the extant literature suggests that significant cross-cultural differences exist between the Hong Kong Chinese cultures U.S. (Hofstede, 1980; Harrison etal., 1994) that could affect tax compliance in different ways in these jurisdictions (Chan et al., 2000). Like the United States and other western jurisdic- tions, tax evasion represents a significant problem in Hong Kong (Cullen, 1997; Littlewood, 2002). The INTERNATIONAL TAX JOURNAL 29

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