Importance of Taxation Knowledge
Importance of Taxation Knowledge
Importance of Taxation Knowledge
business entity. The taxation knowledge includes tax laws which functions as a guide to
mainly minimize the chargeable income. It is a mandatory thing to update yourself as an
individual tax payer or as a business entity with the latest tax laws. By having sufficient
taxation knowledge, one can know the items that can be claimed for tax reliefs and
exemption given by the government of a country and can compute the tax rates accurately
based on the countrys tax rate schedule.
Importance of taxation knowledge for individual taxpayer
Taxation is used as a main fiscal tool by the government to collect revenue to
achieve economic and social objectives, and for redistributing income. Tax knowledge is
an essential element in a voluntary compliance tax system, particularly in determining an
accurate tax liability. More recent studies undertaken in Malaysia (Loo, 2006; Loo et al.,
2008; 2009) also suggested tax knowledge to be the most influential factor to determine
taxpayers compliance behaviour under the self-assessment system. This is empirically
established by several other studies (for example, Kirchler et al., 2006), which
documented that possessing tax knowledge would lead to higher compliance rates. On
similar note, the absence of tax knowledge may lead to noncompliance behaviour among
taxpayers, either intentionally or unintentionally.
Taxpayers employ tax professionals to represent them for a number of reasons.
These reasons include, a desire to lodge accurate returns mainly due to their lack of tax
knowledge based on the complexity of the current tax law, a desire to minimize the tax
they are required to pay, their fear of making a mistake and being penalized, or just
having a lack of time to complete their own return.
Although a general knowledge of the taxation system was displayed by
most taxpayers, specific tax knowledge was still limited. That is, while tax payers
displayed an awareness of relevant income and deductions, they knew little about tax
administration and the level of penalties.
By knowing the knowledge of taxation, an individual can identify their residence
status purely based on a quantitative test. It is important to know whether an individual is
a tax residence of a country. The residence status of an individual is determined by a
carried forward to next year of assessment to be set off against adjusted income within its
respective source in arrive statutory income.
In a nutshell, we understand that business owner is given more flexible deduction
as compared to individual taxpayer through the taxation knowledge. Hence, business
owners shall learn the tax knowledge as it help the taxpayers to find a solution on reduce
or eliminate their tax liability so that they can reap the largest tax benefits.