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The Impact of Tax Compliance Factors Toward Value Added tax

Revenue in Indonesia

Emma Ika Margaretha

Christine Tjen

Universitas Indonesia

1. Introduction

1.1. Background

Tax is one important element in the structure of a state government

budget. Through the tax revenue, the state can continue performing the

development to improve the people’s welfare. Taxes is imposed on every

taxpayer and collected to finance a wide range of public policy. Paying

taxes is a form of taxpayer’s participating in development. As breath for the

state budget, the taxation sector is a sector that is always required in raising

state revenue. Mishit tax revenue can affect state’s finance. Up to now, tax

revenue has been and will be the main source of state revenue in APBN,

along with the reduction of foreign loan portion and the decreased revenues

from oil and gas. The successful collection of taxes in a country is

influenced by several things. The variety of problems can affect the

taxpayers in completing their tax liability. In taxation policy, one of

successful measurements is seen from the high tax compliance in

performing tax obligations in accordance with legitimate regulations. Tax

compliance can be measured at least on the level of compliance to register,

report income correctly and deposit the tax in accordance with

predetermined time.

If disobedience of taxpayers is accumulated, it will become a serious

problem for state revenue. This happens because Indonesia depends on

revenue from tax sector. According to Evans (2015) in the journal entitled

“The Internal Costs of VAT Compliance: Evidence from Australia and the

United Kingdom and Suggestions for Mitigation”, VAT / GST contributed

significantly to total tax revenue, after tax revenue from income tax sector.

Considering the importance of VAT / GST as forms of tax revenue in many

countries, therefore, the tax authorities (in this case the Directorate General

of Taxes) must ensure taxpayers fulfill their obligations to pay taxes.

There are some other points affect the compliance of the taxpayers in

their tax obligations. In a study conducted by PricewaterhouseCoopers and

the World Bank since 2007, the unwillingness to pay taxes due to

compliance of the taxpayers themselves and the compliance was influenced

by the following factors: total of tax rate, amount of payment and duration

of payment. Lavermicocca and Buchan (2015) in response to corporate tax

payer argued that if companies (taxpayers) had social responsibility to

strategic goal, they would concern about tax compliance. It means that tax

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noncompliance happened to this point because of social ignorance of each

taxpayer.

According Faa (2008) in his research on tax compliance behavior in

Universiti Putera Malaysia, noncompliance tax is always a major concern in

all tax administration. Tax noncompliance, if it is accumulated, it will

become a serious problem to the state revenue. This happens because

Indonesian government depends on revenue from tax sector. Based on the

Central Government Financial Report (LKPP) 2014 (audited), tax revenue

in Indonesia was around 1,200 trillion rupiahs, while the overall amount of

Indonesia’s income was around 1,600 trillion rupiahs, which means the tax

sector is a contributor to the majority in the income structure of the country

(75%). In LKPP in 2013, the condition was not so different, tax sector

contributed state income amounted to 1,000 trillion with total revenue of the

entire country was 1,400 trillion (71.43%).

Indonesia has improved the tax sector with efforts undertaken by

Directorate General of Taxes in minimizing the compliance cost through tax

service offices. Tax itself varies in types. One of types is value-added tax.

Income from this value-added tax is significant enough in supporting the

target achievement of state tax sector. In some countries, the value-added

tax exists in some characteristics i.e. value-added tax, sales tax, and goods

and service tax. In some studies, the characteristic of value-added tax is the

same type of tax and is also a mainstay in favor of tax revenue collected in

the country. In general, it can be concluded that the increase of policy and

tax compliance has significant impact on increasing tax revenues.

1.2 Formulation of Problem

Tax compliance is influenced by several factors. These factors

encourage taxpayers to fulfill their tax obligations. With the fulfilment of

tax obligations, state income from tax sector increased. But how far the

increase can be seen by lining up the tax compliance factors which

encourages the compliance of taxpayers that finally supports tax revenue

specifically the value-added tax in this study.

Influence factors of tax compliance toward value-added tax income

can be acceptable but how the influence of these factors should be

investigated further. Based on the description has been stated above, we

propose the issue to be discussed is: "What is the impact of tax compliance

factors to the value-added tax revenue in Indonesia?"

1.3. Limitation of Study

1. Factors and tax compliance research results used in this study are based

on research versions of PricewaterhouseCoopers and the World Bank.

2. The study is based on data of taxation in Indonesia.

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1.4. Benefits of Research

1. Directorate General of Taxes

This research shows the condition of the Indonesian tax on revenue

sector of value added tax as well as the comparison with neighboring

countries so that it can become a reference in decision making, especially

in improving tax compliance and tax revenue.

2. Further Researchers

With the above limitations, researchers can further utilize this research

and explore this topic become more detailed and up to date.

3. World of Education and Wider Community

This study is expected to enrich the world of education especially in the

fields of taxation and can be an additional insight for anyone who read it.

2. Basic Theory

2.1. Tax Compliance

Tax compliance means the nature of obedient taxpayer in

accomplishing tax obligations. In short sense, tax compliance is adherence

to tax obligations. Tax compliance can also mean doing what is commanded

in the tax laws prevailing in a country. Tax compliance can also mean a

taxpayer doing adjustment action toward existing tax regulations.

According to Evans in his research, measuring tax compliance with

tax to GDP ratio is the easiest and simplest measurement to be used

although the reliability calculation of GDP is quite difficult since the

average for coverage GDP of each country will be different in the

magnitude. However, achievement using these variables among countries

can be quite effective and efficient due to considering also the element of

cost revenue ratio and employee productivity ratio.

According Deviano and Rahayu (2006) in Yeni (2013), tax

compliance is a situation where the taxpayer met all tax obligations and

performed taxation rights. They define that tax compliance is divided into

two kinds, namely:

1. Formal compliance; is a condition where the taxpayers fulfill

obligations formally in accordance with the provision of the Tax Law.

2. Material compliance; is a condition where the taxpayers substantively

comply with the provision of the tax material.

The successful collection of taxes in a country is influenced by other

things. A variety of things can affect the taxpayers in doing their tax

liability. In taxation policy, one of successful measurements is seen from the

high tax compliance of taxpayers in performing their taxpayers’ obligations

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in accordance with the legitimate regulations of taxation. In a country with

self-assessment tax system such as in Indonesia, the compliance in obeying

tax voluntarily (voluntary of compliance) was the backbone of the success

of the self-assessment system itself (Yeni, 2013). Tax compliance is at least

able to be measured from the level of compliance to register, to report

income correctly and to deposit the tax in predetermined time.

Andreoni, et. al. (1998 in Faa, 2008) stated that the issue of tax

compliance had been persisting as far as the existence of the tax itself. This

fact explains us that there is a reluctance of taxpayers to meet their tax

obligations. Whilst, continuity of a country is determined by state revenues,

which one of the sources comes from taxes. Furthermore, it may happen a

situation when taxpayers are resistance to pay taxes. When taxpayer do not

fulfill their obligations to pay taxes, tax resistance will occur therein. Tax

resistance can be distinguished:

1. Passive resistance

This resistance is an obstacle that complicates tax collection and

closely linked to the economic structure.

2. Active resistance

Active resistance is apparent in all efforts and actions that are directly

presented to the tax authorities with the aim of avoiding taxes.

Noncompliance of tax may arise when taxpayers either individual or

entity thinks about the merits of paying taxes. Taxation noncompliance can

benefit from some prominent sides. Protrude aspect is the reduction of

expenditures. This will lead to increase profits naturally. The decline in

expenditure will make the difference with enlarged income.

In fact, to comply with all tax obligations, both individual taxpayers

and companies need more effort to do so. The efforts are started from the

calculation of the tax, the deposit of the tax even to the accounting

treatment. Those efforts take a long time. In addition, according to research

in 2009 (in International Finance Corporation, 2011), the accounting for

value added tax and income tax is a tax calculation which is the most time

consuming. This effort is converted into cost unit. Compliance cost that

appears to meet the tax obligations of the taxpayer is sometimes too heavy

and cumbersome. On this basis, the taxpayer either individual or entity

performs advanced calculations on the management of compliance costs.

A concrete example in everyday life is when taxpayers receive

services from the tax authorities, in this case in Indonesia, namely the

Directorate General of Taxes. If the service takes place in long duration

which is time consuming, then there is actual costs incurred by the

taxpayers, it will make taxpayers themselves less comfortable in the waiting

time. This time cost is one of the parts of the compliance cost. The

compliance costs consist of:

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a. Time cost

This means the costs incurred for the taxpayers awaiting the completion

of their tax liability.

b. Direct money cost

This means costs directly incurred by taxpayers when the taxpayers

resolve their tax liability.

c. Psychological cost

This cost is 'cost of mind' and 'cost of stress' for the taxpayers to resolve

their tax obligations.

Observing at the events related to noncompliance tax,

Pricewaterhouse Coopers conducted research regarding the payment of

taxes in various countries since 2006. According to research conducted by

PricewaterhouseCoopers, tax payment compliance in various countries was

affected by following facts:

• Total tax rate

This criterion explains about the amount of the total average of all types

of tax rates in each country.

• Time to comply

This criterion explains how long the tax obligations can be completed.

• Numbers of payments

This criterion explains how many types of payments that must be made

by the taxpayer in fulfilling all taxation liabilities.

Research conducted by PricewaterhouseCoopers in collaboration with

the World Bank examined these matters in 2015, for fiscal year 2013. This

study was conducted in 189 countries on all continents including Indonesia

is being sampled in this study. Some of the facts that we can dig on average

around the world are:

- The One-time reduction in number of payment type;

- The decrease in the average of tax rate of 1.3%; and

- The reduction of length of time of completion of tax obligations for 4

hours.

Completion of the tax reform issue was also conducted for 379 changes to

make tax payments easier and more efficient. 43% of the researched

countries also have system of electronic filing so that these matters can

increase tax compliance and then increase tax revenues.

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2.2. Value-added Tax

Taxes are levied by the government in various types in accordance

with tax object levied. An objective tax is a kind of tax based on the object

with no attention to whom the taxpayers are. Value added tax is one type of

objective tax imposed on many countries. It means that value added tax is a

tax that is not affected by the taxpayers during the tax objects exist in the

form of goods or services subject to tax. Taxable goods or services subject

is determined by tax base with a certain scale. These scales then become tax

payable for those who become taxpayers.

Value-added tax in Indonesia is regulated in the Law of the Republic

of Indonesia Number 42 of 2009 on Third Amendment to Law Number 8 of

1983 on Value Added Tax on Goods and Services and Sales Tax on Luxury

Goods. According to the Directorate General of Taxes in Constitution in

One Script of VAT and PPnBM (2009), Value Added Tax (VAT) is a tax on

consumption of goods and services in the area of customs imposed in stages

in each production line and distribution line.

In accordance with the characteristics of value added tax based on

taxation of the objects with no regard to taxpayers, the same kind

characteristics of tax is sales tax, sales tax of luxury goods, value added tax

and goods and services taxes. Countries around the world have their own

ways in determining the type of value-added tax and also in setting the

tariff.

Sales tax is a tax levied on the transfer of goods and / or services

performed by entrepreneurs in customs area in company or work

environment. Indonesia itself had ever applied this tax, but the levy was no

longer carried out in line with the lifting of Sales Tax Regulations in 1987.

The sales tax which is still in force in Indonesia is Sales Tax on Luxury

Goods (PPnBM). PPnBM is a tax levied on luxury goods undertaken by

manufacturers to produce or import the goods in their business or work

activities. This tax is still applied on the basis of:

• The balance of taxation between low and high-income consumers.

• The control of consumption patterns of taxable goods categorized luxury.

• The protection on small consumers.

• The security of state revenue.

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3. Research Method

3.1. Operasional Research Model

In preparing this paper and operational model of research, framework

was developed to solve the problem with existing theories. With the

modeling through framework of thinking, researchers are then expected to

be able to formulate the research hypotheses.

Tax compliance means obedient nature in completing tax obligations.

In short sense, tax compliance is adherence to tax obligations. Tax

compliance can also mean doing what is commanded in the tax laws

prevailing in a country. Tax compliance can also mean taxpayer doing

adjustments to the legitimate tax rules. Deviano and Rahayu (2006) in Yeni

(2013) argued that tax compliance was a situation where the taxpayer met

all tax obligations and performed the right of taxation.

State as tax authorities incredibly expects the taxpayers to have a good

level of tax compliance, while taxpayers hope the presence of the tax laws

and regulations 'siding' them. Taxpayers also need to get comfortable in the

discharge of tax liability. Taxpayers also need to receive the results of

development of the tax they have paid up even though indirectly ensued.

This becomes a concern of the Bank World. Working together with

PricewaterhouseCoopers and the World Bank's in 'World Bank's Doing

Business Project' which is summarized in the paper 'Paying Taxes: The

Global Picture' which started in 2006, research and survey an overview and

a comparison of 'regime' tax worldwide. The results of this study are

presented in the form of a score which is the value of each factor and

measured cumulatively for every country. According to research conducted

by PricewaterhouseCoopers, tax payment compliance in various countries

affected by things as the following:

• Numbers of payments

This explains the criteria of how many types of payments that must be

made by the taxpayer in fulfilling all taxation liabilities.

• Time to comply

These criteria are explained as to how long a tax obligation can be

completed.

• Total tax rate

This explains the criteria regarding the amount of the average total of all

types of tax rates in each country.

The types of taxes are based on the taxable objects levied. Objective

tax is a kind of tax that is based on the object with no attention to the

taxpayers. The examples of objective tax is value-added tax. Value-added

tax aligns to the Law of the Republic of Indonesia Number 42 Year 2009 on

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Third Amendment to Law Number 8 Year 1983 On Value Added Tax on

Goods and Services and Sales Tax on Luxury Goods. According to the

Directorate General of Taxes in Composition in One Script and PPnBM

VAT Law (2009) is a tax on constitution of goods and services in the area

of customs imposed in stages in each production line and distribution line.

With the above exposure, factors of tax compliace influence the

decision of the taxpayers to comply or not comply with tax legislation. If the

taxpayer chooses to stick with it then they will do it in the act of reporting

and depositing the tax obligations. One of the tax obligations that may arise

on the taxpayer is a tax obligation related to value-added tax. This most

likely occurs because in general value-added tax easily arises in everyday

life so that the taxpayer is easy in contact with this kind of tax. The tax

compliance factors will encourage taxpayers to fulfill their tax obligations,

in this case the value-added tax. With the tax compliance of taxpayers, the

income rate of value-added tax increases. Therefore, from the above

exposure so far, tax compliance factors will affect the value-added tax

revenues.

The design of this research hypothesis built is based on the presence

or absence of the influence between variable X and variable Y where:

1. With the growing number of payments of a country, it will be a big

influence to the negative direction toward value-added tax revenue.

2. With the bigger amount of time to comply of a country, it will be a big

influence to the negative direction toward the value-added tax revenue.

3. The larger total tax rate in a country, it will be a big influence to the

negative direction toward the value-added tax revenue.

This research uses descriptive verification approach using tabulation

analysis using quantitative data. Implementation is not limited to data

collection, but also includes the analysis and interpretation of the data. This

study seeks says, analyze, clarify, to compare so that in the end it can be

concluded that deductive.

Number of

Payments

(X1)

Total Tax

Rate (X3)

Time to

Comply (X2)

Value-Added

Tax Income

(Y)

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3.2. Research Design

The research method used in this research is descriptive verification

method with research correlation approach. Descriptive method aims to

describe the nature of something going on at the time of the research done

and examined the causes of a particular symptom (Travers in Husein, 2008).

According to Gay in Husein (2008), descriptive method can be used to

answer questions regarding something at the time when research process

was ongoing and more often used in business and economics research.

Descriptive analysis is used for interpretating data obtained based on the

facts that seen in the period of observation in order to obtain a clear picture

of the object examined. Meanwhile, verification analysis is used to test the

hypothesis through the processing and testing of statistical data regarding

the relationship among the variables of the problem being investigated.

Descriptive verification method is a method that can help explaining the

characteristics of the subjects investigated, reviewing the various aspects of

a particular phenomenon, and offer ideas on research issues for further

testing (Desri, 2008).

Whereas the correlation research approach (correlational study)

according to Husein (2008) in his book "Research Methods for Business

Thesis" was a research approach used when the study was designed to

determine the degree of correlation. Correlation research approach aims to

determine how big the contribution of independent variables toward the

dependent variables, and how high the direction of relationship happens.

3.3. Variable Operationalization

In this study, there are two variables used i.e. dependent variable and

independent variable. The research variables are all things with whatever

shapes which are defined by the researcher to be studied in order to obtain

information about them, then to be drawn the conclusion (Sugiyono, 2009).

Meanwhile, according to Hatch and Farhady (1981), quoted by

Sugiyono (2009), the variables could be defined as an attribute of a group of

object tested which had a variation between one another in the group.

Operationalization of variables in this study is presented in Table 3.1 as

follows:

Table 3.1

Operationalization of Variables

Variables Indicator Measurement

Scale

Data Source

Numbers of

Payment

how many types of

payments that must be made

by the taxpayers in fulfilling

all taxation liabilities

Total PwC Report

Total Time to

Comply

how long a tax liability can

be resolved

Hours PwC Report

10

Total Tax Rate the average amount of the

total of all types of tax rates

in each country

Ratio PwC Report

Revenue of

VAT

VAT Indonesia Ratio Central

Government

Financial

Report

Here, it will be explained variables used in this study:

1. Independent Variable (X) Independent variable is a variable that affects or causes the change or the

emergence of dependent variable. The independent variable is often called a

variable of stimulus, predictor, antecedent (Sugiyono, 2009). In this study,

there are three independent variables (X) i.e. total tax rate, total time to

comply, and numbers of payment.

a) Numbers of Payment (X1)

Tax payments indicator reflects the total amount of taxes paid, method

of payment, frequency of payment and number of companies/agencies

including sales tax or value-added tax. To calculate the number of

payments made by the taxpayer, the payment method was seen not only

use the manual method but also using electronic methods.

b) Total Time to Comply (X2)

Unit of time is measured in hours per year. This indicator shows how

much time should be prepared to set up documents and to pay the tax

(primarily in this study is the value-added tax). The preparation time

includes time to gather all information needed to calculate the tax

payable.

c) Total Tax Rate (X3)

Total tax rate takes into account all the tax debts of companies in the

second year of operation, as indicated by the commercial profit sharing.

Indicators used by a report published by Pricewaterhouse Coopers used

tax rates for fiscal year of 2005. The total amount of the tax is the sum

of all the tax debts after accounting for deductions and exemptions.

These taxes include sales tax or value added tax but not paid taxes by

the company are excluded.

2. Dependent Variable (Y) Dependent variable is a variable that is affected or became reason for

the existence of independent variables. Dependent variable is often referred

to as output variable, criteria, consequent (Sugiyono, 2009). The dependent

variable in this study is value-added tax revenue. Income from value-added

tax is a state revenue in tax sector which always increases every year.

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3. 4. Population dan Sample

Sugiyono (2009) stated that "Population is the region generalization

which consists of object or subject that has qualities and specific

characteristics defined by the researchers to be learnt and then drawn

conclusions." In conducting this study, the population of the research is

income of value-added tax of Indonesia. Meanwhile, the sample is partial

population which is the actual data source in this study. In other words, the

sample is a part of the population to represent the entire population whose

characteristics going to be investigated.

Sampling technique used in this research is nonprobability sampling

method with purposive sampling technique so that the expected results of

this study may be representative of the population and selected samples.

Under this method (purposive sampling), the sample in this research is

the value added tax income taken from 2004 until 2015.

The criteria for the samples in this study are:

1. Revenue of the value-added tax in a country is chosen because nobody

previously carries out the research on taxation sector for the type of

VAT.

2. Data of financial statements from 2004 until 2015.

3. Preparation of financial statements using rupiah currency with final

exchange rate of Bank Indonesia per December 31 each year.

3.5. Types and Source of Data

The data used in this research is secondary data. Secondary data is

primary data that has been processed further and presented either by the

primary data collectors or by other parties, for example in the form of

tables or diagrams (Hussein, 2008).

This study uses data source in the form of financial statements of the

central government (Indonesia) which can be downloaded via website

pages http://www.bpk.go.id/lkpp. The data on numbers of payment, total

time to comply, and total tax rate can be downloaded via website pages

http://www.pwc.com/gx/en/services/tax/paying-taxes-2016/paying-taxes-

through- the-years.html

3.6. Method of Collecting Data

Data used in this study are the financial statements of the central

government (Indonesia) during the years of 2004 to 2015. The data

collection method used is content analysis with observation technique and

literature study. Observation is a technique that requires observation from

the researchers either directly or indirectly to the objects of research

(Hussein, 2008). Meanwhile, literature study is a data collection technique

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by utilizing library research and internet research to obtain information on

the problems examined, literature review, and reference to process the data.

3.7. Draft Analysis

In many ways, processing and analysing data do not escape from the

application of specific techniques and statistical methods, which the

presence can provide a basis for explaining the relationship that occurs.

Statistics can be used as a tool to determine the relationship between two or

more variables absolutely related in an empirical causality or the

relationship is accidental (Nazir, 2003). Stages in this research are:

1. Collecting data relating to the variables associated, i.e. numbers of

payment, total time to comply, and total tax rate and also government's

financial statement data from the year 2004 to 2015 derived from the

annual financial statement data which have been audited.

2. Conducting statistical analysis to test whether the ratio of numbers of

payment, total time to comply, and total tax rate affect the income of

value-added tax in Indonesia by using Regression Analysis with

ordinary least square method with the formula:

where subscript i indicates number of observations from 1 to n of data

with n = 10. Yi is the independent variable of ke-i. Xki is the

observation ke-i for the independent variables Xk. Bk is the independent

variable regression parameter Xk. ei is the error or residual component

of the observation ke-i.

3. Transforming the natural logarithm toward the dependent variable. This

is done because the value of the dependent variable is greater than the

value of the independent variable. The benefits of doing this

transformation is the ease of interpretation of the results. The formula

is:

where subscript i indicates the number of observations from 1 to n data

ln n = 10. Yi is the independent variable ke-i. Xki is the observation

ke-i for the independent variables Xk. Bk is the independent variable

regression parameter Xk. ei is the error or residual component of the

observation ke-i.

4. Performing testing parameter

i. Testing parameter β used in the model by using together the F-test

with the hypotheses being tested are:

H0 :

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Ha : ale least one ,

Statistical Test :

where MSR is Mean Square Regression and MSE is Mean Square

Error. If the value is greater than , then H0 is rejected, then

at least one independent variable that significantly influence the

VAT.

ii. Testing parameter β used in the model partially by using t-test with

the hypotheses tested, namely:

- Hypotesis 1

: numbers of payment does not affect significantly

and positive toward income of VAT.

: numbers of payment affect significantly and

positive toward income of VAT.

- Hypotesis 2

: total time to comply does not affect significantly

and positive toward income of VAT.

: total time to comply affects significantly and

positive toward income of VAT.

- Hypotesis 3

: total tax rate does not affect significantly and

negative toward income of VAT.

: total tax rate affects significantly and negative

toward income of VAT.

Statistical test : .

Where is a prediction of regression parameter

iii. Performing test of regression assumption

• Multicollinearity

This test is done to see if there is a dependent variable

interconnected or in other words it has a high correlation.

Multicollinearity can be detected by using VIF (Variance

Inflation Factor). If the value of VIF on the dependent variable

over 10, it is indicated that the variable contains

multicollinearity.

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In OLS estimation that has perfect multicollinearity, the

regression coefficient can not be determined and the standard

error will be unlimited.

• Heteroskidastity

Heteroskidastity shows a situation where the error variance has a

value that is not constant at each observation. This test is

performed to determine whether the variance of the error is

homogeneous or heterogeneous. Heteroskidastity can be detected

by using a plot between and , if the result of a plot forms a

pattern, it then indicates the model containing heteroscedasticity

problem. Formal statistical methods, can be achieved by

Breusch-Pagan method with the following hypotheses:

H0 : Homoscedasticity (There is no Heteroscedasticity)

Ha : Heteroscedasticity (There is Heteroscedasticity)

If the p-value of Obs* R-Squared> α, then H0 is not rejected

indicating that there is no heteroscedasticity in the model

established.

• Autocorrelation

This test is done to see whether the model owned has

member’s correlation of a series of observation sorted by

time. The way to detect the presence of autocorrelation using

Breush-Godfrey test are the following hypotheses:

H0 : (There is no autocorrelation)

Ha : (There is autocorrelation)

If the p-value of Obs * R-Squared > α, then H0 is not rejected

indicating that there is no heteroscedasticity in the model

established.

5. Interpreting the parameters in regression models have been formed.

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4. Research Result

4.1. An Overview of Research Subjects

Population used in this study are all value-added tax revenues existed in

central government performance reports in Indonesia and the state

financial statements (State accounts) during 2004 - 2015. Value added tax

chosen because no one has ever done this such research previously in

Indonesia. Besides this, VAT also has a great contribution of revenue for

the country after income tax, and the stability of the VAT tax rate itself

that makes the researchers chose the VAT as a dependent variable. The

entire population of each criterion above was included in this study. It

utilizes purposive sampling method where researchers set out the criteria

and select population based on defined criteria. The determination of the

population can be seen in Table 4.1.

Table 4.1

Sample Selection Process Based on Criteria

No Criteria Total

1 The VAT amount since fiscal

year 2005 - 2014 (in LKPP

and State Account)

10

2 Number of tax compliance

factors examined based on

data owned by PwC of the

year 2005 - 2014

10

Source: Secondary Data has been processed

Based on the information that has been described previously, the

selection process has produced a total of 30 populations (10 years x 3

factors) in forms of factors of tax compliance each year of research for

ten years in which there is no excluded data of purposive sampling

criteria or in another words, all existing data will be used in this study.

4.2. Descriptive Statistics

4.2.1. Descriptive Analysis

The population used in this study was selected by purposive sampling

so that the sample used in this study is a representation of the existing

sample population and in accordance with the purpose of research.

Descriptive statistics in this study is basically a process of

transformation of research data in tabular form so that it can be easily

understood and interpreted.

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The minimum value is the lowest value for each variable, while the

maximum value is the highest value for each variable of the study.

The mean value is the average value of each variable studied. And

standard deviation depicts a variety of the variables. The results of the

descriptive statistics table in this study can be seen in Table 4.2 and

Table 4.3 below:

Table 4.2

Descriptive Statistics Indonesia

N Minimum Maximum Average Deviation

Standard Variants

TP 10 51 65 53 4.36 18.99

TTC 10 234 576 290 100.97 10194.40

TTR 10 0.297 0.376 0.349 0.03 0.00

GST 10 1.01E+14 4.09E+14 2.42E+14 1.07E+14 1.15E+28

Valid N

(listwise) 10

Source : Secondary Data has been processed

4.2.2. Classic Assumption Test

The regression model will be used actually shows a significant and

representative association or called as BLUE (Best Linear Unbiased

Estimator) if it satisfies the basic assumptions of classical regression.

Some basic assumptions have no symptoms of multicollinearity between

independent variables in the regression. Multicolinearity test is the test

shown to test whether in the regression model is found a correlation

between the independent variables.

Classic assumption test on research is basically a process of

transformation of research data in tabular form so that it is easily to be

understood and interpreted. Here is presented the classical assumption

test:

Multicollinearity Test

According Ghozali (2007) multicolinearity test was used to see

whether there were strong correlations among the independent

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variables regression. Multicolinearity occurs if the value of Variance

Inflation Factor (VIF) 10.

To determine whether there is multicollinearity or not, it is executed

as follows:

1. Analyzing correlation among independent variables. If the

correlations among independent variables are quite high (above

0.90) then there is an indication of multicollinearity.

2. Observing value of variance inflation factor (VIF), if VIF 10,

then colinearity level can not be tolerated or it happens

multicollinearity.

3. Examining eigen value amounted one or more, independent

variables which are close to zero give indications of

multicollinearity.

It can be concluded that the basis for decision making is for the

following:

If VIF> 10, then H0 is rejected (no multicollinearity)

If VIF <10, then H0 is accepted (no multicollinearity)

From the results of statistical data processing, it is obtained

multicolinearity testing table as follows:

Table 4.3

Test Result of Revenue Multicollinearity of VAT Indonesia

Coefficient

Variance

Uncentered

VIF

Centered

VIF

TP 0.000322 246.8798 1.498553

TTC 4.65E-07 11.85020 1.164193

TTR 8.112146 271.1139 1.697882

C 2.816526 767.9812 NA

Source : Secondary data has been processed

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According to the table of multicollinearity testing above (Table

4.4.), it is obtained the following matters:

a. From the results table above, it shows that total tax payment

variable has a value of VIF <10, that is 1.498 <10, then H0 is

accepted and Ha rejected (no multicollinearity).

b. From the results table above, it shows that total time to

comply variable has a value of VIF <10 that is 1.164 <10,

then H0 is accepted and Ha is rejected (no multicollinearity).

c. From the results above table, it shows that total tax rate

variable has a value of VIF <10 that is 1.697<10, then H0 is

accepted and Ha is rejected (no multicollinearity).

It can be concluded that the linear regression models are used to

avoid multicollinearity problems.

4.3. Processing and Data Analysis

4.3.1 Effects of Tax Compliance Factors toward Revenue of Value Added

Tax in Indonesia

4.3.1.1 Simple Regression Analysis

This study uses a simple regression method with the results of the

calculation data is as follows:

Regression toward each dependent variable (one by one)

Table 4.4

Variable TP toward PPN (ln)

Variable Coefficient Std. Error t-Statistic Prob.

TP 0.054652 0.033237 1.644297 0.1387

C 30.13349 1.763607 17.08628 0.0000

R-squared 0.252596 Mean dependent var 33.02457

From table 4.4, it can be concluded that variable numbers of

payment (TP) has no significant impact on VAT revenue in

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Indonesia because it has p-value of 0.1387, which means 13.87%

greater than the real tariff (grade significance) that should be at

5%.

Table 4.5

Variable TTC toward PPN (ln)

Variable Coefficient Std. Error t-Statistic Prob.

TTC -0.002986 0.001280 -2.332249 0.0480

C 33.89101 0.391222 86.62865 0.0000

R-squared 0.404735 Mean dependent var 33.02457

Based on table 4.5 above, it shows that total time to comply has

significant effect on VAT (p-value 0.0480 <p-sig 0.05), which is

interpreted that if TTC increases one unit, it will lower VAT

revenue to 0.299%.

Table 4.6

Variable TTR toward PPN (ln)

Variable Coefficient Std. Error t-Statistic Prob.

TTR -14.22751 2.757734 -5.159132 0.0009

C 37.98997 0.965477 39.34839 0.0000

R-squared 0.768897 Mean dependent var 33.02457

Based on table 4.6 above, it shows that total tax rate has significant

effect on VAT (p-value 0.0009 <p-sig 0.05), which is interpreted

that if TTR increases one unit, it will lower VAT revenue to

1422.75%.

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4.3.1.2 Test of Determination Coefficient

Table of summary model on the output of e-Views that is used to examine

the value of R2 can be summarized in the following table:

Regression to all dependent variables:

Explanation of Data:

Dependent Variable : PPN

Independent Variable : TP, TTC, TTR

Model:

= a0 + a1 TP + a2 TTC + a3 TTR + e

Table 4.7

Model Summary Indonesia

Variable Coefficient Std. Error t-Statistic Prob.

TP 2.54E+12 3.05E+12 0.833598 0.4364

TTC -2.51E+11 1.16E+11 -2.167548 0.0733

TTR -2.94E+15 4.84E+14 -6.069749 0.0009

C 1.21E+15 2.85E+14 4.227849 0.0055

R-squared 0.938735

Based on the output results above, there is one dependent variable that

significantly influence the VAT at 5% significance level of total tax

rate (TTR) variable, and the other dependent variable that significantly

affects the VAT on the real level of 10% is total time to comply

(TTC). While variable of numbers of payment (TP) has no significant

effect because it has p-value that is greater than 5% or 10%. R2 value

obtained from the model is 93.87%, which means that 93.87% model

obtained can be explained by numbers of payment variable, total time

to comply, total tax rate, while the rest is 6.13% explained by other

variables outside the model examined in this study.

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4.3.1.3 Simple Regression Analysis with Dependent Variables

Transformed

Since the VAT value is very big, if compared with the dependent

variable, then the VAT can be transformed-the natural logarithm for

easy interpretation.

Table 4.8

Simple Regression Coefficients Test Results

Variable Coefficient Std. Error t-Statistic Prob.

TP 0.006619 0.017933 0.369078 0.7247

TTC -0.001770 0.000682 -2.594620 0.0410

TTR -11.48319 2.848183 -4.031758 0.0069

C 37.19572 1.678251 22.16338 0.0000

R-squared 0.891110

Based on the output results above, it turns out that the total

time to comply has been already significant at the 5%

significance level, and the coefficient whose value is not as big

as the first model. R2 value is 89.11% describing that the

dependent variable in the model can explain the VAT revenue

amounted to 89.11%, while the remaining 10.89% is explained

by other variable outside the model.

The regression model obtained is for the following:

= 37.1957 + 0.0066 TP - 0.0018 TTC - 11.4832 TTR

Interpretation (only significant at 5% significance level):

• Every increase of one unit in total time to comply will

lower VAT at 0.18%, by assuming the other dependent

variables remain constant of ceteris paribus.

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• Every increase of one unit of the total tax rate will lower

VAT revenues at 1148.32%, by assuming the other

dependent variables remain constant of ceteris paribus.

4.4. Discussion

This study aims to investigate the influence factor of tax compliance

explained by the following three factors: numbers of payment, total time

to comply, and total tax rate toward the value-added tax revenue by using

simple regression method.

Table 4.16 below is a summary table of the testing results of three

hypotheses proposed in this study. From this table, it can be seen that from

the three hypotheses put forward, there are only two acceptable

hypotheses, while the other hypothesis is rejected. For more details, it can

be noticed in the following table:

Table 4.9

Summary of Hypothesis Testing Results

Hypothesis Sig Result

H1 0,1387 H0 is rejected

H2 0,0480 H0 can not be rejected

H3 0,0009 H0 can not be rejected

5.1. Conclusion

This conclusion is based on the results of research and discussion

conducted and the theoretical basis used in this study to see whether there

is influence factor of tax compliance to the revenue of value-added tax. It

can be concluded that during the ten-year observation period of the years

2004 - 2015, there are two out of the three factors of tax compliance

analyzed that impact value-added tax revenue i.e. total time to comply

and total tax rate. This research provides simultaneously results that there

are simultaneous significant factors on the three factors of tax compliance

examined which give effect to the revenue of the value added tax.

Partially, only total time to comply and total tax rate have statistically

significant effects on the revenue of value-added tax in Indonesia.

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5.2. Suggestion

Based on the results of the discussion and conclusion have been made, this

research intends to give the following advices:

• Further Researcher

a. It is recommended to add the period of observation so that the

number of population used in the study to be larger so that it makes

possible to get results more representatif and accurate.

b. It is recommended to add other types of tax such as income tax,

import tax and export tax.

c. It can also add variables in this study (excluding three factors of tax

compliance have been investigated) so that it can be identified any

variables that can affect the value-added tax revenue.

BIBLIOGRAPHY

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Australia and the United Kingdom and Suggestions for Mitigation. E-

Journal of Tax Research Volume 13: 158-182.

Evans, C, et al. 2014. Small Business and Tax Compliance Costs: A Cross

Country Study of Managerial Benefits and Tax Consessions. E-Journal of

Tax Research Volume 12: 453-482.

Christensen, Hans. B, et al. 2015. Incentives or Standards: What Determines

Accounting Quality Changes Around IFRS Adoption?.Journal of

Accounting Research.

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Undang-Undang No. 28 tahun 2007 tentang Ketentuan Umum dan Tata Cara

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