Jour of Adv Research in Dynamical & Control Systems, 13-Special Issue, September 2017

Tax Literacy and its Impact on the

Individual Taxpayers with Reference to
Indian Tax Payers
Dr.K. Jothi Krishnasamy, Associate Professor, Department of Commerce,
Karpagam Academy of Higher Education, Coimbatore. E-mail:jothikrishnasamydr@gmail.com
Parameswaran Subramanian, Research Scholar, Department of Commerce,
Karpagam Academy of Higher Education, Coimbatore. E-mail:jimshaan2003@gmail.com
Abstract--- Tax law in India is believed to be more complex and it lacks transparency and simplicity. Due to this
myth, the number of taxpayers have been decreased from 3% to 1% in a matter of 1 year. This is a serious concern
for the growth of economy and revenue to the Government. The morality of the individual is going down due to the
lack of transparency and insufficient tax knowledge among the taxpayers. The number of non-compliance of
taxpayers show in increasing trend. The tax evasion practices are increasing in the past decade and which is the
evident of the recent demonetization effect. The reason identified is, there is a lack of tax literacy among the
taxpayers and lack of insufficient information about tax among the taxpayers. This study is mainly focused on the
tax literacy among the taxpayers and its influence on the taxation. The outcomes of the study evident with surprising
facts that lack of tax literacy leads to less morality on investment and savings. This shows that the tax literacy
among the individuals to be mandatory irrespective to their field of education in order to bring the best tax system in
India.
Keywords--- Tax Knowledge, Tax Literacy, Tax Transparency and Fairness Taxation.

I. Introduction
Tax laws in India are believed to be complex and difficult to understand for a common man. Most of the
taxpayers approaches auditors and tax consultants in order to fulfill their tax obligations. However, due to this
practice the myth has been increased that tax laws in India are complex and tax system needs a specialized
knowledge to understand the procedure. The percentage of e-filing in India is very low.
In addition to that the self-assessment system is not so effective in India and only very less number of educated
population are using this system. Due to this myth created there are various assumption among the public such as tax
rates are high in India, tax amounts are not utilized effectively, tax payment has no effect in the countries economy,
tax payments results in no benefits and so on. Due to this the Government is facing less amount of tax collection,
which disturbs the entire economy and infrastructure development in India. An attempt has been made through this
study in identifying the tax literacy level of the individual taxpayers in India and its impact on individual taxpayers.

II. Review of the Literature

Lewis (1982) studies the impact of tax knowledge and attitudes of an individual on completing the tax returns.
The study focuses on the impact of increase in tax knowledge on tax compliance behavior.
The research concludes that there is insufficient knowledge about tax regulations amongst the population.
Eriksen and Fallan (1996) from their research evident that fiscal knowledge correlates with the attitudes towards
taxation. They further have opined that the tax behavior can be improved by a better understanding of tax laws.
Taxpayer must be provided with sufficient tax knowledge in order to improve the tax ethics and compliance
behavior.
Romana–Anca Nichita(2012) stress the significance of taxes for the development of modern societies, the
present article offers insights on tax behavior research, with a special focus on tax literacy. The authors observe as
the level of tax knowledge acquired by taxpayers through different channels (i.e., schooling, interactions within
social network, media), tax literacy determines a certain degree or the level of taxes collected in a modern society.

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Mohd Rizal Palil and Ahmad Fariq Mustapha (2011) conclude that in the self-assessment system in Malaysia,
tax knowledge has a significant impact on tax compliance and the level of tax knowledge varies among respondents.
The authors further opined that when a taxpayer has better tax knowledge, attitudes towards tax would be positive
and this in turn increase the compliance and reduce the propensity to evade taxes. Thus, their research suggests that
providing more tax knowledge to a larger group of society helps to prevent tax evasion in Self-Assessment System
(SAS). Teaching tax laws and tax knowledge as a compulsory part of secondary school education might be relevant
in a self-assessment system in order to increase voluntary compliance.
Puneet Bhushan and Yajulu Medury (2013) In their research they conclude that level of tax literacy varies
significantly among the respondents on the basis of various demographic and socio-economic factors. Also, gender,
age, education, income, and nature of employment and place of work affect the level of tax literacy whereas
geographic region does not affect it. The authors further conclude that tax literacy level is very low in India and
necessary measures should be taken by the Government to increase awareness about tax related matters amongst the
population.
Natrah Saad (2014), The author’s research on the New Zealand tax system concentrates on the outcomes such as
the lack of tax knowledge making the taxpayers being greedy and no feelings of civic duty to share their incomes in
the society.
Further they conclude that the poor tax literacy has resulted in negative perceptions towards tax system,
particularly on the tax rate structures and Government spending, have motivated them to avoid and evade paying
taxes. Furthermore, the article concludes that lack of tax knowledge leading to underlying reasons of non-
compliance behavior.
Dajana cvrlje (2015) The author concluded in order to increase tax morale and tax compliance, and consequently
tax revenues, countries should work on promotion and expansion of tax literacy among their citizens. She further
opines on the increased tax literacy which has a significant impact on the tax morale, tax compliance and
subsequently, tax revenues.
Imam Mukhlis, Sugeng Hadi Utomo and Yuli Soesetio (2015) in their research evident that tax education has a
positive and significant effect on tax knowledge, tax knowledge has a significant and positive effect on tax justice,
tax justice has a significant and positive effect on tax compliance and tax knowledge and has a significant positive
effect on tax compliance. The authors conclude that the strengthening of the tax education is very important in
shaping the tax knowledge, so that it can increase tax compliance. The tax socialization efforts can be done through
the dissemination of information about the types of taxes, tax rates, tax payment mechanisms and tax benefits.

III. Research Gap

The previous study conducted on the tax literacy and individual perception resulted only on the certain focused
area such as tax knowledge, tax literacy and tax deductions.
However, the past literature was limited with the focus on tax literacy and its importance to the revenue of the
Government. This study mainly focused on the other factors, which were not taken into consideration in the earlier
studies such as tax literacy and its impact on the tax evasion practices and tax literacy with the morale of individuals.
In addition, the study also focused that tax education with the spending culture of individuals.

IV. Objectives
The study mainly focuses on the Tax literacy among the individuals earning in India. Furthermore, the article
attempted to enlighten the impact and influence of the tax literacy in the individuals. The study also focuses on the
tax literacy and its impact on tax burden of individual in India.

V. Statement of the Problem

India is highly dependent on the tax revenue to serve the second populous country in the world similar to the
developing and developed nations. Majority of the Government revenues arise from the direct taxes of India.
However, the taxpayers numbers are in decreasing trend. The taxpayers number dropped down from 3% (2015) to
1% (2016). This figure alarms a danger signal on the shortage of revenue to the Government. This is due to
individuals’ knowledge on less tax.

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Moreover, there is lack of tax literacy among the individuals which leads the population to be unaware about the
tax systems and importance of tax in India. In other words, tax exemption, tax deduction and tax claim are the areas
where an individual can get tax benefits. Most of the situation the individuals are not aware about such tax benefits
which allows them to think on the tax burden falls in their hands.
Moreover, additional investments in insurance or other areas will allow individuals to get tax exemptions. Very
less number of taxpayers are aware about such kind of tax exemptions. This leads to high rate of economic offences
such as generation of unformalised economy (black money economy) and hiding of income.

VI. Research Questions

The following research questions have been developed mainly based on the review of literature on tax literacy on
individuals:
• What factors motivate the individuals to investment in avenues, which allows tax benefits?
• What is the impact of tax knowledge in tax burden of individual earning groups in India?
• Does tax system to be restructured into a simple tax system in order to understand the procedures and
context?
Limitations

The data collected is restricted with 119 respondents throughout India from different Individual earning groups.
The study is also conducted with the support of published sources of different authorized websites and journals. The
context is limited to Indian Tax scenario. Therefore, justification of the study is depending on the reliability of the
respondent’s loyal answers and information published.
Hypothesis

In order to test the significance of the relationship that exists between the identified factors and tax burden of
individuals, the following hypotheses have been formulated:
H0: The Gender of the taxpayers does not have any influence on the payment of taxes
H01: The education qualification of the taxpayers does not have influence on the E-fling of tax returns.
H02: Nature of employment does not have impact on the non-compliance of tax returns.

VII. Research Methodology

The study adopts a survey research design.
Questionnaire Design

The questionnaire was designed with different dimensions covering the personal data of the respondents, Likert
Scaling and other aspects, which allow the respondents to provide their feedback. The questions were direct and to
extract maximum information from the respondents.
Primary Data

The data collected by using the questionnaire technique. The questionnaire administered in the various factors of
tax literacy on individuals such as increasing e-filing, tax returns, tax exemptions and deductions, anti-tax evasion
practices and other tax literacy areas. The data collected from salaried class people of 119 respondents chosen by
adopting random sampling technique from a population of respondents belonging to different age groups, different
income levels and different sector of employment.
Secondary Data

The research was also done with the supportive of data from the published articles, journals and websites. These
data were collected for the purpose of better understanding on the theoretical aspects on the tax literacy.

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VIII. Analysis and Interpretations

Descriptive Statistics
1. Personal Attributes
Attributes Frequency Percent
Gender Male 57 47.9
Female 62 52.1
Education Qualification Diploma 21 17.6
Degree 52 43.7
Masters 41 34.5
Doctorate 4 3.4
Others 1 .8
Field of Education Business 32 26.9
Commerce 40 33.6
IT 31 26.1
Engineering 9 7.6
Others 7 5.9
Age 21-30 40 33.6
31-40 36 30.3
41-50 24 20.2
51-60 19 16.0
Nature of Employment Government 1 .8
Semi-Government 6 5.0
MNC’s 2 1.7
Private 109 91.6
Others 1 .8
Designation/Position Clerical 23 19.3
Officer 25 21.0
Manager 46 38.7
Senior Manager 25 21.0

2. Tax Knowledge Attributes

Attributes Frequency Percent
Tax payment Yes 63 52.9
No 56 47.1
E-Filing Yes 79 66.4
No 40 33.6
Tax campaign or courses Yes 21 17.6
No 98 82.4
Tax returns preparation Self 73 61.3
Tax Agents 4 3.4
Others 12 10.1
N/A 30 25.2
Notice for non-filing Yes 9 7.6
No 110 92.4
Tax Knowledge Books 14 11.8
Journals 8 6.7
Magazine 2 1.7
Internet 67 56.3
Others 28 23.5
Tax Calculation Yes 95 79.8
No 24 20.2
Tax Education by Government bodies Yes 48 40.3
No 71 59.7
Tax exemption Yes 85 71.4
No 34 28.6
Tax Deductions Yes 47 39.5
No 72 60.5
Penalty for delay in returns Yes 109 91.6
No 10 8.4
Tax evasion is crime Yes 110 92.4
No 9 7.6
Poor economical growth Yes 113 95.0
No 6 5.0
Tax money for Nation Building Yes 114 95.8
No 5 4.2
The above table shows the contribution of the respondents on the various personal attributes. The data show
majority of the respondents are female and having more knowledge on taxation. Majority of the respondents are
commerce graduates with high number of degree holders followed by master holders. Majority of the respondents
are from private sector with an age ranges from 21-40 years at managerial level. The respondents are paying taxes
and processing through e-filing. Majority of the respondents have not attended any tax campaign. However, the

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respondents are doing self-assessments. This is due to the Internet education of the respondents. The respondents are
well aware about the tax evasion and its consequences. As well they are well aware about the penalty for non-filing
or late filing of their returns. However, there is a lack of knowledge in tax deductions and tax knowledge by
majority of the respondents. This is the area more focus to be laid in order to increase their tax literacy.
A. Gender and the Payment of Tax on the Employment Income

Tax on Employment income Total

Yes No
Gender Male 28 29 57
Female 35 27 62
Total 63 56 119

Chi-Square Tests
Value df Asymp. Sig. (2-sided)
Exact Sig. (2-sided) Exact Sig. (1-sided)
Pearson Chi-Square .640a 1 .424
Continuity Correctionb .380 1 .538
Likelihood Ratio .641 1 .423
Fisher's Exact Test .465 .269
Linear-by-Linear Association .635 1 .426
N of Valid Cases 119
a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 26.82.
b. Computed only for a 2x2 table

Symmetric Measures
Value Approx. Sig.
Nominal by Nominal Phi -.073 .424
Cramer's V .073 .424
N of Valid Cases 119

The above analysis reveals quiet interesting outcomes and notably the female respondents pay more tax on their
employment income compared to the male respondents. This shows that there is a significant association between
the gender and payment of income tax on the employment income.
B. Education Qualification and Using E-Filing to File the Tax Returns
E-Filing Total
Yes No
Education Qualifications Diploma 9 12 21
Degree 38 14 52
Masters 27 14 41
Doctorate 4 0 4
Others 1 0 1
Total 79 40 119
Chi-Square Tests
Value df Asymp. Sig. (2-sided)
Pearson Chi-Square 8.790a 4 .067
Likelihood Ratio 10.043 4 .040

Symmetric Measures
Value Approx. Sig.
Nominal by Nominal Phi .272 .067
Cramer's V .272 .067
N of Valid Cases 119
Linear-by-Linear Association 3.992 1 .046
N of Valid Cases 119
a. 4 cells (40.0%) have expected count less than 5. The minimum expected count is .34.
The bachelor and master degree holders are highly using ‘e-filing’ for their tax returns compared to the diploma
holders and others. The manifestation reveals that there is a significant association between the education level and
the method of filing their returns. The analysis shows that the higher the education number of e-filing is evident.

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C. Field of Education with Campaign or Course Attended on Direct Taxes

Tax courses Total
Yes No
Filed of Qualification Business 9 23 32
Commerce 12 28 40
IT 0 31 31
Engineering 0 9 9
Others 0 7 7
Total 21 98 119

Chi-Square Tests
Value df Asymp. Sig. (2-sided)
Pearson Chi-Square 16.689a 4 .002
Likelihood Ratio 24.014 4 .000
Linear-by-Linear Association 11.231 1 .001
N of Valid Cases 119
a. 2 cells (20.0%) have expected count less than 5. The minimum expected count is 1.24.

Symmetric Measures
Value Approx. Sig.
Nominal by Nominal Phi .374 .002
Cramer's V .374 .002
N of Valid Cases 119
The above analysis shows a significant result on the field of study. Majority of the respondents from commerce
background and business background have undergone the course on Direct Taxes in their curriculum. And the
outcomes are showing a significant association between the field of study and the course on the direct taxes. This
shows there is a minimum knowledge on the direct taxes is evident with business and commerce background
compared with the other field of study.
D. Nature of Employment with Notice from the Tax Office on Non-Compliance
Notice for non-filing Total
Yes No
Nature of employment Government 0 1 1
Semi-Government 0 6 6
MNC’s 0 2 2
Private 9 100 109
Others 0 1 1
Total 9 110 119

Chi-Square Tests
Value df Asymp. Sig. (2-sided)
Pearson Chi-Square .893a 4 .926
Likelihood Ratio 1.646 4 .801
Linear-by-Linear Association .614 1 .433
N of Valid Cases 119
a. 7 cells (70.0%) have expected count less than 5. The minimum expected count is .08.

Symmetric Measures
Value Approx. Sig.
Nominal by Nominal Phi .087 .926
Cramer's V .087 .926
N of Valid Cases 119
From the above analysis, it is understood that private employees receive notice from the tax office for non-filing
of returns compared to the other employees. This shows that the impact of TDS plays a major role in filing of

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returns. The test also reveals that there is no significant association between nature of employment and the filing of
tax returns.
E. Position of Employment with Preparation of Tax Returns by Individuals
Tax returns Total
Self Tax agent Others N/A
Position Clerical 4 4 0 15 23
Officer 6 0 4 15 25
Manager 38 0 8 0 46
Senior Manager 25 0 0 0 25
Total 73 4 12 30 119

Chi-Square Tests
Value df Asymp. Sig. (2-sided)
Pearson Chi-Square 91.751a 9 .000
Likelihood Ratio 105.796 9 .000
Linear-by-Linear Association 48.107 1 .000
N of Valid Cases 119
a. 8 cells (50.0%) have expected count less than 5. The minimum expected count is .77.

Symmetric Measures
Value Approx. Sig.
Nominal by Nominal Phi .878 .000
Cramer's V .507 .000
N of Valid Cases 119
Majority of the employees at the manager level and senior manager level prepares their own assessment for
taxation purpose, whereas the other designated employees are depending on the tax agents to file their tax returns.
This shows that there is a significant association between the position of the employment and the preparation of tax
returns.
Ranks
Gender N Mean Rank Sum of Ranks
Tax literacy Male 57 59.37 3384.00
Female 62 60.58 3756.00
Total 119
The above table reveals an interesting fact that the female respondents are more literate in taxation compared to
the male respondents. However, the range is slightly higher to the male respondents.
Test Statisticsa
Tax literacy
Mann-Whitney U 1731.000
Wilcoxon W 3384.000
Z -.223
Asymp. Sig. (2-tailed) .823
a. Grouping Variable: Gender
The above table reveals that there is a significant difference between the gender and their tax literacy. The null
hypothesis is thus rejected.
Ranks
Gender N Mean Rank Sum of Ranks
Investments and Savings Male 57 57.30 3266.00
Female 62 62.48 3874.00
Total 119

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The above table reveals that the female respondents are more concern and agreeability with regard to the
investment and savings attributes. The female respondents shows high degree of positivity on the level of
agreeability in regard to investments and savings compared to the male respondents.
Test Statisticsa
Investments and Savings
Mann-Whitney U 1613.000
Wilcoxon W 3266.000
Z -.829
Asymp. Sig. (2-tailed) .407
a. Grouping Variable: Gender
The above table reveals significant differences between the male and female respondents opinion regarding to
the investment and savings attributes. Therefore, the null hypothesis is rejected.

IX. Findings of the Study

The outcome of the analysis exposes that the more women responsible in tax payments compared to the male.
This shows that men do more tax evasion practices compared to women. The study further exposes on the
qualification and the knowledge on e-filing. Most of the respondents hold a minimum of a degree, which is in
commerce, which has a positive reflection on the e-filing of tax returns. Generally, commerce graduates learn
taxation in their degree or master’s level, which shows the field of education, is in line with the tax knowledge.
Whereas, the other qualification holders have less/nil knowledge in taxation. This shows that tax campaign or course
plays a major role on the tax education of taxpayers. In the similar aspects majority managerial level and senior
manager level employees opt for self-assessment, whereas the other employees are opt for tax agents. This shows
the higher position will lead to more tax knowledge. The study further exposes that the female respondents have
more tax knowledge compared to the male respondents. This shows that the there is a significant association
between the gender and tax literacy. Another findings of the study reveals that female respondents are more concern
and agreeable with the investments and savings attributes compared to the male respondents. This shows that the
females are more concern on the savings habitual.

X. Suggestions
It is high time to pay more attention on the tax knowledge of the individuals. The recent demonetization leads to
serious tax payments and tax contribution to the nation building. However, with the same swing the Government
must find remedial measures in order to provide tax knowledge by organizing more campaigns by income tax
authorities to deliver the importance of tax and its impact in the nation development. The study also evident with
findings on the seriousness on the tax awareness on the male population. India is majorly populated with male
compared with female. Therefore, the contribution from male should be more compared with female. As well the
Government must include a basic knowledge on the taxation in the curriculum of all the courses. Since, the study
evidents that the majority population of commerce degree/master holders have more tax literacy when compared
with the other stream. This shows that the lack of tax knowledge on the other field of education leads to tax evasion
practices. The study also further exposes on the knowledge of tax deduction. Majority of the respondents are not
aware about the tax deductions. More focus should be laid by the investments companies or insurance companies on
the importance of tax deduction in order to reduce their tax burden.

XI. Conclusion
The above observation and analysis reveals that the tax literacy plays a major role in the tax evasion practices
and investments and savings. The findings reveal that the female respondents have more tax literacy, which
influences the investment and savings. The Government should find measures in order to reduce the tax illiteracy in
the society. India’s male population are more literate than the female population however, the tax literacy shows
female has upper hand than the male population. Appropriate measures should be taken in tax inclusion in the
education sector irrespective to the field of study. The surprise announcement of the Government on 8th November
2016 on the demonetization which reflected in a huge amount of tax collection and black money eradication. This
shows that the necessary steps from the Government have a favorable effect on the eradicating of the tax evasion
practices. It is strongly recommended to the Government on tax literacy practices should be laid on with immediate
effect in order to ensure the taxpayers to have more knowledge on the tax context.

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