Abstract
Tax compliance is a complex socio-economic phenomenon. Although extensive tax
compliance research has been carried out and its results documented, the behaviour
of employers in their role as agents of both the state and employees regarding employee taxes is an area that has been neglected in research. This study explores
employers’ compliance behaviour towards employee taxes.
The primary problem in Namibia is the current practice of the Namibian tax authority
of holding the employee responsible for unpaid employee taxes. The Namibian Income Tax Act No. 24 of 1981 allows an employer to transfer the responsibility for unpaid employee taxes to the employee. The effect of unpaid employee taxes is thus more significant to the employee than the employer. Employees in developed countries such as the UK and the USA are encouraged to oversee the correct deduction and remittance of employee taxes as it determines whether they qualify for certain public
benefits. Namibian employees, however, lack this motivation, as public goods and services are available to any resident, regardless of their tax compliance status.
Two broad research objectives guided the study. The first research objective considered how Namibian micro, small and medium enterprise (MSME) employers
perceive their role as an agent of the state and employees in withholding and remitting employee taxes. The second research objective considered the core determinants and underlying beliefs driving MSME employers’ employee tax compliance decisions. The study developed a theory explaining employers' compliance behaviour in terms of their
statutory obligation towards employee taxes. The theory provides a new understanding of the drivers of employers’ compliance decision-making in their role as
agents of the state.
A grounded theory (GT) methodology is proposed when little is known about a topic. It is my contention that reality is constructed using co-construction and interpretation based on my philosophical background, in line with the interpretivist approach. I used
an interview guide to conduct semi-structured interviews with MSME employers. The interview data was analysed using the constant comparison method. This continuous
comparison process ultimately provides a theory that is more than a descriptive
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account. Following the prescribed processes in a grounded theory approach ensured that the theory reflected the data.
The research target group was Namibian MSMEs, which constitute a significant segment of the Namibian economy and provide substantial employment opportunities. The study reached theoretical saturation after interviewing 25 respondents. Overall, this study illustrates that although employers are frustrated by the duties imposed on them by the tax authorities, this aspect in isolation does not affect their compliance behaviour. The study nonetheless proposes that these aspects, combined with other
variables that result in frustration, might result in non-compliance in the future. Furthermore, the study indicated that four primary variables drive the compliance decision. These variables include (1) compassion; (2) moral values, upbringing and religion; (3) the power of the tax authority; and (4) the employers’ lack of tax
knowledge. The responses indicated a larger probability of non-compliance, whether
intentional or unintentional. Holding a critical view of the government's perceived inadequate support of lower-income employees is a significant factor in employers’ employee tax compliance. A critical view of the government seems to foster
employers’ compassion for affected employees, which ultimately erodes any ethical motive for compliant behaviour. However, what seems to offset employers’ noncompliant behaviour is their fear of the tax authority. An additional factor found to contribute to non-compliance was the respondents’ lack of tax knowledge.
The study fills a gap in the literature by explaining the variables – and the relationship between them – that influence employers’ employee tax compliance decision-making. I propose that employee tax compliance in tax environments such as Namibia could be optimised by the government improving its support for the less fortunate and providing support to employers. From a practice-based view, the results of the study
can help tax authorities find the best approach to promote voluntary compliance by
employers in their role as agents of the authorities. Furthermore, affected employers
may gain a deeper understanding of the thought processes affecting their employee tax compliance behaviour and a deeper awareness of their relationship with the tax
authority, which may improve their compliance behaviour. A thorough understanding of the variables driving employers’ compliance decision is necessary for achieving an optimal compliance strategy.
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KEYWORDS
Tax compliance behaviour, employee taxes, compassion, tax knowledge, moral values, power of the tax authority, grounded theory methodology, employers. Namibia, micro, small and medium enterprises.