Professional Documents
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The fiscal policy of the government is based on This study focuses on the Registration and Tax
the rule that receipts or revenue should be equal requirements given by the Bureau of Internal
to annual government expenditures. The Revenue (BIR), and the other variables that
significant portion of the required receipts is might affect the taxpayers compliance to the
raised from taxation. (Valencia &Roxas, 2017, said requirements, covering the businesses in
p.12) Being the leading tax-collecting agency of Bakakeng Norte and Sur, Baguio City.
the government, the BIR contributes to over 75% Bakakeng, a 15-minute drive from the central
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business district, was known to be a peaceful and obligations by psychological factors. They focus
quiet barangay surrounded by pine trees. With on the taxpayers morals and ethics. The theories
the establishment of the SLU Maryheights suggest that a taxpayer may comply even when
Campus, the once quiet and peaceful barangay the probability of detection is low. As opposed to
became a little city within Baguio City. Before the economic theories that emphasize increased
SLU Maryheights Campus was erected, the audits and penalties as solutions to compliance
businesses in the vicinity carry out its day-to-day issues, psychology theories lay emphasis on
operations with the residents of the barangay as changing individual attitudes towards tax
their patrons. When the campus started its systems. (Atawodi, O.W. &Ojeka, S.A., 2012)
operations, the businesses in Bakakeng started to
cater to the needs of an increased population Various opinions exist about the best ways to
caused by the arrival of thousands of students. improve tax compliance. Given the chance, a lot
This gave rise to an immense economic of businesses will not pay taxes unless there is a
development and business opportunities within motivation to do so. Some believe that the best
the vicinity. (Ochoco, Olid, Orias, Orteza, way is to increase incentives (Feld & Frey, 2007)
&Pambid, 2010, p. 2)In Bakakeng Norte and Sur others believe the best way is to increase
alone, a total of 318 businesses are registered in penalties.
the City Hall. (Baguio City Hall).Based on 2014
figures provided by the Philippine Statistics There is the assertion that younger businesses
Authority (PSA), there are 946,988 bear higher tax compliance costs when compared
establishments in the Philippines. Of these, with older businesses. This is largely occasioned
99.6% (942,925) are micro, small, and medium by high start-up costs and learning curve effects.
enterprises (MSMEs) and the remaining 0.4% Tran-Nam and Glover (2002); Rametse and Pope
(4,063) are large enterprises. Of the total number (2002); Hansford, Helseldine and Howorth
of MSMEs, 90.3% (851,756) are micro (2003) and Eichfelder and Schorn (2008) studied
enterprises, 9.3% (87,283) are small enterprises, start-up cost of tax compliance. While Tran-Nam
and 0.4% (3,886) is medium enterprises. and Glover (2002) and Rametse and Pope (2002)
Needless to say, majority of the businesses found empirical relationships between tax
registered in Bakakeng Norte and Sur are micro, compliance costs and start-up costs, Hansford et
small, and medium enterprises. al. (2003) and Eichfelder and Schorn (2008)
found no empirical evidence between business
Tax knowledge is an essential element in a age and tax compliance costs
voluntary compliance tax system, particularly in
determining an accurate tax liability (Saad et al.; There is a general belief that a relationship exist
2003Palil,2005). More recent studies undertaken between the size of a business and its level of tax
in Malaysia (Loo, 2006; Loo et al., 2008;2009) compliance costs. It might be true that smaller
also suggested tax knowledge to be the most businesses have relatively higher tax compliance
empirically established by several other studies costs when compared with big businesses. Hence
(for example, Kasipillai&Jabbar, 2003; Kicher et bigger SMEs seem to benefit from economies of
al., 2006, which documented that possessing tax scale. Several studies conclude that the relation
knowledge would lead to higher compliance between company size and the ratio of
rates. On a similar note, the absence of tax compliance costs/turnover is negatively
knowledge may lead to noncompliance behavior correlated. It can be inferred that the bigger the
among taxpayers, either intentionally or business, the lower the compliance costs (Pope,
unintentionally. 2001; Hanefah et al., 2002; Pope, 2002; Slemrod
and Venkatesh, 2002; Lignier, 2006; Charron et
These findings suggest that in self-assessment al., 2008).
systems, tax audits can play an important role
and their central role is to increase voluntary In a number of countries, studies have been
compliance. Audit rates and the thoroughness of undertaken to examine the impact of industries
the audits could encourage taxpayers to be more on business tax compliance costs (Blumenthal
prudent in completing their tax returns, report all and Slemrod, 1996; Chan et al, 1999; Slemrod
income and claim the correct deductions to and Venkatesh, 2002). In general, tax compliance
ascertain their tax liability. (Palil, M.R., 2010) costs researches show that there exists a wide
Psychology theories on the other hand posit that variation in tax compliance costs by industry
taxpayers are influenced to comply with their tax type. From all these studies there were no
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univocal conclusions that regarding the effect of
industry on tax compliance cost. In Hong Kong Tax compliance theories can be broadly
differences were found, but only by using the classified into two: economics based theories and
absolute compliance costs. No significant psychology based theories. Economic based
differences could be discovered when using the theories, also known as deterrence theory, place
compliance costs relatively to sales (Chan et al., emphasis on incentives. The theory suggests that
1999). The only existing research that showed taxpayers are influenced by economic motives
significant differences between industries is that such as profit maximization and probability of
conducted by Blumenthal and Slemrod (1996). detection. Therefore according to the theory, in
They find that firms in the retail or wholesale order to improve compliance, audits and
industry have significantly lower tax compliance penalties for non-compliance should be
costs and that firms in the primary industry have increased. (Atawodi, O.W. &Ojeka, S.A.,
significantly higher than average tax compliance 2012)Some studies claimed that audits have a
costs. positive impact on tax evasion (Jackson and
Jaouen, 1989; Shanmugam, 2003; Dubin, 2004).
This study also considers the taxpayers income
as one of the factors that affects tax compliance. The researchers believe that tax evasion,
In the study entitled, Third-Party Income taxpayer non-compliance, and corruption to be
Reporting and Income Tax Compliance rampant what with constant news reports on
(Deskins&McKnee, 2006) it was concluded that these matters. By determining the level of
tax compliance rates decline with higher income, compliance of businesses in Bakakeng Norte and
Sur, the researchers hope to help with the better
lower audit rates, and higher tax
implementation of regulations and further
rates.Considering the impact of income on
improvement of taxation and directive
declared income, higher income leads to
compliance in the area. Moreover, the study was
higher compliance in both specifications of
conducted in order to raise the awareness and in
the compliance equation. This result suggests
turn the obedience of the said entities to current
that declared income is a normal good, with an and future requirements in order to avoid
income elasticity (0.651 to 0.726) that is imminent violations and penalties.
significantly less than one (n18). This result is
also similar to other empirical work (Witte and Statement of the Problem
Woodbury, 1985; Dubin, Graetz, and Wilde,
1990), in which the income elasticity of reported The researchers wanted to determine the degree
income is significant and positive. of compliance of the different business entities in
Bakakeng Norte and Sur, Baguio City in
accordance with the specific BIR requirements.
Higher tax rates lead to significantly Specifically, it seeks to answer the following
lower compliance, which is consistent with the questions:
notion that the payoff to successful evasion is 1. What is the profile of the business
greater when the tax rate is larger. Note that most entities in BakakengNorte and Sur in
theoretical models of tax compliance conclude Terms of:
that compliance actually increases with greater a. Years of Operation
tax rates, since a higher tax rate lowers income b. Average Quarterly Income
and, with decreasing absolute risk aversion, the c. Type of business industry
lower income increases the individual's d. Type of Registration (Vat
willingness to take risks according to or Non-Vat)
estimating the determinants of taxpayer complia e. Other Variables That
nce with experimental data (Jackson B.R Affects Compliance
&McKee M. 1991). However, the result here is 2. What is the level of compliance and the
similar to that of Clotfelter (1983), who finds degree of understanding in filing and
that unreported income increases with higher paying of Business Taxes by the
marginal tax rates. The tax rate elasticity equal respondents on the Following:
roughly -.5, a result similar to Clotfelter (1983). a.) Registration Requirements
b.) Taxation Requirements
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3. Is there a significant relationship in the
level of compliance when the
respondents are grouped according to Population and Locale of Study
their profile?
The population of the study was the registered
4. What are the problems encountered in
business entities in Bakakeng Norte and Sur,
the compliance to registration and Baguio City. The said entities were chosen for
taxation requirements? they were covered by the issue regarding BIR
requirement compliance. Considering the time
Hypotheses frame of the study and the scale of the area,
accessibility of the respondent was essential,
1. Business owners make sure that they therefore, accidental non-random sampling was
comply with the registration and applied to limit the number of respondents from
taxation requirements of BIR up to the 318 businesses to 177 respondents with the 5%
extent of the required payments. level of significance.
2. The taxpayers in Bakakeng Norte and
Sur, Baguio City always understand the N
n=
requirements and computations 1+ N e 2
provided by BIR.
3. Compliance to BIR requirements vary
to a great extent. It significantly varies Data Gathering Tool
to the moderation variables of: years of
Questionnaire was used as the main data-
operation; amount of capitalization;
gathering tool for the study which was floated to
quarterly income and type of industry. the respondents to obtain necessary information
4. The taxpayers do not encounter any for the study.
problems in the process of complying in
registration and taxation requirement of The questionnaire contain questions that help the
the BIR. researchers in gathering data that determines the
degree of understanding and level of compliance
The hypotheses listed above were used to prove of the subjected business entities in Bakakeng
whether or not the respondents are compliant to Norte and Sur, Baguio City.
BIR requirements.
The instrument was divided into five parts. The
Method first section determines the registered trade
name, years of operation, average quarterly
Research Design and Methodology income, amount of capitalization, and type of
industry the business engages in. The second part
The study is designed to determine the degree of of the instrument covers the degree of
compliance of the different business entities in compliance of the requirements for registration.
Bakakeng, Baguio City in accordance with the The instruments third section addresses business
specific BIR requirements. As such, in gathering taxation requirement compliance. The third part
useful data, questionnaires were given to the will determine the degree of understanding of the
business owners in BakakengNorte and Sur, business owners of the registration and taxation
Baguio City. requirements along with the computation of their
taxes.
This study uses the descriptive design to gather
data regarding the compliance of business The fourth and final section of the instrument
entities in BakakengNorte and Sur. Descriptive inquires about the other variables that affect
design is a statistical study to identify patterns or compliance. The respondents were instructed to
trends in a situation, but not causal linkages put a check mark on their respective answers to
among its different elements. This study also the particular question. The researchers are
aims to provide description about the relation of involved in carrying out the distribution and
the given variables in the questionnaire to the collection of the questionnaire.
compliance to BIR requirements.
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observing the sample results given that the
null hypothesis is true. P-value is the outcome of
the test that will be compared to the level of
Data Gathering Procedures significance to determine whether to accept the
null hypothesis or not. A P-value greater than the
The method used for the collection of data is level of significance would mean the null
through the distribution of questionnaires to the hypothesis would be accepted and vice versa.
respondents who were willing and available to
answer. The difficulties were encountered in The researchers subjected the results into
convincing the respondents due to the sensitivity statistics. The provided questionnaire are not
of the topic. The broadness of the area was also answerable by any quantities but to be able to
one factor for the complexity of handing out the use statistical tools, the researchers let numbers
questionnaires. The researchers also found it to represent the degree of compliance and
difficult to look for the owner of the business. understandability namely; 1-never, 2-rarely, 3-
sometimes, 4-often, 5-always.
Treatment of the Data
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Years of Operation
Types of Industry
Average Quarterly Income SARI SARI STORE OTHERS
46%
LAUNDRY 5%
HARDWARE
2%2%1% 1% 1% 6%
10% 6%
7% 3%2%
FOOD INDUSTRY RETAIL
84%
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As to the whether the respondent hires an auditor
to audit their books, it appears that 2.81% of the
Type of Industry respondents always let an auditor to audit their
books, 0% often let an auditor to audit their
The respondents, when grouped according to the book, 3.94% sometimes hires an auditor to audit
type of industry will be dominated by the their books, 2.25% rarely hires an auditor to
retailers with 46% of the total sample size audit their book and the percentage of the
followed by sari-sari stores with 25 %, food respondents who never hires an auditor to audit
industry with 7%, computer shop together with their book is 91%.
boarding houses with both 6%, 2% for the
Laundry industry, 3% for the hardware industry,
and the 5% allocated on other businesses such as
publishing, printing, photocopy industry, beauty Receipt Issuance
salons, manufacturing and farming, and bills
payment. According to the tallied data gathered by the
researchers 17.51% of the respondents always
issue receipt to their customers, 2.26% often
Type of Registration issue receipts, 14.69% sometimes issue receipt to
their customers, 9.04% rarely issue receipt and
the percentage of the respondents who never
1% VAT issue receipts to their customers are 56.50%
Non-VAT
Awareness to Penalties
99%
The percentage of the number of respondents
who are always aware to the penalties imposed
by the BIR is 64.41%, 6.78% are often aware of
the penalties imposed by the BIR, 7.91% are
sometimes aware of the penalties imposed by the
BIR, 1.13% are rarely aware of the penalties, and
the percentage of the number of the respondents
who are never aware of the penalties imposed by
the BIR is 19.77%`
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Table 1 shows the data for the registration
requirements of the Bureau of Internal Revenue
(BIR).
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Base on the above results, it shows that the between the business entities separated by their
business entities in Bakakeng Norte and Sur, years of operation.
BaguioCityalwaysunderstand the taxation and
other requirements necessary in conducting Table 5: ANOVA Single Factor
business since computed p value is greater than
the 5% level of significance.
There are 37.29% of the respondents always
comply, 15.71% often comply, 14.69%
sometimes comply, 5.31% rarely comply,
27.01% never comply with the registration
requirements of the BIR.
YEARS OF OPERATION
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At 5% level of significance, there is sufficient The test resulted to a computed F = 1.410535
evidence that business entities in Bakakeng which is less than the critical value which would
Norte and Sur, Baguio City have different entail the acceptance of the null hypothesis at 5%
degrees of registration compliance when grouped level of significance thereby enabling the
by Average Quarterly Income. researchers to conclude that business entities in
Bakakeng Norte and Sur, Baguio City are
complying to the taxation requirements when
grouped by their average quarterly income.
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Baguio City when grouped by their amount of
capitalization.
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accepted.Therefore, at 5% level of significance,
the business entities in Bakakeng Norte and Sur, The pair on the table located at the first column
Baguio City, when grouped by their amount of represents the different range on the average
capitalization, have the same degree of quarterly income where; 1 is sari-sari, 2 is others,
understanding of the requirements. 3 is computer shop, 4 is boarding house, 5 is
laundry, 6 is hardware, 7 is food industry and 8 is
TYPE OF INDUSTRY retail.
Since the null hypothesis was rejected, therefore,
Table 13: ANOVA Single Factor post hoc analysis was done. As seen in the table
above, there is no significant difference among
the pairs for compliance.
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Other respondents, a total of 8 taxpayers which
is 4.52% of the sample size claim that they dont
have enough knowledge regarding the tax
requirements because of the lack of information
given by the BIR officials. According to these
respondents its hard for them to understand the
given requirements because they have little
knowledge of complying with such. The
remaining respondents which represents 1.2% of
the feedback given said that the problem they
encounter is the inconvenience banks accredited
by the BIR and that BIR is imposing low
regulation and low non-compliance penalty.
Conclusion
Based on the findings, the following are the
conclusions of this research study:
The pair on the table located at the first column 1. The profile of the business entities in
represents the different range on the average Bakakeng Norte and Sur is dominated by:
quarterly income where; 1 is sari-sari, 2 is others,
3 is computer shop, 4 is boarding house, 5 is a. Business operating 1 to 3 years when
laundry, 6 is hardware, 7 is food industry and 8 is respondents are grouped according to
retail. their years of operation.
Since the null hypothesis was rejected, therefore,
post hoc analysis was done. As seen in the table b. Business earning P600.00
above, only pair 1-8 has a significant difference P63,024.00 quarterly when respondents
among the pairs for compliance. are grouped according to the average
quarterly when respondents are grouped
Problems Encountered by the Respondents according to the average quarterly
income.
Based on the feedback of the respondents where
they are allowed to input as many problems they c. Retailers when respondents are
have encountered, 63 out of 177 or 35.59% said grouped according to the type of
that they havent encountered problems affecting industry.
their compliance on processing all registration
and taxation requirements. 59 respondents or d. Non-vat registered businesses when
33.33% of the sample size says that the slow grouped by type of registration.
processing is a reason that affects their
compliance to registration and taxation e. Business entities that do not have
requirements while 31 respondents or 17.51% their book audited, do not hire
said that the long queue is the problem affecting accountants or bookkeepers, do not
their compliance. The image of regulating issue receipts are aware of penalties that
agencies being corrupt is believed by 36 may be faced, and entities that do not
respondents or 20.34% affecting their perception believe that information was properly
in complying with registration and taxation disseminated during BIR seminars.
requirements while 49 respondents or 27.66%
said that the problem they encountered on
complying with these requirements is the under 2. Business entities always comply with the
the table transactions and collecting of other registration and taxation requirements and that
fees, aside from the prescribed fees, that were they always understand the rationale behind the
done by fraudulent employees. filing and paying of business taxes.
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3. There is no significant relationship in the level Tax Digest by Cresencio Co Untian, 2002
of compliance when the respondents are grouped
according to their profile. Tax Law and Jurisprudence by Justice Vitug,
2000
4. The most common problems encountered in
the compliance of registration and taxation Factors that Affect Tax Compliance Among
requirements are slow processing of ITRs which Small and Medium Enterprises in North Central
results to a longer time queuing for Nigeria, Ojochogwu Winnie Atawodi& Stephen
accommodation and changed perception of AanuOjeka (2012)
business owners to the reputation of BIR due to
serious corruption issues, and offering other Tax Knowledge and Tax Compliance
fraudulent services Determinants in Self-Assessment System in
Malaysia, Mohd Rizal Palil 2010
Recommendation
Estimating the determinants of taxpayer
The researchers recommend that the Bureau of compliance with experimental data; Aim, J.;
Internal Revenue (BIR) should come up with a Jackson, B. R.; McKee, M.; 1991: University of
proper dissemination like seminars to educate Colorado at Boulder. Document Type: book;
more the taxpayers regarding their tax (AN
responsibilities to avoid penalties due to their EDTCED.AIM.UNIVERSITYOFCOLORADO
lack of knowledge and understanding. ATBOU.AIIA)
The researchers also recommend finding ways to Ochoco J., Olid A., Orias P.J., Orteza R.,
establish better trust and confidence between the &Pambid K. (2010) Impact of SLU-Maryheights
researchers and respondents to enable the In The Affordability and Availability of Products
researchers to acquire more honest feedbacks. and Services in Bakakeng. Undergraduate
Asking for evidences of the respondents' Thesis.Saint Louis University. Retrieved from
compliance to the requirements can also be done Saint Louis University Maryheights Campus
to ensure that the results will be more accurate. A Library Academic Research Clinic.
longer time period is also recommended on
conducting this study. 2. Electronic Manuals
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Reynaldo Guerrero Jr., District Administrative
https://en.wikipedia.org/wiki/Bureau_of_Internal Officer, Bureau of Internal Revenue, Baguio City
_Revenue_(Philippines)
http://etheses.bham.ac.uk/1040/1/Palil10PhD.pdf
Author Biography
ftp://ftp.bir.gov.ph/webadmin1/pdf/59293RR
%2012-2011.pdf JORICK B. GAMBOA, MANUEL MA.
MASON G. YAO III, MEDIATRIX F.
http://www.philstar.com/headlines/2013/03/19/9 LOSANEZ, ROCHEL JOY A. GAUIRAN
21458/bir-trains-sights-self-employed-small- AND APRIL GRACE O. VILLACENTINO
business-owners are fourth year Accountancy and Management
Accounting students of the School of
3. Interview Accountancy and Business Management, Saint
Louis University Baguio City Philippines.
Permits and Licensing Division, Baguio City JOSEPHINE ACOP, CPA, MSBA is their
Hall Accounting 403 (Thesis) instructor.
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