Application of a framework for tax administration

performance management in developing countries: a case

study in Malaysia

Author:
Mansor, Muzainah
Publication Date:
2011
DOI:
https://doi.org/10.26190/unsworks/14978
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 Application of a Framework for Tax Administration
Performance Management in Developing Countries: A
Case Study in Malaysia

Muzainah Mansor
Student ID 3259401

A thesis submitted to the Australian School of Business, University of New

South Wales in fulfilment of the requirements for the degree of Doctor of
Philosophy

2011
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iv
Abstract

A tax administration can be viewed as an open system that transforms inputs into outputs
within the environment (internal and external) in which it operates. Open system theory is the
basis of the input-process-output-outcome model of performance management. This study
explores a way to improve tax administration performance management in developing
countries. Consequently, a conceptual framework for tax administration performance
management is developed. The framework integrates performance management at the
strategic, operational and individual levels in an open system view of a tax administration.
The distinct feature of the framework is that it highlights the critical process of transforming
inputs into outputs/outcomes in a tax administration by diagnosing the interrelation of the
components in the process, i.e. formal organisation, informal organisation, task and people.
These components contain both institutional and behavioural factors which have significant
effect on tax administration performance and should be carefully managed through an
integrated and open system approach to performance management. An accompanying set of
guidelines on how to apply the framework is also developed to assist the application of the
new approach to tax administration performance management.

Fieldwork was undertaken to test the applicability of the framework and the guidelines for tax
administrations in developing countries. A case study based on a state office of the Royal
Malaysian Customs was undertaken, utilising both qualitative and quantitative data collection
methods. The case study shows that the framework and the guidelines enable better
management of tax administration performance by providing valuable feedback on the present
state of a tax administration, identifying possible reasons for underperformance and
highlighting ways in which a tax administration can improve its performance. The theoretical
implications of this study are also highlighted, which include its contribution in providing a
conceptual framework for tax administration performance management, and its potential
application to tax administrations in other developing countries. Finally, practical implications
of this study for the Royal Malaysian Customs are provided. These include the need for the
department to improve its strategic planning process, organisational culture, tasks and people
to enhance its performance management and ultimately its tax administration performance.

v
Acknowledgements

This thesis has been made possible by contributions from a number of people who offered
input, support, guidance, encouragement and prayers throughout my study at the University of
New South Wales. It gives me great pleasure to express my gratitude to these individuals.

First and foremost, I thank God for making this possible. In writing this thesis my
supervisors, Professor Neil Warren, Associate Professor Binh Tran-Nam, and Dr. Jacqueline
McManus have been sources of constant support and encouragement. Their comments,
suggestions and useful advice have been invaluable inputs that have improved the quality of
my work. Their careful review of the draft chapters and constructive comments, advice and
suggestions were very significant. The benefits I have gathered from them are immeasurable.
To them, I remain grateful and thankful always.

A deep gratitude is owed to the Malaysian Government and Universiti Utara Malaysia for
sponsoring my studies and all the participants in this research who made this study possible. I
would also like to express my thanks to all the staff at the Royal Malaysian Customs Wilayah
Persekutuan Kuala Lumpur who provided valuable support during my data collection period.
I also wish to express my sincere appreciation to my fellow colleagues at Universiti Utara
Malaysia and Atax of the University of New South Wales for their kindness in extending
assistance to me during the period of my study.

A special debt is owed to my mother and father for always taking care of me and finding the
funds for my education so that I can be who I am today. My sincere thanks also go to my
brothers for offering constant prayers for the success of my study. Last but not least, special
thanks are dedicated to my husband, Professor Mahamad Tayib, and our two sons, Hassan
and Haidar, who have been the source of inspiration and motivation throughout my study as
well as my life. My husband has contributed to my success not only by making sure that I
have enough time for my study and that our sons were happy but also by commenting on my
work. I hope to be able to make up to my children for all the time that I was away from home
throughout the period of my study. For the sacrifice made by my husband and children to
enable me to successfully finish my study, I remain eternally grateful.

vi
The following papers have been drawn from the thesis:

1. Mansor, M. (2010). ‘Performance of the Indirect Tax Administration in Malaysia: The

Case of Royal Malaysian Customs Wilayah Persekutuan Kuala Lumpur’, paper presented
at the 22nd Australian Tax Teachers Association (ATTA) Conference, Sydney, January 20-
22.

2. Mansor, M. (2010). ‘Performance of the Indirect Tax Administration in Malaysia: A

Comparison with International Benchmarks’, paper presented at the 9th International Tax
Administration Conference, Sydney, April 7-9.

3. Mansor, M., and Tayib, M. (2010). ‘Malaysian Indirect Tax Administration Performance:
Perceptions of Tax Employees and Taxpayers’, paper presented at the 11th World
Congress of Accounting Educators and Researchers, Singapore, November 4-6.

4. Mansor, M. (2010). ‘Performance of the Indirect Tax Administration in Malaysia: A

Comparison with International Benchmarks’, in Datt, K., Tran-Nam, B. and Bain, K.
(eds.), International Tax Administration: Building Bridges, Sydney: CCH, pp. 239-273.

5. Mansor, M. (2010). ‘Performance Management for a Tax Administration: Integrating

Organisational Diagnosis to Achieve Systemic Congruence’, Journal of Australasian Tax
Teachers Association, Vol. 5, No. 1, pp. 137-164 (available at
http://www.atax.unsw.edu.au/atta/jatta/jattavol5no1/JATTA_Vol5_No1_FULL.pdf).

6. Mansor, M., and Tayib, M. (2010). ‘An Empirical Examination of Organisational Culture,
Job Stress and Job Satisfaction within the Indirect Tax Administration in Malaysia’,
International Journal of Business and Social Science, Vol. 1, No. 1 (October), pp. 81-95.

7. Mansor, M., and Tayib, M. (2011). ‘Performance of an Indirect Tax Administration in a

Developing Country: Perceptions of Tax Employees and Taxpayers’, New Zealand
Journal of Taxation Law and Policy, (forthcoming).

vii
Table of Contents
Abstract ....................................................................................................................................... v
Acknowledgements ................................................................................................................... vi
List of Tables ............................................................................................................................ xii
List of Figures .......................................................................................................................... xiv
List of Abbreviations ................................................................................................................ xv
Chapter 1 INTRODUCTION ................................................................................................ 1
1.1 Background to the Study ................................................................................................ 1
1.2 Research Questions......................................................................................................... 6
1.3 Scope of the Study .......................................................................................................... 6
1.4 Significance of the Study................................................................................................ 7
1.5 Research Methodology ................................................................................................... 7
1.6 Structure of the Thesis .................................................................................................... 8
Chapter 2 LITERATURE REVIEW ................................................................................... 10
2.1 Introduction .................................................................................................................. 10
2.2 Performance and Performance Management ................................................................ 11
2.2.1 Defining Performance............................................................................................. 12
2.2.2 Defining Performance Management ....................................................................... 13
2.3 Levels of Performance Management ............................................................................ 17
2.3.1 Individual Level ...................................................................................................... 17
2.3.2 Operational Level ................................................................................................... 18
2.3.3 Strategic Level ........................................................................................................ 19
2.4 Integrated and System-Based Performance Management ............................................ 20
2.4.1 Integrated Performance Management Models ........................................................ 23
2.4.2 System-Based Models ............................................................................................ 25
2.5 Performance Management Practice .............................................................................. 31
2.6 Enhancing the Integrated and Open System Approach ................................................ 36
2.6.1 Organisational Diagnosis ........................................................................................ 36
2.6.2 Diagnostic Models .................................................................................................. 37
2.7 Conclusion .................................................................................................................... 43
2.7.1 Integrated Approach to Performance Management ................................................ 43
2.7.2 Open System Approach to Performance Management........................................... 44

viii
 2.7.3 ‘Black Box’ Approach to Performance Management ............................................ 45
2.8 Summary....................................................................................................................... 46
Chapter 3 DEVELOPING A PERFORMANCE MANAGEMENT FRAMEWORK........ 48
3.1 Introduction .................................................................................................................. 48
3.2 Method: Theory Building ............................................................................................. 48
3.3 An ‘Integrated – Open System’ Performance Management Framework ..................... 49
3.4 Guidelines for Applying the Performance Management Framework .......................... 54
3.4.1 Establish Organisational Plan ................................................................................. 55
3.4.2 Measure Performance ............................................................................................. 58
3.4.3 Diagnose the Congruence among the Four Components ....................................... 74
3.4.4 Summary of the Guidelines .................................................................................... 74
3.5 Summary....................................................................................................................... 79
Chapter 4 RESEARCH DESIGN ........................................................................................ 80
4.1 Introduction .................................................................................................................. 80
4.2 Case Study Approach ................................................................................................... 81
4.3 Data Collection and Analysis ....................................................................................... 85
4.3.1 Documentary Study ................................................................................................ 87
4.3.2 Face-to-Face Interview ........................................................................................... 91
4.3.3 Questionnaire Survey ............................................................................................. 93
4.4 Ethical Considerations ................................................................................................ 100
4.5 Summary..................................................................................................................... 101
Chapter 5 RESULTS OF THE CASE STUDY ................................................................ 103
5.1 Introduction ................................................................................................................ 103
5.2 Result for Procedure (a) of the Guidelines ................................................................. 103
5.2.1 History of Strategic Planning Systems ................................................................. 104
5.2.2 The Use of Strategic Planning Systems ................................................................ 105
5.3 Result for Procedure (b) for Strategic Plan ................................................................ 109
5.3.1 Stakeholders’ Involvement in Strategic Planning ................................................ 109
5.3.2 Strategic Planning Elements ................................................................................. 111
5.3.3 Strategic Management Practices ........................................................................... 111
5.3.4 Allocation of Resources........................................................................................ 112
5.3.5 Performance Management Activities ................................................................... 115

ix
 5.3.6 Performance Measurement Activities .................................................................. 116
5.3.7 Outcomes of the Strategic Plan ............................................................................ 117
5.3.8 Summary of Result for Strategic Plan .................................................................. 121
5.4 Result for Procedure (b) for Task ............................................................................... 127
5.4.1 Tax Enforcement .................................................................................................. 130
5.4.2 Payments and Collections ..................................................................................... 135
5.4.3 Automated Systems .............................................................................................. 139
5.4.4 Planning and Coordinating ................................................................................... 143
5.4.5 Tax Personnel Management / Human Resources ................................................. 144
5.4.6 Sanctions and Penalties ........................................................................................ 148
5.4.7 Organisation, Institutional Credibility and Public Confidence ............................ 151
5.4.8 Survey on Taxpayer Services ............................................................................... 153
5.4.9 Summary of Result for Task ................................................................................. 163
5.5 Result for Procedure (b) for Informal Organisation and People ................................ 166
5.5.1 Result for Organisational Culture ......................................................................... 169
5.5.2 Result for Work Stress .......................................................................................... 171
5.5.3 Result for Motivation............................................................................................ 176
5.5.4 Result for Organisational Commitment ................................................................ 177
5.5.5 Result for Job Satisfaction .................................................................................... 179
5.5.6 Correlation between Stress, Job Satisfaction and Organisational Culture ........... 183
5.5.7 Summary of Results for Informal Organisation and People................................. 185
5.6 Procedure (c): Diagnosing Congruence in the Transformation Process ..................... 188
5.7 Summary..................................................................................................................... 192
Chapter 6 DISCUSSION ................................................................................................... 193
6.1 Introduction ................................................................................................................ 193
6.2 An Integrated and Open System Performance Management Framework .................. 194
6.3 Application of an Integrated and Open System Performance Management .............. 196
6.3.1 Integrated Approach to Performance Management .............................................. 197
6.3.2 Open System Approach to Performance Management......................................... 200
6.3.3 ‘Black Box’ Approach to Performance Management ......................................... 204
6.4 Improvements to the Framework and Guidelines....................................................... 208
6.5 Summary..................................................................................................................... 215

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Chapter 7 CONCLUSION ................................................................................................ 216
7.1 Introduction ................................................................................................................ 216
7.2 Overall Finding of the Study ...................................................................................... 216
7.3 Implications of the Study ............................................................................................ 219
7.3.1 Tax Administration Practices at the Royal Malaysian Customs .......................... 219
7.3.2 General Application of the Performance Management Framework ..................... 225
7.4 Research Limitations and Potential Future Research ................................................. 227
7.5 Conclusion .................................................................................................................. 228
REFERENCES ....................................................................................................................... 230
APPENDICES ........................................................................................................................ 284
Appendix 1: Summary of Tax Administration Performance Measurement Studies .............. 284
Appendix 2: Summary of Reviewed Performance Management Models/Frameworks ......... 286
Appendix 3: Summary of Reviewed Diagnostic Models ....................................................... 288
Appendix 4: Ethics Approval ................................................................................................. 291
Appendix 5: Statement and Consent for Tax Official Interview ............................................ 292
Appendix 6: Case Study Protocol ........................................................................................... 293
Appendix 7: Tax Official Demographic Background for Interview ...................................... 294
Appendix 8: Tax Official Interview Questionnaire ................................................................ 295
Appendix 9: Statement and Consent for Tax Employee Survey ............................................ 318
Appendix 10: Tax Employee Demographic Background....................................................... 319
Appendix 11: Tax Employee Survey Questionnaire .............................................................. 320
Appendix 12: Statement and Consent for Taxpayer Survey .................................................. 330
Appendix 13: Taxpayer Demographic Background ............................................................... 331
Appendix 14: Taxpayer Survey Questionnaire ...................................................................... 332
Appendix 15: Questions for Tax Administration Tasks ......................................................... 337
Appendix 16: Tables and Figures on Indirect Taxes Collection Performance in Malaysia ... 350
Appendix 17: Demographic Data and Cross-Tab Data for Tax Employees .......................... 357
Appendix 18: Demographic Data and Cross-Tab Data for Taxpayers ................................... 363

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List of Tables

Table 1: Main Tasks of Revenue Administration Requiring Analysis .......................................... 67

Table 2: Proportionate Stratified Random Sampling .................................................................... 95
Table 3: Respondents of Pilot Test ................................................................................................ 98
Table 4: Reliability Coefficients for Pilot Test ............................................................................. 99
Table 5: Strategic Action Plan for RMC-WPKL for the Year 2009 ........................................... 106
Table 6: Report on Implementation of the Strategic Action Plan for RMC-WPKL for the Year
2009 ............................................................................................................................................. 106
Table 7: Stakeholders’ Involvement in Strategic Planning ......................................................... 110
Table 8: Strategic Planning Elements .......................................................................................... 111
Table 9: Strategic Management Practices ................................................................................... 112
Table 10: Allocation of Resources .............................................................................................. 115
Table 11: Performance Management Activities .......................................................................... 116
Table 12: Performance Measurement Activities ......................................................................... 117
Table 13: Estimated Accomplishment of the Strategic Plan for the Year 2009 .......................... 118
Table 14: Level of Respondents’ Satisfaction with the Implementation and Achievement of
Strategic Plan for the Year 2009.................................................................................................. 118
Table 15: Tax Officials’ Responses on the Implementation/Achievement of the Strategic Plan
of RMC-WPKL ........................................................................................................................... 119
Table 16: Task Performance of RMC-WPKL ............................................................................. 128
Table 17: Taxpayers Survey: Response Rate .............................................................................. 154
Table 18: Demographic Information on Taxpayers .................................................................... 154
Table 19: Summary Statistics of Service Quality as Perceived by Taxpayers ............................ 156
Table 20: Cross-tab between Interaction Quality and Legal Form of Business .......................... 159
Table 21: Cross-tab between Interaction Quality and Type of Industry ..................................... 159
Table 22: Cross-tab between Interaction Quality and Annual Turnover..................................... 159
Table 23: Cross-tab between Interaction Quality and Type of Tax Paid .................................... 160
Table 24: Cross-tab between Interaction Quality and Period Being a Taxpayer ........................ 160
Table 25: Cross-tab between Waiting Time and Legal Form of Business .................................. 160
Table 26: Cross-tab between Waiting Time and Type of Industry ............................................. 161
Table 27: Cross-tab between Waiting Time and Annual Turnover............................................. 161
Table 28: Cross-tab between Waiting Time and Type of Tax Paid ............................................ 162

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Table 29: Cross-tab between Waiting Time and Period Being a Taxpayer ................................ 162
Table 30: Tax Employees Survey: Response Rate ...................................................................... 167
Table 31: Reliability Coefficients for Actual Study .................................................................... 167
Table 32: Demographic Information on Tax Employees ............................................................ 167
Table 33: Summary Statistics of Organisational Culture as Perceived by Tax Employees ........ 170
Table 34: Summary Statistics of Stress as Perceived by Tax Employees ................................... 172
Table 35: Cross-tab between Stress Item 9 and Department/Division ........................................ 173
Table 36: Cross-tab between Stress Item 9 and Occupation ....................................................... 173
Table 37: Cross-tab between Stress Item 9 and Term of Employment ....................................... 174
Table 38: Cross-tab between Stress Item 10 and Department/Division ...................................... 174
Table 39: Cross-tab between Stress Item 10 and Occupation ..................................................... 175
Table 40: Cross-tab between Stress Item 10 and Term of Employment ..................................... 175
Table 41: Summary Statistics of Motivation as Perceived by Tax Employees ........................... 176
Table 42: Summary Statistics of Organisational Commitment as Perceived by Tax Employees178
Table 43: Summary Statistics of Job Satisfaction as Perceived by Tax Employees ................... 180
Table 44: Cross-tab between Job Satisfaction Item 4 and Department/Division ........................ 181
Table 45: Cross-tab between Job Satisfaction Item 4 and Occupation ....................................... 182
Table 46: Cross-tab between Job Satisfaction Item 4 and Term of Employment ....................... 182
Table 47: Nonparametric Correlations (Spearman Rank Correlation Coefficient) ..................... 184

xiii
List of Figures

Figure 1: Performance Management Cycle ................................................................................... 15

Figure 2: Simplified Program Logic Model Sequence .................................................................. 25
Figure 3: Expanded Program Logic Model Sequence ................................................................... 26
Figure 4: Expanded Program Logic Model Sequence, with Detail Items ..................................... 27
Figure 5: A Macro-Micro View of Performance ........................................................................... 29
Figure 6: A Conceptual Model for PSM Affecting Individual Performance ................................ 34
Figure 7: The Burke-Litwin Model ............................................................................................... 39
Figure 8: The Congruence Model .................................................................................................. 41
Figure 9: An Open Sytem Framework for Performance Management ......................................... 51
Figure 10: An ‘Intergrated – Open System’ Performance Management Framework for Tax
Administration ............................................................................................................................... 53
Figure 11: The Competing Values Framework of Organisational Culture ................................... 64
Figure 12: Guidelines for Applying the Performance Management Framework .......................... 76
Figure 13: Royal Malaysian Customs Transformation Model .................................................... 107
Figure 14: Revised ‘Intergrated – Open System’ Performance Management Framework for
Tax Administration ...................................................................................................................... 210
Figure 15: Revised Guidelines for Applying the Performance Management Framework .......... 212

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List of Abbreviations

AFTA ASEAN Free Trade Area

AICPA American Institute of Certified Public Accountants
ANAO Australian National Audit Office
ASEAN Association of Southeast Asian Nations
ATO Australian Taxation Office
CEO Chief Executive Officer
CEPT Common Effective Preferential Tariff Scheme
CI Commitment Item
CIPFA The Chartered Institute of Public Finance and Accountancy
CRA Canada Revenue Agency
CVF Competing Values Framework
DSO Departmental Strategic Objective
ECLAC Economic Commission for Latin America
EFT Electronic Fund Transfer
EPF Employee Provident Fund
GDP Gross Domestic Product
GST Goods and Services Tax
HMRC United Kingdom HM Revenue & Customs
IDGT Indonesia’s Directorate General of Taxation
IMF-FAD International Monetary Fund-Fiscal Affairs Department
IRS United States Internal Revenue Service
JSI Job Satisfaction Item
MBS Malaysian Budgeting System
MI Motivation Item
OAS Organisation of American States
OCI Organisational Culture Item
OD Organisation Development
OECD Organisation for Economic Co-operation and Development
PAYE Pay as You Earn
PSA Public Service Agreement

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PSM Public Service Motivation
Q Question
RBV Resource-based View
RM Ringgit Malaysia (Malaysian Currency)
RMC Royal Malaysian Customs
RMC-WPKL Royal Malaysian Customs Wilayah Persekutuan Kuala Lumpur
S.D. Standard Deviation
SHRM Strategic Human Resource Management
SI Stress Item
SPSS Statistical Package for Social Sciences
SQI Service Quality Item
UK The United Kingdom
US The United States of America
USAID United States Agency for International Development
UUM Universiti Utara Malaysia
VAT Value Added Tax

xvi
Chapter 1 INTRODUCTION

1.1 Background to the Study

While the tax policy and tax laws create potential for raising tax revenues, the actual amount
of taxes flowing into the government treasury, to a large extent, depends on the tax
administration (Gill, 2003). In the developing countries, the tax administration’s capacities are
constrained by many limitations: “…although tax administration has come a long way in
many developing countries over the last three decades, there is still much to be done…despite
the improvements, there remain areas where good tax policy continues to surrender to tax
administration constraints...” (Bahl and Bird, 2008, p. 287). Most governments in the
developing countries are faced with the same basic limitations concerning the function of
their tax administration: the complexity of fiscal legislation; the attitude of taxpayers and the
degree of non-compliance; a steadily growing workload; the need to improve customer
service and reduce costs of tax assessment and collection; and the need for efficient and
effective management (Hogye, 2000).

Efficient and effective management impact on the overall performance of a tax administration
(see, for example, the OECD (2008) and the World Bank (2003)). The OECD (2008) defines
efficiency as measures to assess the relationship between outputs and the inputs used to
produce them, and effectiveness as measures to assess the whole sequence in terms of how it
achieved the intended objectives or outcomes.

The main role of a tax administration is to collect tax revenue. Silvani and Baer (1997)
proposed that the efficiency of a tax administration is best evaluated by looking at its tax
collection process. Baurer (2005) conducted a comprehensive study on tax administration
operations in developing countries and found weaknesses in the tax collection process which
cover poor management practices, taxpayer registration, enforcement, operating procedure,
taxpayer education, employee training, information technology, and performance evaluation
and control. Findings from case studies in India (Das-Gupta, 2004), Latin American countries
(Lledo, 2004) and Indonesia (Brondolo et al., 2008) also supported the above claims. A poor
tax administration in terms of raising revenue has serious effect on a country’s income (Teera

1
and Hudson, 2004). According to Das-Gupta et al. (2004), poor tax collection in developing
countries has limited the capacity of their governments to raise revenues for developmental
purposes. A study on the taxable capacity and revenue potential of the developing countries
by Le et al. (2008) revealed that 37 developing countries were in the category of low tax
collection level. All the above studies have indicated the need to improve the efficiency of tax
administrations in developing countries.

In terms of effectiveness of a tax administration, Bird (2003) stated that effective tax
administration requires establishing environments in which citizens are induced to comply
with tax laws voluntarily. Low tax compliance is a matter of serious concern in many
developing countries (Das-Gupta et al., 2004). Cobham (2005) calculated the overall level of
tax revenue lost due to non-compliance in developing countries to be equal to roughly
US$385 billion per year. In addition, Christian Aid (2008) estimated the overall tax revenue
loss due to tax non-compliance in developing countries was US$160 billion in 2008. Christian
Aid (2009) also reported tax revenue losses due to non-compliance of US$121.8 billion per
year in developing countries during the period of 2005-2007.

A potential approach that can be used to improve tax administration efficiency and
effectiveness is performance management. Performance management involves improving
strategic focus and organisational efficiency and effectiveness through continuously securing
improvements in the performance of individuals and teams (Philpott and Sheppard, 1992).
Performance management is viewed as a means of getting better results from an organisation,
teams and individuals within an agreed framework of planned goals, objectives and standards
(Armstrong and Murlis, 1994). The idea of managing organisational performance has spread
rapidly from the private sector to the public sector in the developed world and has more
recently been adopted in developing countries (Salem, 2003).

However, there are limited studies on performance management in the tax administration
context. Studies on tax administration performance tend to focus on performance
measurement rather than the process of performance management itself (see, for example,
Ishi, 1993; Gonzalez and Miles, 2000; Taliercio, 2004; Klun, 2004; Serra, 2005; von Soest,
2006; Tenant and Tenant, 2007). Although performance measurement is a critical component

2
of performance management, measuring and reporting alone have rarely led to organisational
learning and improved outcomes (US National Performance Management Advisory
Commission, 2009). Performance management systematically uses measurement and data
analysis, as well as other tools, to facilitate learning and improvement and strengthen a focus
on outcomes. While measurement helps to monitor performance, management encompasses
an array of practices designed to improve performance. Alley and Bentley (2008) also
suggested that performance management supports the achievement of a good tax
administration through target setting, which is measured by selected key performance
indicators.

Despite the importance of performance management, there are very few publications on
performance management in tax administration; for example: Crandall (2010), Hanninen
(2011), and OECD (2011). These three studies highlight one issue that needs to be addressed
in tax administration performance management: the importance of integrating performance
management at the strategic, operational, and individual levels. However, the discussion on
performance management is brief in these studies and does not include any discussion on how
to integrate the three levels of performance management.

Integrating performance management at the strategic, operational, and individual levels is

critical for an organisation as different organisational levels compete for the managers’
attention and organisational resources (Verweire and Van Den Berghe, 2004). The people at
the different levels have the common aim of increasing the performance of the organisation
(or department), but they differ in how to tackle this overall goal. It is significant for an
integrated approach to be adopted by an organisation to promote efficient use of
organisational resources.

However, the review of existing performance management practice discloses that there is a
lack of integration among the individual, operational, and strategic levels of performance
management specifically for public organisations. This is because, typically, different levels
of performance management are led by different parties in the organisations. Strategic
performance management efforts are led by the executive team, operational performance by
group managers, and individual performance management by the human resource department,

3
mostly with limited interaction between them. Due to limited or no integration, public
organisations fail to adequately address the institutional and behavioural factors that can
affect the operational and individual performance, hence affecting organisational
performance. An integrated approach, linking together all levels of performance management,
becomes a necessity to facilitate the understanding and usage of performance management
systems and ultimately improve performance.

The literature on organisational performance management proposes that effective integration

of the different levels of performance management can be achieved through an open system
view of an organisation. Open system theory proposes that an organisation is an open system
that transform inputs into outputs within the environment (both internal and external) upon
which it is dependent (Miller and Rice, 1967). The theory focuses on integrating all
components of an organisation and mapping the relationship between them for the purpose of
performance management.

The review of the performance management models in the literature revealed that the existing
models are either based on the integrated view or the system-based view of performance
management. The integrated models propose how to integrate the strategic, operational and
individual levels and measure them accordingly. However, the models do not demonstrate
how the different levels interact in an open system view, where an organisation needs to
consider both the internal and external environment in which it exists. On the other hand, the
system-based models do not illustrate how the three levels of performance management
should be integrated, as the models adopted the ‘black box’ approach towards the process of
transforming input into outputs/outcomes (simply termed ‘transformation process’ for the
purpose of this study). The ‘black box’ in the transformation process involves performance
management at the operational level, which must be linked to organisational strategy
(strategic performance management) and human resources (individual performance
management). Consequently, there is a need to combine the integrated view and the open
system view to form a holistic approach to performance management that can be adopted in
practice.

4
In order to do this, the emphasis must be on the transformation process (operational level) of
an organisation because this is the centre of activities where both the strategic and individual
levels interact to perform the functions of the organisation. The transformation process is also
the phase where the institutional and behavioural factors interact with each other. This calls
for an alternative approach which can highlight the detailed components of the transformation
process in an organisation. In this regard, organisational diagnosis, which is the major
approach in organisation development, has shown promise to be used in highlighting the
detailed components of the transformation process in an organisation. Diagnosis entails
understanding a system’s current functioning through investigations that are aimed at
examining an organisation’s current state, at finding ways to solve problems, or at enhancing
organisational performance. It also involves the process of collecting pertinent information
about current operations, analysing the data obtained, and drawing conclusions regarding
potential change and improvement. These aspects of organisational diagnosis are useful for
performance management purposes, particularly in examining the ‘black box’ in the
transformation process. In addition, diagnosis can also be utilised to understand the
behavioural aspect of an organisation that can affect its performance management.

The best possible solution is to merge an open system model for performance management
with the organisational diagnosis model to enable an integration of the different levels of
performance management. The new approach should also address the ‘black box’ in the
transformation process of a tax administration by providing ways to examine the institutional
and behavioural factors involved in the process. This study aims to undertake the new
approach by developing a framework that expands the aspect of the transformation process in
an integrated and open system approach to tax administration performance management
which can be adopted in practice. The aim of this study is achieved by addressing the research
questions as set out below.

5
1.2 Research Questions

The research questions are:

1. How can an integrated and open system approach to performance management be
undertaken to improve tax administration performance in developing countries?
2. How can an integrated and open system approach to performance management be applied
in tax administration practice?

1.3 Scope of the Study

This study is limited to performance management in the context of developing countries.

Specifically it focuses on performance management for tax administration. However, due to
limited publications on tax administration performance management, this study draws on the
broader literature on performance management in public organisations. Performance
management in public organisations is distinguished from private organisations because of the
significant difference in the ways the organisations are operated and the purposes of their
existence. Ehrenberg and Stupak (1994) and Peng et al. (2007) stated that the multi-faceted
nature of the public sector makes it more challenging to develop performance management
systems in these organisations as compared to private organisations. Public organisations
usually have broad social objectives, where the economic bottom line is not the natural focus
(Leslie and Tilley, 2004). In an environment involving difficult trade-offs, public sector
executives sometimes struggle to focus on the right things and to track results. There are
many quantifiable measures of success in the public sector, but rarely a single, uncomplicated
bottom line. This makes it important to separately consider performance management
practices in public organisations.

The scope of this study is also limited to the potential use of performance management in
improving the efficiency of a tax administration as opposed to effectiveness. This is because
tax administrations in developing countries have to improve their efficiency in order to
improve their effectiveness (Fuest and Riedel, 2009). Better performance management will
improve tax administration efficiency, hence improving tax administration effectiveness in
the long run.

6
1.4 Significance of the Study

This study makes a contribution to the literature by:

1. developing a framework that incorporates the detail of the core business activities in the
transformation process such that the strategic, operational and individual levels can be
integrated in an open system approach to tax administration performance management;
2. outlining a set of guidelines to assist the application of the performance management
framework; and
3. demonstrating the value of the guidelines for tax administration performance management
in a developing country.

1.5 Research Methodology

Essentially, this study was conducted in two phases. The first phase comprised the
development of an integrated and open system framework for tax administration performance
management. The intention was to document a detailed and effective means of approaching
performance management in tax administrations in developing countries. A set of guidelines
on how to apply the tax administration performance management framework was also
developed to enable the use of the framework in practice.

In the second phase, a case study approach was taken to test the usability of the framework
and guidelines for tax administration performance management in a developing country. The
guidelines for performance management involve a systematic structure for evaluation of
processes which are specific to a tax administration. The organisation, or the context,
therefore plays a central role. Consequently, the use of a case study was deemed appropriate
for the purpose (Yin, 2003). The guidelines were applied to the Royal Malaysian Customs,
the tax authority that administers indirect taxes in Malaysia. The Royal Malaysian Customs
was a ‘critical case’ study representing tax administrations in developing countries (refer to
Section 4.2).

Particular attention was given to the Royal Malaysian Customs Wilayah Persekutuan Kuala
Lumpur (RMC-WPKL) which is a state office of the Royal Malaysian Customs. The selection

7
of RMC-WPKL was because it was considered as a ‘typical case’ representing the rest of the
Royal Malaysian Customs offices in Malaysia. This is because the Royal Malaysian Customs
requires its management practices and procedures to be implemented uniformly in all its
offices throughout the country. This case study was undertaken using mixed data collection
methods in the form of documentary study, face-to-face interview, and questionnaire survey.

1.6 Structure of the Thesis

The thesis is structured as follows. Chapter 2 covers the literature on performance,

performance management and the different levels in performance management. The literature
on performance management practices specifically in public organisations is reviewed. The
review indicates that the best way to undertake performance management in an organisation is
through an integrated and open system approach.

In Chapter 3, a framework for an integrated and open system tax administration performance
management is developed. The framework integrates the different levels of performance
management and incorporates the congruence model as a new approach to give detail on the
components in the tax administration transformation process. A set of guidelines for the
purpose of applying the performance management framework is also developed. The
guidelines contain procedures that can be followed to examine the components of the
transformation process of a tax administration to enable the integrated and open system
framework to be applied.

Chapter 4 outlines the research design used to test the framework developed in Chapter 3
through the application of the guidelines. Case study approach is identified as an appropriate
research strategy for this study. Limitations in conducting a case study are acknowledged.
This chapter also discusses the data collection methods used in the case study, which are the
documentary study, face-to-face interview, and questionnaire survey. Ethical issues in relation
to the data collection methods are addressed.

8
Chapter 5 presents the results of the case study. In particular, the results of the documentary
study, face-to-face interview, and questionnaire survey are presented according to the
procedures in the guidelines in Chapter 3.

In Chapter 6, the findings from the different procedures in the guidelines in Chapter 3 are
discussed. Specifically, the contributions of the framework and guidelines developed in
Chapter 3 are highlighted, the findings of all the different procedures in the guidelines are
discussed, and the research questions are answered. Improvements to the framework and
guidelines are also suggested in this chapter.

Finally, conclusions based on this study, including its limitations and some broader
implications for tax administration performance management, are drawn in Chapter 7,
together with the identification of areas for future research.

9
Chapter 2 LITERATURE REVIEW

2.1 Introduction

Tax administrations in developing countries need to improve their performance, and this can
be done through performance management. Performance management emphasises the need to
be forward looking and focused on how performance can be better in the future (Lebas and
Euske (2007). It is a systematic use of performance measurement and data analysis, as well as
other tools, to facilitate learning and performance improvement (United States National
Performance Management Advisory Commission, 2009).

The discussion on performance management is limited in the tax administration literature.

Alley and Bentley (2008) suggested that performance management could support the
achievement of an efficient and effective tax administration through target setting, which is
measured by selected key performance indicators. However, ‘management’ tends to be
limited to performance measurement. There have been extensive studies on measuring tax
administration performance; for example, by Ishi (1993), Mustafa (1996), Tayib (1998),
Gonzales and Miles (2000), Moesen and Persoon (2002), Taliercio (2004), Klun (2004),
Barros (2005), von Soest (2006), and Tennant and Tennant (2007).1 What is lacking in these
studies is that they do not analyse and identify areas that can be improved for performance
management purposes. The focus on performance measurement, with the emphasis on
collecting, measuring and reporting data, produces little insights, learning or improvement for
a tax administration (Marr, 2009).

To date, there is limited publication on tax administration performance management. A few

recent publications with a brief discussion on a very limited scope of performance
management include Crandall (2010) which discussed approaches to performance
management; however, the discussion is more on how to measure performance in the
performance management context. Hanninen (2011) briefly discussed performance
management in Finnish tax administration. This conceptual paper focuses on using

1
A detailed review of tax administration performance measurement studies is provided in Appendix 1 of this
thesis.

10
performance benchmarking and process benchmarking in tax administration performance
management. The OECD (2011), in its study on 49 OECD and selected non-OECD countries,
reported that performance management systems are in place in all except four revenue bodies.
It was also noted that many revenue bodies are in the process of developing new performance
management systems and processes. However, none of these studies provide details on how to
undertake performance management in tax administration.

This chapter explores the literature on performance management for the purpose of finding
the best possible way to approach tax administration performance management and how it can
be applied in practice. Specifically, Section 2.2 and its subsections set out the definitions of
performance and performance management. Section 2.3 and its subsections describe the
different levels of performance management. Section 2.4 and its subsections explain the
integrated and system-based approach to performance management. Section 2.5 describes
performance management in practice. Section 2.6 and its subsections discuss the possible way
to enhance the integrated and open system approach to performance management. Section 2.7
and its subsections highlight the limitations in the existing performance management
literature. Finally a summary of this chapter is provided in Section 2.8.

2.2 Performance and Performance Management

Lebas (1995) characterised performance as future oriented and customised to reflect

particularities of each organisation/individual. He argued that, holding to the belief that
performance is about the future, one must first, in order to create the conditions of
management of performance, develop an understanding of what causes performance, however
it is defined. The concepts of performance must be shared among all the participants so that
everyone can contribute to the success of the business. He added that understanding the
process underlying performance is the only way to define the measures that lead to actions. In
a more recent article, Lebas and Euske (2007) proposed that performance is the sum of all the
processes required to create a ‘performing’ organisation in the future. They described
performance as doing today what will lead to an outcome of measured value tomorrow, and,
in this case, performance should be managed to achieve the intended outcome. The following
sections discuss a range of definitions of performance and performance management.

11
2.2.1 Defining Performance

The literature defines performance based on how it is measured. Based on the belief that
resources are never limitless, the concept of ‘three Es’ (economy, efficiency and
effectiveness) has emerged and they are widely regarded as fundamental objectives for
defining and measuring performance specifically in public sector organisations (Hatry, 1999;
Leithe, 1997). The relationship between the concept of economy, efficiency and effectiveness
and their roles in measuring performance is appropriately described by Wanna et al. (1992,
p.11): ‘today’s public sector manager consciously searches for “economy” and “efficiency”,
rewards “management by objectives”, extracts “value for money” in budgeting, and looks for
standards of “effectiveness” in program delivery which can be ascertained by performance
indicators’.

‘Economy’ reflects a desire to make public dollars go further and contain expenditure (Wanna
et al., 1992). For central agencies like the Department of Finance or State Treasury, the use of
‘economy’ is to investigate how well operational agencies have kept actual costs over one
period within previously agreed forward estimates. However, as an overall technique of
resource control, the ‘economy’ objective has problems, one of which is that it entirely
focuses on input costs, and has little to offer in terms of guaranteeing that performance is high
and that outputs are realised or desired (Flynn et al.,1988).

The concept of efficiency received a more widespread acceptance than ‘economy’. In fact,
early theorists in public administration such as Wilson (1887), Taylor (1923), White (1926)
and Willoughby (1927) accepted efficiency as the key value in public administration. They
suggested that public organisations should seek the greatest possible efficiency in their
operations; and that such efficiency was best achieved through unified and largely
hierarchical structures of administrative management. Efficiency measures capture the
amount of services completed or delivered (Ho and Ni, 2005). ‘Efficiency’ is generally
applied at the operational or program levels because the ratio between inputs and outputs can
often be more easily identified at those levels (Hayes, 1988).

The concept of effectiveness covers a broader scope of performance. Effectiveness is

concerned with assessing the quality of outputs and whether predetermined goals were

12
achieved (Hoque and Adams, 2008). The emphasis is on improving the quality of specified
outputs to achieve better outcomes (Wilenski, 1988). It captures the results or the
consequences of service delivery to customers.

In the context of tax administration, the general principle of performance also focuses on
efficiency and effectiveness (James et al., 2007). The OECD (2008), the World Bank (2003)
and the literature generally (see, for example, Bird (2003)) also described performance in tax
administration by focusing on efficiency and effectiveness. The OECD (2008) describes
efficiency as measures to assess the relationship between outputs and the inputs used to
produce them, and effectiveness as measures to assess the whole sequence in terms of how it
achieved the intended objectives or outcomes.

2.2.2 Defining Performance Management

Performance management systematically uses measurement and data analysis, as well as other
tools, to facilitate learning and improvement and strengthen a focus on outcomes (United
States National Performance Management Advisory Commission, 2009). It encompasses an
array of practices designed to improve performance of an organisation.

Performance management is often equated to performance measurement. However, the two

are not the same, as the measurement of performance is only one aspect of its management
(Greener, 2009). Nathan (2009) also argued that performance measurement should not be
confused with performance management, because measuring performance is a necessary but
insufficient condition for performance management. Radnor and Barnes (2007, p. 393)
differentiate them as:
Performance measurement is quantifying, either quantitatively or qualitatively, the
input, output or level of activity of an event or process. Performance management is
action, based on performance measures and reporting, which results in improvements
in behaviour, motivation and processes and promotes innovation.

The definitions of performance management also revolve around individual performance,

group performance, and organisational performance. This is because performance
management in an organisation can be applied at these three levels. With respect to individual
performance, the essence of performance management is the development of individuals with

13
competence and commitment, working towards the achievement of shared meaningful
objectives within an organisation that supports and encourages their achievement (Lockett,
1992). Individual performance management is about directing and supporting employees to
work as efficiently and effectively as possible in line with the needs of the organisation, with
a clear focus on how to improve employee performance so that they can contribute to the
overall success of the organisation (Walters, 1995; IDS, 1997; DeNisi and Pritchard, 2006).

In terms of group performance, the aim is to improve strategic focus and organisational
effectiveness through continuously securing improvements in the performance of teams.
Group performance management is a range of practices an organisation engages in to improve
the performance of a target group with the ultimate purpose of improving organisational
performance to achieve organisational goals and objectives (Philpott and Sheppard, 1992;
Hendry et al., 1997; DeNisi, 2000; Strebler et al., 2001).

In terms of organisational performance, broadly, any integrated and systematic approach to

achieve an organisation’s strategic aims and promote its missions and values is considered to
be organisational performance management (Edis, 1995). This might include, for example, an
agreed framework of planned goals, objectives and standards for getting better results
(Armstrong and Murlis, 1994). The purpose of organisational performance management is to
provide a pro-active system; where the corporate and functional strategies are deployed to all
business processes, activities, tasks and personnel; and feedback is obtained through the
performance measurement system to enable appropriate management decisions (Bititci et al.,
1997).

Buchner (2007) identified two main theories underpinning performance management. The
first one is the goal theory, which underpins the emphasis in performance management on
setting and agreeing objectives against which performance can be measured and managed. It
supports the agreement of objectives, feedback and review aspects of performance
management. The second theory is the control theory which focuses attention on feedback as
a means of shaping behaviour. As people receive feedback on their behavior, they appreciate
the discrepancy between what they are doing and what they are expected to do and take
corrective action to overcome it. Together, the goal and control theories form the basic

14
performance management cycle.

Armstrong (2009) stated that a basic performance management system operates as a

continuous and self-renewing cycle as shown in Figure 1. The cycle contains activities of
developing organisational goals through an established plan, implementing the plan,
controlling/monitoring/measuring whether performance is in congruence with the plan, and
reviewing the achievement of the plan. He stated that the performance management cycle
closely resembles the cycle for continuous improvement defined by Deming (1986). This is
not a coincidence as performance management is all about continuous improvement.

Figure 1: Performance Management Cycle

Plan

Review Act

Monitor

Source: Armstrong (2009, p. 62)

The importance of monitoring/measuring whether performance is in congruence with the plan

has been the reason for extensive studies on performance measurements. The general purpose
of performance measurement is to gain insight into a number of relevant aspects of a
production process or policy process, in order to develop a better ability to control these
processes (Sorber, 1993). In this respect, Sorber (1993) provided four functions of
performance measurement: 1) providing early warning on the developments of output and
outcome; 2) improving allocation of resources; 3) improving the performance of production
and policy processes; and 4) improving accountability, especially in cases of contract
management and agencies.

15
Performance measurement has been one of the key drivers in the reform of the public sector
organisations throughout the world. For example, public sector reforms throughout the OECD
member countries are producing a new model of public governance, incorporating a more
modest role of the state as direct public service provider and a strong role of performance
measurement (Sanderson, 2001). Performance measurement is an important tool for
increasing accountability in the OECD countries as it provides data on how effectively and
efficiently public services are delivered. This is essential as various stakeholders are expecting
public sector organisations to perform their tasks well and achieve the purpose of their
existence (Brignall and Modell, 2000; Greiling, 2005).

In the public sector in the United Kingdom, performance measurement has over the past 20
years become an important aspect of service delivery and assessment. The performance
indicators in the public sector were developed in the 1980s under the Thatcher administration
which transformed the management style of government and concentrated more on value for
money, efficiency, decentralisation and accountability (Davies, 2003). The number of
performance indicators increased rapidly from about 500 indicators in the Annual Public
Expenditure White Paper in 1985 to 1,800 indicators in 1987 (Carter et al., 1992). Since the
year 1990, the performance indicators have been published in all departments of government
(HM Treasury, 1990). The development of the performance indicators has illustrated a change
of culture in the United Kingdom public sector (James et al., 2007).

Performance measurement has also been a staple of public administration since the turn of the
last century in the United States. The New York Bureau of Municipal Research first
developed budgetary systems based on workload measures shortly before World War II
(Gianakis, 2002). Ridley (1927) and Ridley and Simon (1938) issued early works on
measuring the performance of municipal service delivery systems. Program outcome
measures formed an integral part of the analysis required by the planning-programming-
budgeting system back in the 1960s and were used in zero-based budgeting systems in the
1970s and 1980s (Greiling, 2005). Performance targets were also an element of management-
by-objectives implementations in the public sector in the 1970s. In the 1980s and 1990s
performance measurement again became a topic in the public sector in a situation when

16
serious revenue shortfalls and changing attitudes towards the public sector made it necessary
to find solutions other than the cut-back management practised in the past decades.

The Australian Government has been pursuing performance measurement for public sector
reform since 1993, considering the need to achieve a performance culture within the sector
(Hoque and Adams, 2008). The Australian public sector has experienced a relentless process
of accountability reforms throughout all levels of government. The key objectives of such
reforms are to promote a culture that emphasises performance and to make the public sector
more responsive to the needs of the public by increasing managerial accountability,
promoting efficiency and effectiveness, introducing consultative decision making and
adopting a customer-focused strategy (Broadbent and Guthrie, 1992; Hood, 1995; Hoque and
Moll, 2001).

Performance measurement is used to evaluate performance at the different levels of

organisation, i.e. individual, group and organisational levels. The information from these
measurements can then be used to manage performance at the individual, operational and
strategic levels. It is therefore important to recognise the different levels in which
performance management is applied. The following section discusses these levels.

2.3 Levels of Performance Management

Traditionally, performance management in an organisational context has been divided into

three levels: individual, operational and strategic level. Improving organisational performance
involves the process of managing individual, operational, and strategic performance.

2.3.1 Individual Level

Originally, organisations’ performance management focus was based on individuals

performing tasks as part of a group. In the 1970s in the United States and the 1980s to 1990s
in Britain, it was government legislation concerning such things as equal opportunity and civil
rights which compelled organisations to adopt some sort of system for evaluating their
employees. Performance management systems were used in the 1980s and 1990s as powerful
tools for change in public sector culture and ethos (Furnham, 2004). In the 1990s, individual

17
performance management was reshaped by two key trends (Brudan, 2010). The first was the
increase in popularity of self-assessment of performance, followed by feedback sessions with
line managers. In this case, most organisations rely upon some form of performance appraisal
system to provide employees with feedback about their performance and to help the
organisation make decisions about such things as pay increases and promotions (Cleveland et
al., 1989; Landy and Farr, 1980). Research on performance appraisal dates back at least as far
as the early 1920s, and has continued to the present day (DeNisi and Pritchard, 2006). The
second key trend was the integration between individual performance management and
strategic performance management. Organisational goals became reflected in individual goals
and individual measures became aligned with organisational performance measures, in an
effort to increase the accountability of all employees to the execution of the organisational
strategy.

2.3.2 Operational Level

Performance management at operational level is linked to operational management, as its

focus is the achievement of departmental, project or group objectives. Although it is aligned
with corporate strategy, its focus is more functional. The evolution of operational
performance management is linked to the evolution of accounting and management. This is
due to the fact that operational performance is traditionally evaluated in terms of efficiency
and effectiveness, and the easiest way to do this is by using financial indicators, provided by
the accounting function in organisations (Brudan, 2010). Over time, as internal and external
operating environments became more complex, organisations started to look at non-financial
indicators of performance. This made the connection with operations management and other
aspects of the general management discipline.

Operational performance looks at the processes of how inputs such as people, materials and
machines are transformed into outputs such as finished goods and satisfied customers
(Gemmel, 2004). The operations function is not an isolated part of an organisation; as with
many other functions, it must be linked to business strategy. The operations function
contributes and supports an organisation’s business strategy through five performance
objectives as suggested by Slack et al. (1995, p. 53): 1) the quality objective – doing the

18
things right; 2) the dependability objective – doing things on time; 3) the speed objective –
doing things fast; 4) the flexibility objective – changing what you do; and 5) the cost objective
– doing things cheap. These performance objectives can be regrouped into three categories:
the quality objective, the time-based objective, and cost objective. It is therefore important for
an organisation to develop its operational performance management, as an organisation is
only as good as its processes at the operational level (Rummler and Brache, 1990). To
manage performance at the operational level, one must ensure that processes are installed to
meet customer needs, and that those processes work efficiently and effectively, and that the
process goals and measures are driven by the customers’ and organisation’s requirements.

2.3.3 Strategic Level

At the strategic level, performance management deals with the achievement of organisational
objectives. Practitioners refer to it as corporate, business or enterprise performance
management. The strategic level is the highest and most complete usage of performance
management principles in organisations. Organisational performance management at the
strategic level focuses on developing work systems and the working environment as well as
developing individuals. To develop the systems and make them function effectively, it is
necessary to ensure that the strategy is understood (Kaplan and Norton, 2000). A strategic
approach to managing organisational performance means taking a broad and long-term view
of where the organisation is going and managing performance in ways to ensure that this
strategic thrust is maintained (Bourne et al., 2003). The objective is to provide a sense of
direction in an often turbulent environment so that the business needs of the organisation and
the individual and collective needs of its employees can be met by the development and
implementation of integrated systems for managing and developing performance.
Organisational performance management is strategic in the sense that it is aligned to the
business strategy of the organisation and supports the achievement of its strategic goals.

The key processes related to strategic performance management are strategy analysis, strategy
formulation and strategy execution, all of which are subsets of strategic management (Simons,
2000). The strategy analysis and strategy formulation process results in a concrete plan for an
organisation, ready for implementation. This process is often referred to as the strategic

19
planning process. Strategic planners primarily pay attention to the strategy analysis and the
strategy formulation phases. Strategy implementation is often considered to be the major
responsibility of the functional/operational managers. This explains why academics separate
the strategy formulation phase (including strategy analysis) from the strategy implementation
phase. This separation is found in organisations as well, where the strategy staff report and
operate, somewhat disconnectedly, from the line and operational managers (Verweire and
Van Den Berghe, 2004).

However, in today’s environment where everything evolves and changes so quickly,

integrating strategy formulation with managing its implementation is critical. In fact, the
literature indicates that, in order to enhance the process of strategy formulation and
implementation, performance management at the strategic level (strategy formulation) should
be integrated with performance management at the operational and individual levels
(execution of the strategy). Integrated performance management should help organisations to
improve, consolidate or change their strategic position (Brudan, 2010).

2.4 Integrated and System-Based Performance Management

Best practice in performance management involves an integrated performance management

system as different organisational levels compete for the managers’ attention and
organisational resources (Verweire and Van Den Berghe, 2004). The people at the different
levels have the common aim of increasing the performance of the organisation (or
department), but they differ in how to tackle this overall goal. The integrated view to
performance management has the potential to assist individuals and organisations to better
understand and align the different three levels and create a complete, holistic picture of
performance that outlines the relationship between organisational and individual performance.

The need for an integrated approach to performance management is also recognised in the tax
administration context. Crandall (2010), in a recent series of technical notes and manuals
from the Fiscal Affairs Department of the International Monetary Fund (IMF), proposed that a
tax administration should apply performance management at the strategic, operational, and
individual levels. Despite this suggestion, the discussion on performance management
actually focused on how performance should be measured at these three levels. It was

20
proposed that the measurements at the strategic level should be on the organisation’s overall
performance in delivering the mission and strategic goals; the measurements at the
operational level should be on the effective execution of particular aspects of the organisation;
and the measurements at the individual level should be based on critical elements and
standards.

The OECD (2011), in its study on 49 OECD and selected non-OECD countries, reported that
64 percent of the revenue bodies do not set objectives for each member of staff at the start of
the performance period. About 84 percent of the revenue bodies review the performance of
each staff member at least annually. What is apparent in the OECD report is that the focus of
these revenue bodies is on performance management at the individual level, with lack of
integration with performance management at the operational and strategic levels.

Hanninen (2011) noted that the immediate challenge facing a tax administration is to combine
performance management at the strategic, operational, and individual levels. He stated that it
is important to do this so that operational and strategic levels are not separated, but support
each other and have impact on how people act at a behavioural level. He added that, although
measurement is a critical component of performance management to improve a tax
administration, measuring and reporting alone have rarely led to organisational learning and
improved outcomes.

Crandall (2010), OECD (2011), and Hanninen (2011) agree that there is a need to find a way
to integrate performance management at the individual, operational and strategic levels to
form an integrated approach towards tax administration performance management. However,
the method to apply the integrated approach in tax administration is not offered by these three
studies. The lack of integrated performance management in tax administration raised the
question as to whether it is possible in practice.

The general literature on performance management proposed that strategic, operational, and
individual performance management can be effectively integrated in a system-thinking view,
where organisational performance improvement is the key driver (Brudan, 2010). System
thinking promotes a holistic approach to managing organisational performance. It is the basis

21
of the input-process-output-outcome model of managing performance, which assesses the
entire contribution that an individual makes within the system in carrying out his or her
allocated tasks (Senge, 1990). Inputs - the skills and knowledge that an individual brings to a
job together with process - which is how people actually perform their jobs - are measured to
assess development and learning needs. Outcomes measure the scale of an individual’s
contribution to the overall team, department and corporate performance, and are central to
performance management. A system view focuses on integrating all components of the
organisation and mapping the relationship between them.

There are two broad interpretations of a system approach in performance management, which
are the ‘open’ and ‘closed’ systems. Open systems theory as formulated by Miller and Rice
(1967) states that a complete system approach is undertaken when an organisation is treated
as an open system that transforms inputs into outputs within the environment (internal and
external) upon which it is dependent. The premise of the open system theory is opposite to the
traditional organisational theories, which viewed organisations as ‘closed’ systems which are
independent of the external environment in which they exist (Katz and Kahn, 1978). The
premise of the ‘closed’ system is relatively conventional for modern organisations.

In searching for a model that can reflect an integrated and open system approach towards
performance management, this study reviews the literature on various performance
management models.2 It was discovered that these models can be classified into three
categories: 1) integrated models; 2) system-based models; and 3) neither integrated nor
system-based models. The following sections provide an overview of the integrated models
(Section 2.4.1) and the system-based models (Section 2.4.2). As the interest of this study is to
find an integrated and open system approach to performance management, the models in the
third category are not further described.

2
A summary of reviewed performance management models/frameworks is provided in Appendix 2 of this
thesis.

22
2.4.1 Integrated Performance Management Models

There are essentially five models which have proposed the integrated approach to
performance management. The first model is a ‘reference model’ by Bititci et al. (1997). This
model has four levels: corporate, business units, business processes and activities. The
reference model uses these four levels to integrate the following concepts into a single
framework: 1) policy deployment; 2) competitive criteria and benchmarking; 3) process
orientation; 4) normative planning; and 5) active monitoring. The framework focuses on two
facets of performance measurement, i.e. integrity and deployment in implementing the above
four levels.

The second model is proposed by the Public Services Productivity Panel (2000). The model
contains five building blocks for a performance management framework, which are bold
aspiration, coherent set of performance measures and demanding targets, accountability,
rigorous performance review and meaningful re-enforcement. The framework proposes how
these five building blocks should be addressed at the different levels of performance
management.

The third model is proposed by the Australian Public Service Management Advisory
Committee (APS) (2001). The model encloses corporate planning and governance, legislative
and regulatory framework, outcomes and outputs structure, business planning, and
performance review and feedback. The framework recognises the need for interrelated
strategies and activities to improve the performance of individuals, teams and organisations. It
suggested that effective performance management requires the integration of organisational,
business and individual planning and performance.

The fourth model is proposed by Sole (2009), which aimed to identify and describe the core
elements and levels of the performance measurement and management process. The model
highlights the linkages among the main public performance dimensions and effective use of
them. It underlines that the main goals of a performance management system in a public
organisation is to achieve outcomes objectives by improving performance at all organisational
levels. The model also distinguished the strategic, operational, and team and individual levels

23
to better understand the performance measurement and management process. It proposes that
people need different information at different levels of the organisation. There is a hierarchy
of measures reflecting the structure of the organisation and each organisational level is
characterised both by specific performance dimensions and uses of measures.

The fifth model is proposed by Brudan (2010). The model proposes that performance
management should be integrated at the strategic/organisational level,
operational/functional/team level, and individual level. It suggests that the integrated
performance management approach should include performance management for learning and
goal achievement, performance education, use of performance management office for
integration and alignment, and combination of command and control approach to
performance. However, the model is general, without specific demonstration on how to
actually integrate the various elements at the different levels.

In summary, even though the above five models recognise the need to manage performance at
the strategic, operational and individual levels and have proposed detailed measures on how
to do this, the models fall short in providing a way to integrate these levels in an open system
view of performance management. Williams (1998) emphasised that effective integration of
the different levels of performance management can be achieved through a system view
towards performance management; which includes performance management as a system for
individual performance, performance management as a system for organisational
performance; and performance management as a system for both individual and
organisational performance. The following section discusses the second category of
performance management models, which are the system-based models.

24
2.4.2 System-Based Models

In the context of tax administration, a basic system approach to performance has already been
utilised through the use of the program logic model (ANAO, 1998). A simplified version of
the program logic model is shown in Figure 2. In the model, a program is defined as a
sequence of objectives. The basic steps involved in developing the logic of a program include:
x clarifying the objectives of the program (what outcomes to be sought);
x mapping the connections between the inputs, activities, output and outcomes;
x identifying the levels of outcomes to be measured (both intermediate and final)
x defining how success will look; and
x determining what performance information will be used.

Figure 2: Simplified Program Logic Model Sequence

Input Activities Outputs Outcomes Impact

Source: ANAO (1998, p. 8).

Since the initial development of the logic model, many versions of the above sequence have
been used in performance evaluations throughout the world (Australian Taxation Office,
2007). Figure 3 shows an expanded version of the sequence, incorporating the crucial stage of
establishing desired outcomes before the inputs and showing the components of efficiency,
cost effectiveness and effectiveness. In the sequence shown in Figure 3:
x efficiency measures assess the relationship between outputs and the inputs used to
produce them;
x cost effectiveness measures evaluate outcomes as a proportion of the total inputs required
to produce them; and
x effectiveness measures assess the whole sequence in terms of how it achieved the
intended objectives or outcomes.

25
 Figure 3: Expanded Program Logic Model Sequence

Effectiveness

Cost effectiveness

Desired Inputs Activities Outputs Outcomes

outcomes quantity/quality effect/impact

Efficiency

Source: Australian Taxation Office (2007, p. 14).

Figure 4 shows another version of the framework, which is the expanded program logic
model sequence in detail with items under each of the categories (OECD, 2008). In this
model, the relationship among the process of inputs, activities, outputs, and outcomes is
clearly projected, together with how this process relates to the efficiency and effectiveness in
the tax administration system. Within this model, efficiency measures reflect the relationship
between outputs and inputs used to produce them, while effectiveness measures reflect the
outcomes achieved against the desired outcomes.

26
 Figure 4: Expanded Program Logic Model Sequence, with Detail Items

Effectiveness

Cost
Effectiveness

Desired Inputs Activities Outputs Outcomes

Outcome __________ ___________ ___________ ___________

Improvement Staff and Tax Number of Change in

in taxpayers’ other administration enquiries, taxpayers’
compliance financial activities audits, debt compliance
resources cases, etc.

Efficiency

Source: OECD (2008, p. 13)

Even though Figure 4 is based on a system approach to performance management, it does not
have the attribute of an open system theory. The model in Figure 4 displays the view of a
‘closed’ system where an organisation is independent of the external environment in which it
exists (Section 2.4).

The Rouse and Putterill’s (2003) model is currently the most comprehensive performance
management model based on an open system approach. The model is characterised by two
areas or levels of concern. First, an organisation’s macro-micro view of the key production or
service processes and strategy evaluation which outlined the basic dimension of performance.
Second, a trichotomic dimension of performance characterised as performance evaluation,
performance measurement and performance analysis. These two dimensions are incorporated
into the following four cycles:

27
1) the basic process core elements of an organisation involving inputs - activities - outputs;
and the performance measurement and performance norms associated with them;
2) planning - evaluation and resource - achievement dimensions;
3) organisational context concerning capacity and capability of the organisation where a
combination of people, practices, technology and infrastructure enables execution of the
organisation’s business process; and
4) the overall model involving the interface between organisation and stakeholders and the
influence of organisation environment throughout all levels.

Rouse and Putterill’s (2003) model is shown in Figure 5. The macro-micro view of the model
provides valuable insights for practitioners and researchers to consider when undertaking
organisational performance management.

28
 Figure 5: A Macro-Micro View of Performance

Source: Rouse and Putterill (2003, p. 799)

29
Despite being the most comprehensive model to date, it is still not practically easy to apply
the model. This is because the model shows the process of transforming inputs into
outputs/outcomes, i.e. the ‘transformation process’ as just ‘activities’, and treating it as a
‘black box’. The idea of adopting the ‘black box’ approach towards complex processes that
interact with each other across multiple functions to drive specified goals is common. A key
reason for adopting the ‘black box’ approach is that it removes the complexity associated with
the internal workings of each particular component in a system (Rice, 2010). Instead, it
focuses directly on the inputs, outputs and assumptions needed to connect each function with
other functions to which they are related. While developing the system specification, the
details of what is inside the ‘box’ are deemed unimportant (hence the name ‘black box’), as it
is assumed that the specified activities represented by the ‘black box’ can meet its objectives.
In most cases, however, this assumption is fallacious. Meyer (2003) stated that the problem
with the ‘black box’ approach is that it masks the differences within organisations and their
business units. He suggested that, in this case, we may have to rethink the organisation and its
relevant units for managing performance.

In summary, the existing performance management models are either based on the integrated
view or the system-based view to performance management. The integrated models propose
how to integrate the strategic, operational and individual levels and measure them
accordingly. However, the models do not demonstrate how the different levels interact in an
open system view, where an organisation needs to consider both the internal and external
environment in which it exists. On the other hand, the system-based models do not display
how the three levels of performance management are integrated as the models adopted the
‘black box’ approach towards the transformation process. The ‘black box’ in the
transformation process involves performance management at the operational level, which
must be linked to organisational strategy (strategic performance management) and human
resources (individual performance management). Consequently, there is a need to combine
the integrated view and the open system view to form a holistic approach to performance
management that can be adopted in practice.

30
2.5 Performance Management Practice

Practice in general shows that actual communication and integration between performance
management at the strategic, operational and individual levels is limited (Brudan, 2010). This
is because strategic performance management efforts are led by the executive team,
operational performance by group managers, and individual performance management by the
human resource department, mostly with limited interaction between them. Brudan (2010)
stated that management does not see performance management as an integrated discipline
used at various organisational levels, but as a subcomponent of strategic, operational and
human resource management respectively. However, an integrated approach, linking all levels
of performance management together becomes a necessity for both research and practice to
facilitate the understanding and usage of performance management systems.

The lack of integration between the different levels of performance management in practice is
particularly apparent for public organisations. According to Fryer et al. (2009),
notwithstanding a quarter of a century of performance management within the public sector,
there are still major problems and the expected improvements in performance, accountability,
transparency, quality of service and value for money have not yet materialised. It was
observed that the problems with performance management implementation occur because
public organisations developed performance management systems with rules and regulations,
and then leave the systems to run without proper management of the various levels involved
(Benh, 2005).

The problem related to limited integration between the different levels of performance
management in public organisations is also highlighted in a study by Verheijen and
Dobrolyubova (2007). The study involved performance management in public organisations
in the Baltic States and Russia. It was found that performance management systems were
successfully developed and introduced at the organisational level, but were unsuccessfully
implemented at the operational and individual levels due to lack of appropriate support in
terms of organisational culture, human resource and other physical resources.

31
The lack of support in terms of organisational culture, human resource and other physical
resources shows that performance management systems in public organisations do not
sufficiently address the institutional and behavioural factors that can affect performance
management at the operational and individual levels. This, in turn, can also affect
performance management at the organisational level. According to Armstrong (2009),
implementation of a performance management system is influenced by institutional factors
such as an organisation’s structures, systems, processes, and resources that enable an
organisation to perform its tasks; and behavioural factors such as organisational culture and
employees’ behaviour. Radnor and McGuire (2004) recommended that if public organisations
are truly going to use performance management in an interactive way, then they need to
embrace on a behavioural rather than just operational level.

Institutional and behavioural factors are also important in the system approach to performance
management. Mwita (2000) stated that a system-based performance management should
include three interrelated variables: processes (behaviours), outputs (results), and outcomes
(impact). Bromwich (1990) also supported this view by arguing that performance means both
behaviours and results because behaviours emanate from the performer. Conceivably,
behaviours, results and impact are inseparable and interdependent variables. They are all
important in performance management schemes.

Mwita (2000) stated that, in practice, many public organisations fail to adequately link
performance management system design with institutional factors such as organisational
policy, strategy, operations, assessments and information systems. This can seriously affect
the successful implementation of their performance management systems. In addition to the
institutional factors, organisational culture is also of particular concern in successfully
implementing performance management in public organisations. Pettigrew (1990) stated that
promoting the use of performance management systems in public organisations requires the
process of altering people's actions, reactions, and interactions to move the organisation's
existing state to some future desired state of performance. Some of the difficulties involved in
undertaking such initiatives are attributed to deeper, more critical sources, such as the
pervasive culture of the organisation, which does not support the maximum utilisation of the
performance management system (McNabb and Sepic, 1995).

32
An organisation culture is the deep-rooted set of values and beliefs that provide norms for
behaviour (Schein 1992). Organisational culture is important in public sector organisations in
order to meet effectively the changing demands of the contemporary environment (Parry and
Proctor-Thomson, 2003). Pool (2000) suggested that organisational culture provides the
foundation for an organisation’s management system, such that management behaviour
reinforces principles of culture. From this perspective, management strategies and processes
are achieved from the organisational culture, which is founded on organisational
characteristics. Wilderom et al. (2000) reported on a succession of other research-based
examinations attempting to test the culture-performance relationship more systematically than
before. They concluded that, taking these studies together, one could point to a significant
cultural-performance linkage. This finding shows that it is essential for an organisation to
acknowledge the aspect of organisational culture in its performance management system.

In addition to culture, behavioural factors can be in the form of personal elements related to
the employees of an organisation. Studies have found that a lack of employee involvement is
also the reason for ineffective implementation of performance management systems in public
organisations (Black et al., 2001; Wang and Berman, 2001; Gianakis, 2002; McAdam et al.,
2005). Verweire and Van Den Berghe (2004) proposed that a fully integrated performance
management system should include organisational behaviour, which aims to create motivation
and commitment across all employees and managers within the organisation to improve
performance.

The importance of employee motivation and organisational commitment in improving

organisational performance is also proposed by a range of studies. For employee motivation,
Li (2007) suggested that motivation would induce influence on an individual’s attitude and
behaviour, which could lead to better individual performance. Research has also identified the
existence of multiple and distinct dimensions of employee organisational commitment. It was
demonstrated that these dimensions have different relationships with important consequences,
such as job satisfaction and turnover intentions (Meyer and Allen, 1984; Hackett et al., 1994;
Dunham et al., 1994; Iverson and Buttigieg, 1999). Some studies support the role of job
satisfaction as an outcome of organisational commitment (Batemen and Strasser, 1984).

33
Li (2008) demonstrated the relationship among the concepts of motivation, organisational
commitment and job satisfaction in the public sector as shown in Figure 6. It shows that
motivation of public service employees influences their organisational commitment, which in
turn influences their job satisfaction and individual performance.

Figure 6: A Conceptual Model for PSM Affecting Individual Performance

Public Service Motivation (PSM)

Job Satisfaction Individual Performance

Organisational Commitment

Source: Li (2008, p. 20)

A significant factor that relates to employee motivation, commitment, and job satisfaction is
employee work stress. Stress at work is a well-known factor for low motivation and morale,
low job satisfaction, decrease in performance, high turnover and sick-leave, accidents, low
quality products and services, poor internal communication, and conflicts (McHugh, 1993;
Murphy, 1995; Schabracq and Cooper, 2000). Chusmir and Franks (1988) argued that all the
above problems are related, directly or indirectly, to stress and they have an effect on overall
organisational performance. Montgomery et al. (1996) see severe job stress as dysfunctional
and decreasing commitment and productivity; while Williams et al. (2001) found that short-
term outcomes of job stress have both physiological and behavioural effects leading to poor
job performance.

In the case of tax administration, the ‘stress at work’ factor is not given much attention based
on the limited literature on this subject. However, the lack of research in this area does not
mean that the problem does not exist in tax administration environments. In a study on tax

34
administration performance in Slovenia, for example, Klun (2004, p. 573) referred to her
performance measurement model and commented that:
We must stress that the main weakness of the model is the lack of a survey of tax
administration employees. In informal conversations with employees, they stated that
they were not familiar enough with all the procedures they perform, while numerous
internal instructions from the Ministry of Finance led to further confusion and
misunderstandings about how to proceed in different situations.

The above assertion implies that tax employees face problems in delivering their daily tasks,
which in turn will result in the employees suffering from stress at the workplace. Furthermore,
tax employees, especially in the developing countries, face a steadily growing workload due
to serious staffing problems. Brondolo et al. (2008), for example, have raised this issue in
their study on tax administration reform in Indonesia, where the country had insufficient
numbers of staff assigned to the key functions of strategic planning, audit, and taxpayer
services during the 1990s and into the 2000s. It was discovered that in 1996 the Indonesian
tax administration had only about 1,800 skilled auditors, equivalent to about 7 percent of its
staff, whereas effective tax administrations commonly assigns up to 30 to 40 percent of their
staff to the audit function. Such misallocations of staff constrained the tax administration in
carrying out key management and operational functions. This situation will burden the tax
employees in performing their duties, hence inducing stress among them.

In summary, the current practice of performance management specifically in public

organisations lacks integration between the strategic, operational and individual levels. Due to
this limited integration, the organisations fail to adequately address the institutional and
behavioural factors that can affect the operational and individual performance, hence affecting
organisational performance. Moreover, the open system approach does not provide a way to
deal with the institutional and behavioural factors due to the ‘black box’ approach towards the
transformation process. Consequently, there is a need to find a way to examine the
institutional and behavioural factors in an integrated and open system approach to
performance management that can be adopted in practice.

In order to do this, the emphasis must be on the transformation process (operational level) of
an organisation because this is the centre of activities where both the strategic and individual
levels interact to perform the functions of the organisation. The transformation process is also

35
the phase where the institutional and behavioural factors interact with each other. This calls
for an alternative approach which can highlight the detailed components of the transformation
process at the operational level of an organisation. In this regard, this study turns to the
broader scope of organisation development studies, which have various approaches that can
be utilised to describe the details in the transformation process for performance management
purposes. The following section discusses the approaches in organisation development studies
that can potentially be used to enhance the integrated and open system-based performance
management.

2.6 Enhancing the Integrated and Open System Approach

Waddell et al. (2007) describe organisation development as a system-wide application of

behavioural science knowledge to the planned development and reinforcement of
organisational strategies, structures and processes for improving an organisation’s
effectiveness. Beer (1980) describes organisation development as a process of data collection,
diagnosis, action planning, intervention and evaluation aimed at: (1) enhancing congruence
between organisational structure, process, strategy, people and culture; (2) developing new
and creative organisational solutions; and (3) developing the organisation’s self-renewing
capacity. French (1969) refers to organisation development as a long-range effort to improve
an organisation’s problem-solving capabilities and its ability to cope with changes in its
external environment. The broad scope of organisation development as described by the
above definitions is reflected in the various approaches available in the field. These
approaches have the potential to be used for performance management purposes. Specifically,
organisational diagnosis, which is the major approach in organisation development, has
shown promise to be used in highlighting the detailed of components of the transformation
process in an organisation.

2.6.1 Organisational Diagnosis

Organisational diagnosis is a process based upon behavioural science theory for entering a
human system, collecting valid data about human experiences with that system, and feeding
that information back to the system to promote increased understanding of the system by its

36
members (Alderfer, 1981). Assessing organisational effectiveness by means of a well-planned
and well-executed diagnostic process is generally understood to form part of a broad
organisational management strategy aimed at improving overall effectiveness of systems
management (Cummings and Worley, 2005; French and Bell, 1999). Diagnosis also evaluates
an organisation to determine the gap or variance between what is and what ought to be (Stahl,
1997). The gaps or variances identified are then prioritised in relation to action plans that, if
needed, rectify any variances.

Diagnosis entails understanding a system’s current functioning. More specifically,

organisational diagnosis is described as consisting of investigations that draw on concepts,
models and methods from the behavioural sciences (Martins and Coetzee, 2009). Such
investigations are generally aimed at examining an organisation’s current state, at finding
ways to solve problems, or at enhancing organisational effectiveness. It also involves the
process of collecting pertinent information about current operations, analysing the data
obtained, and drawing conclusions regarding potential change and improvement (Cummings
and Worley, 2005; Slocum and Hellriegel, 2007). These aspects of organisational diagnosis
are particularly useful for performance management purposes, particularly in examining the
‘black box’ in the transformation process of an organisation. In addition, diagnosis can also be
utilised to understand the behavioural aspect of an organisation that can affect its performance
management. There are many approaches to organisational diagnosis, which are typically
depicted in a model. A range of models are discussed in the next section.

2.6.2 Diagnostic Models

Falletta (2005) summarised ten organisational diagnosis models and their characteristics,
ranging from the model developed in 1951 to 1992.3 Out of the ten models, only two models,
i.e. the congruence model (1980) and the Burke-Litwin model (1992), rely upon the notion of
open system theory as a major assumption. This attribute is particularly important for a
system-based approach towards performance management because a complete system
approach is undertaken when an organisation is treated as an open system that transforms

3
To date, the latest diagnostic model that has been developed in the field of organisation development is the
Burke-Litwin model (1992). Appendix 3 of this thesis shows a detailed review of all the ten diagnostic models.

37
inputs into outputs/outcomes within the environment (internal and external) upon which it is
dependent (Section 2.4). The other eight models overemphasise the variables within an
organisation; with limited feedback from the environment and displaying the attributes of
‘closed’ systems. The congruence model and the Burke-Litwin model are also the only two
models which propose that the relationships between variables in an organisation are
reciprocal (two-way), showing the existence of interdependence between the variables. This
feature is important in a system-based performance management as discussed in Section
2.4.2.

The Burke-Litwin (1992) model integrates many organisational factors and is relatively new
compared to other diagnostic models (see Figure 7). The model has been developed to
examine organisational change and performance and has several strengths. First, the model
enriches the conceptual map of an organisation by providing a comprehensive set of variables
that better depict organisational dynamics. Second, by separating variables into
transformational and transactional, the model provides a way of examining the impact of
changes of different variables. Third, it provides a link between an assessment of the wider
institutional context and nature and process of change within an organisation.

38
 Figure 7: The Burke-Litwin Model

Source: Falletta (2005, p. 27)

Despite these strengths, the Burke-Litwin model has its limitations. Its emphasis on the
importance of external environment as the most powerful driver for change seems to deride
the importance of internal environment in influencing individual and organisational
performance. The model makes the following key assumptions: 1) the external environment is
the most powerful driver for change; 2) changes in the external environment lead to
significant changes within an organisation – its mission and strategy, its organisational culture
and its leadership; 3) changes in these key factors lead to other changes within an organisation
– changes to structure, systems and management practices; and 4) together these changes
affect motivation, which in turn impacts on individual and organisational performance. The
premise of this model that the external environment is the main trigger of organisational

39
change which in turn affects individual and organisational performance is perhaps overstated.
This is because some organisational changes are initiated by leadership or by internal factors
rather than by external environment. In addition, Cawsey and Deszca (2007) pointed out that,
while the model does have both the environment and individual/organisational performance
as variables, these are viewed as just two of the 12 variables. As a result, there is no apparent
flow from environment to organisational performance. The complexity of the model also
makes it more difficult to keep track of all variables and develop clear action plans to improve
them.

The other diagnostic model of interest is the congruence model (1980) which has been
developed by Nadler and Tushman, originally in the mid-1970s, and was drawn from fit (or
congruence) models developed by Seiler (1967), Lawrence and Lorsch (1969), and Lorsch
and Sheldon (1972). The model has been developed and refined over nearly three decades of
academic research and practical application in scores of major organisations (see, for
example, Nadler and Tushman, 1980, 1997, 1999; Wyman, 2003; Antoncic and Hisrich,
2004; Nadler 2006). The congruence model has a reasonably complete set of organisational
components and presents them in a way that encourages straightforward organisational
analysis (Cawsey and Deszca, 2007). It specifically links input factors to the organisational
components and outputs. Additionally, it provides a useful classification of internal
organisational components while showing the interaction among them. The model highlights
both mismatches and congruence, and considers the influence of the external environment
(Martins and Coetzee, 2009). The congruence model has proven to be particularly useful in
understanding and analysing organisational performance and has found wide acceptance
among researchers of organisations (Wyman, 2003).

The congruence model positions an organisation as an open system that transforms input from
the external environment into output of various types (Nadler and Tushman, 1980). The
congruence model suggests that in order to fully understand an organisation, it must first be
understood as a system that consists of some basic elements:
x the input it draws from both internal and external sources;
x the strategy it employs to translate its vision into a set of decisions about where and how to
compete, or in the case of government agency, the public policy results it wants to achieve;

40
x the critical transformation process through which people, working within the context of
both formal and informal arrangements, convert input into output; and
x its output – the products and services it creates in order to fulfil its strategic objectives.

The congruence model suggests that an organisation is made up of internal components or

parts that interact with each other. These components exist in states of relative balance,
consistency, or ‘fit’ with each other. The different parts of an organisation can fit well
together and function effectively, or fit poorly and lead to problems, dysfunctions, or
performance below potential. The congruence model for diagnosing an organisation is
depicted in Figure 8.

Figure 8: The Congruence Model

Transformation Process

Informal
Organisation

Inputs Outputs

Environment System
Formal
Resources Task Organisation Unit
Strategy
History Individual

People

Feedback

Source: Nadler and Tushman (1999, p. 48)

41
The congruence model enables a step-by-step identification and analysis of the input, strategy,
transformation process, outputs and feedback mechanisms of an organisation, with a view to
identifying systematic deficiencies that lead to inefficiency and ineffectiveness in its
operations. The organisation - consisting of four organisational components which are the
formal arrangement, the informal arrangement, the people, and the core task - is driven by an
articulated strategy. The central idea of the congruence model is that the effectiveness of an
organisation in achieving its objectives depends on the congruence or fit between these four
components. According to Nadler and Tushman (1999), the more closely these components is
aligned with each other and with the strategy of the organisation, the more effective the
overall performance. Indeed, Wyman (2003) suggested that the interaction between each set
of organisational components is more important than the components themselves and, if they
are tightly aligned, they will determine the organisation’s ability to compete and succeed.

The congruence model is particularly attractive because the components in the transformation
process of the model shed some light on the ‘black box’ of an organisation. The interrelations
of the four components, i.e. formal organisation, task, informal organisation and people in the
model, provide a way to make connections between the different organisational levels for the
purpose of performance management. In addition, the four components can possibly be used
for understanding the institutional and behavioural factors in the transformation process. This
is because the institutional factors that affect performance can be assessed through the
components of formal organisation and task, while the behavioural factors can be assessed
through the components of informal organisation and people.

The congruence model has previously been used in a different context of tax administration
by Gill (2000). Gill used the model in his diagnostic framework for tax administration reform
purposes. Gill’s framework proposes diagnostic questions and organisational deficiencies
likely to be encountered and possible reform options for a revenue administration. Even
though Gill’s diagnostic framework is quite comprehensive, there are a few areas that are not
fully addressed. In particular, the informal organisational arrangement and people could be
expanded. Gill’s framework was less focused on the behavioural aspect of a tax
administration, i.e. the role of informal organisation (organisational culture) and people’s
attitudes in improving tax administration performance. In addition, the nature of the

42
diagnostic framework developed by Gill is more suitable for the purpose of tax administration
reform, which is a ‘one-off’ project to improve performance as opposed to the cyclical and
dynamic nature of a performance management system where continuous performance
improvement is sought.

Despite the strengths of the congruence model, its limitation is also acknowledged. In
particular, it is noted that the congruence model tends to over-simplify the complex reality
that an organisation deals with as it utilises fewer variables as compared to the Burke-Litwin
model. However, fewer variables also mean that they are more manageable, hence are more
suitable as a diagnostic tool for the purpose of application in performance management.

2.7 Conclusion

This chapter has shown that the literature on performance management does not adequately
address the problems in performance management practices, specifically in public
organisations. These problems are summarised under the following headings: integrated
approach to performance management; open system approach to performance management;
and ‘black box’ approach to performance management.

2.7.1 Integrated Approach to Performance Management

Little research has been published on tax administration performance management. To date,
there are only three relevant publications by Crandall (2010), Hanninen (2011), and the
OECD (2011). These are recent publications with a brief discussion on a very limited scope of
performance management. However, none of these studies provide details on how to
undertake performance management in tax administration. Nevertheless, the studies
highlighted the need for an integrated approach to tax administration performance
management.

The review of existing performance management practice discloses that there is a lack of
integration among the individual, operational, and strategic levels of performance
management in practice, specifically for public organisations (Section 2.5). This is because

43
strategic performance management efforts are led by the executive team, operational
performance by group managers, and individual performance management by the human
resource department, mostly with limited interaction between them. Due to this limited
integration, public organisations fail to adequately address the institutional and behavioural
factors that can affect the operational and individual performance, hence affecting
organisational performance. An integrated approach, linking together all levels of
performance management becomes a necessity to facilitate the understanding and usage of
performance management systems. The integrated approach is valuable as it has the potential
to assist individuals and organisations to better understand and align the different levels and
create a complete, holistic picture of performance that outlines the relationship between
organisational and individual performance.

2.7.2 Open System Approach to Performance Management

The general literature on performance management proposes that strategic, operational, and
individual levels of performance management can be effectively integrated in a system-
thinking view, where organisational performance improvement is the key driver (Section 2.4).
System thinking promotes a holistic approach to managing organisational performance and is
the basis of the input-process-output-outcome model of managing performance. There are two
broad interpretations of a system approach in performance management, which are the ‘open’
and ‘closed’ systems. Between the two, the open system approach is a more complete
approach because it treats an organisation as an open system that transforms inputs into
outputs within the environment (internal and external) upon which it is dependent. The
premise of the open system theory is more suitable for modern organisations as opposed to
the ‘closed’ system which disregards the external environment in which an organisation
exists.

The review of the performance management models in the literature revealed that the existing
models are either based on the integrated view or the system-based view to performance
management (Section 2.4.1 and Section 2.4.2). The integrated models propose how to
integrate the strategic, operational and individual levels and measure them accordingly.
However, the models do not demonstrate how the different levels interact in an open system

44
view, where an organisation needs to consider both the internal and external environment in
which it exists. On the other hand, the system-based models do not display how the three
levels of performance management are integrated as the models adopt a ‘black box’ approach
towards the transformation process. The ‘black box’ represents the transformation process
which should be subjected to performance management at the operational level and linked to
organisational strategy (strategic performance management) and human resource (individual
performance management). Consequently, it is suggested that a combination of an integrated
approach and an open system approach would provide a holistic and optimal form of
performance management.

2.7.3 ‘Black Box’ Approach to Performance Management

The ‘black box’ approach is undesirable as it removes the complexity associated with the
internal working of each particular component in the transformation process of an
organisation (Section 2.4.2). The transformation process (operational level) of an organisation
should be given appropriate emphasis because it is the centre of activities where both the
strategic and individual levels interact to perform the functions of the organisation. The
transformation process is also the phase where the institutional and behavioural factors
interact with each other. This requires something different to what is currently done in
performance management that will enable the detailed components of the transformation
process in an organisation to be closely analysed.

In this regard, the broader scope of organisation development studies is drawn on.
Organisation development utilised various approaches that can be adapted to describe the
details in the transformation process for performance management purposes. Specifically,
organisational diagnosis, which is the major approach in organisation development, shows
promise for use in highlighting the detailed components of the transformation process in an
organisation. Diagnosis entails understanding a system’s current functioning through
investigations that are aimed at examining an organisation’s current state, at finding ways to
solve problems, or at enhancing organisational performance (Section 2.6.1). It also involves
the process of collecting pertinent information about current operations, analysing the data
obtained, and drawing conclusions regarding potential change and improvement. These

45
aspects of organisational diagnosis are useful for performance management purposes,
particularly in examining the ‘black box’ in the transformation process. In addition, diagnosis
can also be utilised to understand the behavioural aspect of an organisation that can affect its
performance management.

Among the various diagnostic models, the congruence model is particularly attractive because
the components in the transformation process of the model shed some light on the ‘black box’
of an organisation (Section 2.6.2). The interrelations of the four components, i.e. formal
organisation, task, informal organisation, and people in the model, provide a way to make
connections between the different organisational levels for the purpose of performance
management. In addition, the four components can possibly be used for understanding the
institutional and behavioural factors in the transformation process. This is because the
institutional factors that affect performance can be assessed through the components of formal
organisation and task, while the behavioural factors can be assessed through the components
of informal organisation and people. However, the issue remains as to whether the principle
of the congruence model is suitable to be used in the context of tax administration
performance management. This is because the model has only been used for tax
administration reform purposes, which is a ‘one-off’ project to improve performance, as
opposed to the cyclical and dynamic nature of a performance management system where
continuous performance improvement is sought. In addition, even though the congruence
model provides a way to make connections between the different organisational levels, it does
not actually demonstrate how to integrate these levels for performance management purposes.

2.8 Summary

In Chapter 1, it was pointed out that tax administration performance in developing countries
has to be improved. A potential approach that can be undertaken to improve tax
administration performance is performance management. In this chapter, the literature on
performance management is reviewed and it is concluded that tax administration performance
could be better managed using an integrated and open system approach. At the same time, this
approach should also address the ‘black box’ problem in the transformation process of a tax

46
administration by providing ways to examine the institutional and behavioural factors
involved in the process.

Accordingly, this study aims to undertake this approach by developing a framework that
expands the aspect of the transformation process in an integrated and open system approach to
tax administration performance management which can be adopted in practice. The aim of
this study is stated in the form of research questions as set out below.

1. How can an integrated and open system approach to performance management be

undertaken to improve tax administration performance in developing countries?
2. How can an integrated and open system approach to performance management be applied
in tax administration practice?

Chapter 3 discusses how the framework is developed to answer the above research questions.
Chapter 4 sets out the methodological approach to undertake empirical work to enact the
framework.

47
Chapter 3 DEVELOPING A PERFORMANCE MANAGEMENT FRAMEWORK

3.1 Introduction

In Chapter 2, it was concluded that an integrated performance management level based on an

open system view is a desirable approach to organisational performance management (Section
2.4). However, performance management practice specifically in public organisations shows
that there is a lack of integration among the strategic, operational and individual levels of
performance management. Due to this limited integration, public organisations fail to
adequately address the institutional and behavioural factors in the transformation process that
affects organisational performance. Consequently, there is a need to develop a framework that
highlights the important aspect of the transformation process in an integrated and open system
approach to performance management that can be adopted in tax administration practice.

In this chapter, such a framework will be developed using a systematic approach to analysing
and synthesising the current literature in a new holistic form to overcome current limitations
in practice as stated in Section 2.7. Section 3.2 outlines this process in the context of theory
building research. Section 3.3 discusses the development of an ‘integrated – open system’
performance management framework for tax administration. Section 3.4 and its subsections
explain the guidelines to enable application of the framework in practice. Finally, Section 3.5
provides a summary of the chapter.

3.2 Method: Theory Building

A theory building approach is used to support the development of an ‘integrated – open

system’ performance management framework for tax administration. Applied theory building
research consists of two broad components: theorising to practice and practice to theorising
(Lynham, 2002). Each of these components produces distinct in-process outputs that guide the
applied theory building research and, ultimately, result in a trustworthy, rigorous, and relevant
theory for improved action (Denzin and Lincoln, 2000; Marsick, 1990; Van De Ven, 1989).
An essential output from the theorising component of theory building is a coherent and

48
informed conceptual framework, which encapsulates and contains the explanation of the
phenomenon, issue, or problem that is the focus of the theory.

Conceptual development requires that the theorist formulate initial ideas in a way that depicts
current, best, most informed understanding and explanation of the phenomenon, issue or
problem in the relevant world context (Dubin, 1978; Lynham, 2000). Key outputs from the
practice components of theory building are carefully obtained data/findings and experiential
knowledge that are used to confirm, or disconfirm, and further refine and develop the existing
theory and to enhance the utility of the theory in practice. This later process will be
considered in Chapter 4.

In order to develop the theoretical framework in this study, various non-empirical techniques
can be used. These include techniques such as a review of existing literature, scholarship, and
contemplative research. Lather (1999) stated that a synthetic review should serve a critical
role in gate-keeping, policing, and leading to new productive work, rather than merely
mirroring research in a field. Consequently, the development of the theoretical framework for
tax administration performance management presented in this chapter is based on careful
reading and synthesising of the literature.

3.3 An ‘Integrated – Open System’ Performance Management Framework

In Section 2.4, it was shown that current thinking indicates that it is important to approach
performance management through an open system view of an organisation. The key or most
significant feature of an open system is the recognition of external environmental factors.
Section 2.4.2 reviewed the existing system-based models in the literature and it was
concluded that Rouse and Putterill’s (2003) model is the most comprehensive with the
attributes of an open system performance management. The macro-micro view of the model
proposed by Rouse and Putterill (2003) provides valuable insights for evaluating
organisational performance. The model has both the attributes of a performance management
cycle and an open system view, which can form the basis to develop the performance
management framework for this study.

49
The original version of Rouse and Putterill’s (2003) model is modified (refer to Figure 5,
Section 2.4.2) to enable its application in tax administration practice by:
x combining the ‘stakeholders’ contribution’, ‘resource capacity’ and ‘resource utilisation’
into the component of ‘input’; and
x combining the ‘strategic outcomes’ and ‘benefits to the stakeholders’ into the component
of ‘outcome’.

In the original model, Rouse and Putterill (2003) dissect the elements of ‘inputs’ and
‘outcomes’ to demonstrate in great detail how the elements are connected to the
‘stakeholders’. However, in order to approach performance management in an integrated way,
it will be beneficial to illustrate the elements of ‘inputs’ and ‘outcomes’ collectively for the
purpose of examining their connections with the ‘stakeholders’. The modified version of
Rouse and Putterill’s (2003) model is presented as ‘an open system framework for
performance management’ in Figure 9. It is noted that, at this point, the framework is far from
being complete as it displays the substance of the ‘black box’ in the transformation process
(refer to Section 2.4.2) entitled ‘activities’. In addition, Figure 9 does not adequately illustrate
the integration of the strategic, operational and individual levels of performance management.

50
 Figure 9: An Open Sytem Framework for Performance Management

Vision/Goals/Objectives

Plan

Performance Standards

Input: Outcome:
- Resource utilisation - Strategic
- Resource capacity outcome
- Stakeholders’ Activities Output - Stakeholders’
contribution benefit

Measurement

Evaluation

External Stakeholders

Source: Adapted from Rouse and Putterill (2003, p. 799)

51
In Section 2.6, an approach that could possibly shed some light on the ‘black box’ in the
transformation process was identified. Specifically, organisational diagnosis, a core activity in
organisation development, has shown promise to be used in highlighting the detailed
components of the transformation process in an organisation (Section 2.6.1). Among the
various diagnostic models for organisational diagnosis, the congruence model is particularly
useful because the components of formal organisation, informal organisation, task and people
in the model (refer to Section 2.6.2) can provide details of the ‘black box’ in Figure 9. The
interrelations of the four components in the congruence model provide a way to make
connections between the different organisational levels and can possibly be used for
understanding the institutional and behavioural factors in the transformation process (Section
2.7).

In Section 2.7, it was concluded that the best possible method to integrate the different levels
of performance management is to merge an open system model of performance management
with the congruence model. The framework presented in this chapter does this by replacing
the ‘black box’/‘activities’ in Rouse and Putterill’s model in Figure 9 with the components of
the congruence model, i.e. formal organisation, informal organisation, task and people.
Consequently, a new framework which is called an ‘integrated – open system’ performance
management framework for tax administration evolves (Figure 10).

The framework in Figure 10 illustrates how various components in performance management

are interrelated with arrows connecting them and how they need to be integrated at the
different levels of performance management, i.e. strategic, operational and individual levels.
The integrated approach, linking together all levels of performance management now
underpins this holistic performance management system. The integrated view to performance
management has the potential to assist a tax administration to better understand and align the
different levels and create a complete, holistic picture of performance that outlines the
relationship between organisational and individual performance and substantively expose
efficient and less than efficient aspects of a tax administration.

52
 Figure 10: An ‘Intergrated – Open System’ Performance Management Framework for Tax Administration

Vision/Goals

Plan

Performance Standards

Transformation Process
Informal Formal Strategic
Organisation Organisation Level

Input Task Operational Output Outcome

Level

People Individual
Level

Performance Measurement

Evaluation of Plan

External Stakeholders

Source: Author

53
The connective framework in Figure 10 provides a holistic framing of performance
management, highlighting the issues to be addressed when undertaking performance
management. However, application in practice is typically difficult and often not possible.
Consequently, a guide on how a tax administration can systematically apply this framework
for effective performance management is also provided.

3.4 Guidelines for Applying the Performance Management Framework

The framework in Figure 10 shows general components of formal organisation, informal

organisation, task, and people. At this stage, the components are still at a high level and it will
be difficult for one to clearly gauge what encompasses these components. Consequently, there
is a need to specify the detailed elements to be examined in these four components and show
how they are related to the elements outside the transformation process, i.e. vision/goals, plan,
evaluation of plan, external stakeholders, performance measurements, and performance
standards. This must be done to demonstrate how all the elements in the performance
management framework are interrelated and integrated at the strategic, operational and
individual levels and can be managed in practice.

Detailing the elements in the transformation process can also help to clarify how they should
be assessed, and where to get the related sources to assess them. This is useful to diagnose a
tax administration’s current state, identify areas of underperformance, and finding ways to
solve its problems. Based on the diagnosis on the elements in the framework, a tax
administration can then design and develop strategies to improve areas of underperformance.

To clarify the above issues and enable the process to be enacted, a set of guidelines is also
presented. Basically, the guidelines are based on the performance management cycle, which
involves: 1) developing organisational vision/goal through established plan; 2) measuring
whether performance is in congruence with the plan; 3) taking corrective action where
performance is falling short of targets; and 4) starting the cycle again with a new plan being
drawn up.

54
The following section outlines the detailed procedures in the guidelines. The procedures are
described in relation to the four components in the transformation process, i.e. formal
organisation, informal organisation, task and people. This is because the congruence model
suggests that if these components exist in states of relative balance, consistency, or ‘fit’ with
each other, then the different parts of an organisation can fit well together and function
effectively (Section 2.6.2). Otherwise, if they fit poorly, then it will lead to problems,
dysfunctions, or performance below potential. The four components are also the core of an
organisation’s operational functions, which, if systematically examined, will draw on all
levels of performance management in an integrated way.

3.4.1 Establish Organisational Plan

Formal Organisation

The first stage in the performance management cycle involves developing a vision/goal for an
organisation. In the framework in Figure 10, vision/goal is illustrated as the first component
that should be established at the strategic level of an organisation. The establishment of
vision/goal of an organisation is important in the performance management process. This is
because goal theory is the main theory underpinning performance management (Buchner,
2007). This theory underpins the emphasis in performance management on setting and
agreeing to goals and objectives against which performance can be measured and managed.
Goal-setting requires an organisation to create formal systems and processes that can group
people and the work they do and to coordinate their activities in ways designed to achieve
organisational goals. These systems and processes form the elements in the formal
organisational arrangements (Nadler, 2006).

Goal-setting theory is based on the premise that the expectancy, instrumentality, and valence
of outcomes will be high if goals are challenging, as well as specific and attainable (Austin
and Klein, 1996; Locke and Latham, 2002). According to Locke and Latham (2002), goals
affect performance through four mechanisms. First, goals serve as a directive function; they
direct attention and effort toward goal-relevant activities and away from goal-irrelevant
activities. Second, goals have an energising function, where high goals lead to greater effort

55
than low goals. Third, goals affect persistence. Fourth, goals affect action indirectly by
leading to the use of task-relevant knowledge and strategies.

Establishing organisational goals is also important for a tax administration. In this case,
Crandall (2010) proposed that organisational goals should be kept to a relatively small
number so as to ensure the tax administration can focus on the most important and achievable
priorities. Crandall (2010) added that some tax administrations will articulate only a few high
level strategic goals (from three to six), most often clustered around themes such as: improved
compliance, a customer-centred focus, organisational renewal, staff engagement, increased
productivity, cost effectiveness, and return on investment.

In order to achieve organisational goals, an organisation needs to establish an organisational

plan. Thus, the second component in the performance management framework in Figure 10
shows the need to establish an organisational plan. The process of establishing an
organisational plan focuses the thinking and forces an organisation to take an objective and
critical view of its operations. According to Bryson (1995), some benefits of organisational
plans include: 1) help to challenge old ideas and create a culture for new initiatives; 2) enable
problems to be recognised; 3) enable growth to be planned and associated capital
requirements identified; 4) increase organisational motivation as well as individual employee
motivation; and 5) by having a map of where the organisation is heading, it will give it more
confidence as well as convincing the employees of the direction in which it is going.

Basically, an organisational plan can be divided into three categories of strategic plan, tactical
plan and operational plan (Lindenberg, 2001). Strategic planning is long-term planning
undertaken by senior management. It involves making decisions that will work toward
reaching an organisation’s mission and vision statements. A strategic plan is seen as a
demonstration of effectiveness in nonprofit organisations. On the other hand, tactical planning
is the mid-term planning which typically ranges from months up to about two years. This
usually involves middle management who plan strategies to achieve an organisation’s
strategic goal. With regard to operational planning, it is a day-to-day planning undertaken by
frontline managers. They report to middle management and enact the strategies developed by
middle management to achieve strategic goals.

56
Out of the three categories of plan, strategic plan is the most important as it covers
organisation-wide plans and deserves most attention if an organisation is to improve
performance and achieve its long-term goals and vision (Bryson, 1995). Successful
management of an organisation requires a systematic, cyclical process of planning actions,
followed by implementation, then evaluation; all of which are part of strategic planning.
Strategic planning has been defined as a disciplined effort to produce fundamental decisions
and actions that shape and guide what an organisation is, what it does, and why it does it
(Bryson, 1995). It provides a systematic process for gathering information about the big
picture and using it to establish a long-term direction and then translate that direction into
specific goals, objectives, and actions (Poister and Streib, 2005).

Plant (2009) stated that when the strategic and operational levels of an organisation are
integrated in a common approach, a holistic strategic planning system is created. A holistic
strategic planning system is based on the assumption that all of the system elements are
interrelated and interdependent. According to Plant (2009), the strategic planning system has
four key elements. The first one is developing a strategic vision/goal involving public and
employee input. The second element is the need for alignment between the vision, strategic
goals and initiatives established to implement the vision. The third element of the strategic
planning is the development of an operational business plan, essentially an action planning
document. This highlights the key business objectives for the organisation’s operations and
the key strategic goals that all levels of the organisation are linked with. The final element is
the establishment of a measurement process to be able to evaluate success in achieving
strategic goals and furthering the organisation’s vision.

In the context of a tax administration, a strategic plan can help to integrate and synergise
various activities within a tax administration. Given that the future is uncertain, management
will always need to plan in order to develop the procedures and operations necessary to cope
with the changing requirements. With a well-conceived strategic plan, tax managers will be
more forward thinking in their approach. It provides a mechanism to pool ideas from each
level of a tax administration. Such collaboration and cooperation can only benefit the entire
organisation. Adequate planning will help management to find the best way of achieving a
particular objective. In addition, it allows the administration to examine areas that can be

57
improved, including better use of available resources.4 The strategic plan concerning
performance objectives and operational strategies for a tax administration could be in the
form of the desired outcomes. Dhillon and Bouwer (2005) suggested that these strategies
include the desired outcomes of collecting more tax revenue, improving services to taxpayers,
improving compliance and risk management and improving operational effectiveness.

Based on the importance of establishing a strategic plan to achieve the goals of a tax
administration, it is necessary to investigate the formal organisational arrangements to
observe whether a strategic plan has been established by a tax administration. The focus of
investigation should be on the strategic planning process, the people involved in the process,
the history of strategic planning in a tax administration, and the use of a strategic planning
system. A strategic plan can be a short-term plan (one-year period), a mid-term plan (three-
year period) or a long-term plan (five-year period). It is also essential to find out whether a tax
administration has a specific model for its strategic planning system. All this background
information is valuable to understand the strategic planning practices of a tax administration
that can be used to enhance its performance management process.

3.4.2 Measure Performance

Another important phase in the performance management cycle is to measure whether

performance of a tax administration is in congruence with the plan. Performance measures are
required so that managers can track whether or not the strategies they have chosen are actually
being implemented. The measures can be used to communicate these strategies within the tax
administration as well as encourage and incentivise the implementation of strategy. The
measurement data can be used to challenge whether the strategies are working as planned (an
if not, why not). The framework in Figure 10 illustrates that performance measurement for a
tax administration involves evaluating the task execution at the operational level in
comparison with performance standards. However, measuring task performance alone is
insufficient as it does not reflect the integration with other components at the strategic and
individual levels. Hence, performance measurement in an integrated way should also include

4
For example, it may be recognised that joint assignments by tax collection agencies may be a better utilisation
of resources than for each organisation to do an assignment independently.

58
evaluation on the formal organisation, informal organisation and people. The finding from
performance measurement on these four components should be diagnosed to provide
feedback on whether they are in congruence with each other to achieve the strategic plan.

i) Formal Organisation

In Section 3.4.1, it was concluded that an establishment of a strategic plan is significant for a
tax administration. However, the most important issue in strategic planning concerns putting
plans into action. Strategic planning is an action-oriented type of planning that is useful only
if it is carefully linked to implementation – and this is often where the process breaks down
(Poister and Streib, 2005). Thus, it is essential to focus on the strategic planning process of an
organisation in order to ensure successful implementation of a strategic plan. Strategic
planning process forms a central part in understanding the formal organisational arrangements
of a tax administration as it covers the holistic process of establishing vision/goals for a tax
administration, determining the relevant plan to achieve the goals, implementing the plan, and
evaluating the achievement of the plan. Several aspects in the strategic planning process such
as stakeholders’ involvement, strategic management practices and allocation of resources,
performance management activities, and performance measurement activities should be given
emphasis as they are often completely divorced from the strategic planning process in an
organisation (Mintzberg, 1994). These aspects play important roles in determining effective
implementation of an organisation’s strategic plan.

The framework in Figure 10 particularly highlights the importance of stakeholders’

involvement in undertaking an open system approach to performance management. The
importance of stakeholders’ involvement in the strategic planning process is highlighted by
King (1983). He suggested that in evaluating an organisation’s strategic planning process, the
organisation should consider an analysis of multiple stakeholders. Stakeholders are groups or
individuals who can significantly affect or are significantly affected by an organisation’s
activities (Harrison and St. John, 1996). Bryson and Roering (1988) found that government
strategic planning should be evaluated by different standards than strategic planning in the
private sector. Profitability and shareholder value are the drivers behind private sector
planning, whereas the stakeholder perspective emphasises responsibility over profitability and

59
views organisations primarily as coalitions to serve all parties involved (Cohen, 2006). A
stakeholder perspective focuses on the organisation’s success by measuring the satisfaction
among the stakeholders and sees stakeholder management as both an ends and a means.

A stakeholder focus for organisational strategic planning activities aims to maximise

stakeholder support for organisational initiatives. Neely et al. (2002) and Rowley (1997)
suggested that stakeholders can initially be identified and categorised into regulators,
customers, employees/staff, the local community, pressure groups, government and other
organisations. Stakeholder involvement enables managers to ensure that the strategic and
operational direction of an organisation addresses stakeholder perceptions (Fletcher et al.,
2003).

Stakeholders can be both internal and external stakeholders. In evaluating the strategic
planning process, the following internal stakeholders were identified by King (1983, p. 269):
top management of the organisation, corporate planning staff, other corporate staff group,
business unit top management, business unit planning staff, other business unit staff, and
other business unit line management. Each of these internal stakeholder groups was perceived
to have a specific interest in the strategic planning process that was reasonably homogenous
within the group but different from group to group. As such, the strategic planning process
had to be evaluated in terms of the degree to which it met the needs of each group. A similar
approach should be taken by a tax administration to ensure that the needs and opinions of the
different groups of internal stakeholders within the tax administration are carefully
considered.

In addition to internal stakeholders, the importance of external stakeholders to a tax

administration is also emphasised. Gill (2000) stated that tax administration operates in an
extremely complex environment, with an array of external factors, forces and circumstances
constantly affecting the performance of the tax administration. External stakeholders’
requirements and expectations define the environment and general constraints that an
organisation must recognise in its operations (Atkinson et al., 2001). Organisation goals
embody the vision or mission, which are expressions of its response to external stakeholder
expectations and requirements. Outcomes reflect the impact of outputs on external

60
stakeholders’ expectations. This expectation represents external reporting that includes
benefits and outcomes of a tax administration. Inadequate delivery of benefits can lead to
withdrawal of stakeholder contributions and subsequent failure of the tax administration. This
is particularly important in the tax administration where the government (through its Ministry
of Finance) is a major stakeholder who can be expected to intervene if the tax administration
does not pay sufficient attention to the needs of groups it wishes to target. External
stakeholders of a tax administration also comprise the taxpayers who are affected by the tax
administration objectives. It is important for a tax administration to consider the aspects of
stakeholders’ expectations and benefits in its formal organisational arrangements, particularly
in its strategic planning process, in order to fulfil the demand for a tax authority’s
accountability to the external stakeholders.

In summary, performance measurement for formal organisation involves evaluating the

strategic planning process of a tax administration and how it relates to important aspects such
as vision/goals, involvement of the internal and external stakeholders, strategic management
practices and allocation of resources, performance management activities, and performance
measurement activities. In addition to measurement, the correlation among these aspects
should be diagnosed to find out how they affect the implementation and achievement of the
strategic goals in a tax administration’s strategic plan. The evaluation of the strategic planning
process calls for identification of the relevant sources of information. A strategic plan of an
organisation is usually detailed out as operational business plan, essentially in the form of an
action planning document. In this case, a tax administration’s strategic plan documentation is
the first source of information that should be examined. Another alternative source is the key
people who are involved in the strategic planning process.

ii) Informal Organisation

The informal organisational arrangement which co-exists alongside the formal arrangements
is any informal, unwritten guidelines that exert a powerful influence on people’s collective
and individual behaviour (Nadler, 2006). The informal organisational arrangements
encompass the culture of an organisation. Organisational culture is a complex set of values,
beliefs, assumptions and symbols that define the way in which an organisation conducts its

61
business (Barney, 1986). According to Peterson and Smith (2000), organisational culture
reflects individuals’ interpretations of events and situations in organisations.

Performance measurement for informal organisation should focus on evaluating the type of
culture that exists in a tax administration. This is because research in organisational culture
argues that certain cultures lead to superior organisational performance (Ogbonna and Harris,
2000). The relationship between organisational culture and performance has had sporadic but
growing interest from a range of disciplines (Garnett et al., 2008). Many academics and
practitioners argue that the performance of an organisation is dependent on the degree to
which the positive and strong values of the culture are widely shared (Deal and Kennedy,
1982; Denison, 1990; Kotter and Heskett, 1992; Ouchi, 1981; Pascale and Athos, 1981; Peters
and Waterman, 1982). Lee and Chang (2008) examined the relationship between
organisational culture and employee attitudes in wire and cable manufacturing companies and
found significant correlations between organisational culture and job satisfaction. In a study
by Amos and Weathington (2008), it was found that the perceived congruence of employee-
organisational values or culture by employees is positively associated with satisfaction with
the job and organisation as a whole and employee commitment to the organisation. The
results also support a negative relationship between value congruence and employee turnover
intentions.

In the case of tax administration, the patterns of past behaviour, activity, and effectiveness of
a tax administration may have an effect on current tax administration functioning (Gill, 2000).
A variety of past events and decisions may reduce the ability of the tax administration to
produce expected results. According to Gill (2000), the core norms and values of the tax
administration which have been developing over a long period of time have significant impact
on its performance. An understanding of the reasons, processes and experiences that have led
to the current norms and values is likely to provide clues about institutional changes needed to
improve the informal organisation of a tax administration.

In order to investigate the type of organisational culture that exists in a tax administration, one
should look at the organisational culture research to find the best way to do this. Parker and
Bradley (2000) stated that there are two important similarities that have emerged in culture

62
research. First, the concepts used to identify and describe culture tend to overlap between
studies and indicate the centrality of the competing influences of the internal/external and
control/flexibility approaches within organisations. Second, there is an emphasis on values as
a measure of organisational culture because values are more accessible in quantitative
research. Values represent preferences for alternative outcomes as well as a means of
achieving those outcomes. Parker and Bradley (2000) suggested that the competing values in
culture can be managed to achieve organisation-wide consensus and shared values.

However, very few models of organisational culture have captured the competing values trend
in culture research. According to Garnett et al. (2008), one reason for this may be the lack of a
valid instrument for measuring organisational culture, and a reluctant to introduce quantitative
measures into a research area often closely linked to qualitative, ethnographic methods.
Garnett et al. (2008) stated that one approach that has shown promise for application of value
measurements is the competing values framework (CVF) proposed by Zammuto and
Krakower (1991). Since its introduction as a framework for understanding organisational
effectiveness, it has been applied to issues ranging from leadership development to
organisational change (Denison and Spreitzer, 1991). The framework is comprehensive and
has been utilised in a number of studies to examine organisational culture (see, for example,
Zammuto et al., 1999; Parker and Bradley, 2000; Moynihan and Pandey, 2004; Moynihan and
Pandey, 2007).

The CVF explores the competing demands within organisations between their internal and
external environments, on the one hand, and between control and flexibility, on the other
(Denison and Spreitzer, 1991). These conflicting demands constitute the two axes of the
competing values framework. Organisations with an internal focus emphasise integration,
information management and communication, whereas organisations with an external focus
emphasise growth, resource acquisition and interaction with the external environment. On the
second dimension of conflicting demands, organisations with a focus on control emphasise
stability and cohesion while organisations with a focus on flexibility emphasise adaptability
and spontaneity (Zammuto et al., 1999). Combined, these two dimensions of competing
values map out four major models of organisational culture as shown in Figure 11.

63
 Figure 11: The Competing Values Framework of Organisational Culture

Flexibility

Human Relations Model Open Systems Model

Personal Dynamic and entrepreneural

Warm and caring Risk taker
Loyalty and tradition Innovation and development
Cohesion and morale Growth and resource acquisition
Equity Rewards individual initiative

Internal External

Internal Process Model Rational Goal Model

Formalised and structured Production oriented

Rule enforcement Pursuit of goals and objectives
Rules and policies Tasks and goal accomplishment
Stability Competition and achievement
Rewards based on rank Rewards based on achievement

Control

Source: Parker and Bradley (2000, p. 128)

The internal process model involves a control / internal focus in which information
management and communication are utilised in order to achieve stability and control. The
model is also referred to as a ‘hierarchical culture’ because it involves the enforcement of
rules, conformity, and attention to technical matters. In this model, individual conformity and
compliance are achieved through enforcement of formally stated rules and procedures. This
model reflects the traditional theoretical model of bureaucracy and public administration that
relies on formal rules and procedures as a control mechanism.

The rational goal model involves a control / external focus in which planning and goal setting
are utilised to achieve productivity and efficiency. The model is referred to as ‘rational

64
culture’ because of its emphasis on outcomes and goal fulfilment. Organisations of this type
are production oriented, and managers organise employees in the pursuit of designated goals
and objectives and rewards are linked to outcomes. Productivity and efficiency are major
goals of this model.

The human relations model involves a flexibility / internal focus in which training and the
broader development of human resources are utilised to achieve cohesion and employee
morale. This model is also referred to as ‘group culture’ because it is associated with trust and
participation through teamwork. Managers in organisations of this type seek to encourage and
mentor employees. Compliance with organisational norms flows from trust, tradition and
allegiance to the organisation. Goals are achieved through consensus building rather than
control.

The open systems model involves a flexibility / external focus in which readiness and
adaptability are utilised in order to achieve growth, resource acquisition and external support.
This model is also referred to as ‘developmental culture’ because it is associated with
innovative leaders with vision that maintain a focus on the external environment. These
organisations are dynamic and entrepreneurial and characterised by readiness for change.
Their leaders are risk-takers and organisational rewards are linked to individual initiative.

It can be seen that the CVF is comprehensive because it covers four different organisational
culture models. The internal process, the rational goal, the human relations, and the open
systems models are very useful in evaluating the culture that exists in a tax administration and
can indicate whether there is a balance of the four cultures. This is important because research
has suggested that the balance of the cultures is the most desirable state for an organisation
and has positive effect on its performance (Parker and Bradley, 2000). In the case of
imbalance among the four different types of culture, it is significant to find out the type of
culture which is dominant in a tax administration. This is to evaluate how it is connected to
the other types of culture in order to find a way to improve the imbalance state. The most
appropriate source of information to evaluate the culture of a tax administration is its
employees as they are the ones who define the way a tax administration is conducted, and the
values, beliefs and assumptions that form the culture of a tax administration.

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iii) Task

A public management regime can be defined by a number of criteria; for example, by its view
on its main objectives, its distribution of duties and responsibilities, or its implementation
structures (Kristensen et al., 2002). The distribution of duties and responsibilities of an
organisation is in the form of performing certain tasks. Task is the defining activity of any
organisation, that is, the basic and inherent activities to be performed by the organisation and
its parts (Nadler (2006). The performance of this task is one of the primary reasons for the
organisation’s existence and any analysis from a design perspective has to start with an
understanding of the nature of tasks to be performed, anticipated work flow patterns, and an
assessment of the more complex characteristics of the work (Wyman, 2003).

Public management regimes can also be described according to the weight they give to inputs,
outputs and outcomes in performing their task; and the corresponding measures of
achievement, i.e. efficiency and effectiveness (Kristensen et al., 2002). Inputs are consumed
by an organisation to perform its tasks, which are then transformed into outputs and
outcomes. Input-focused management is oriented toward how much resources, employees,
and facilities are made available for a program or ministry. The amount of money being spent
on a program or problem is often the main performance measure when managing input. An
input focus is often accompanied by process regulations, which are the standards and rules on
how inputs should be aligned and how things should be done. However, ministries and
agencies are not only created to spend money and adhere to rules. To varying degrees,
governments have sought to describe and measure what the money is buying. Mostly, these
descriptions and measures have been outputs.

An output-focus to management typically describes public functions in terms of goods and

services and calculates how many services are being delivered, or products produced. An
output focus is primarily oriented to indicators such as volume and timeliness, and, to varying
degrees, quality; for example, how many documents will be processed with minimal errors.

In outcome-focused management, the government defines what a particular program or

function is to achieve in terms of the public good, welfare or security; for example, outcomes

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to ensure a certain level of education attainment for most students. Having defined the
outcomes, an outcome system typically defines indicators, which helps assess how well it
does in achieving these outcomes.

In tax administration, the implementation of task also revolves around the input, output and
outcome focus. Gill (2003) stated that the tax administration task consists of organisation and
management, and operational tasks as listed in Table 1.

Table 1: Main Tasks of Revenue Administration Requiring Analysis

Organisation and Management Tasks Operational Tasks

Strategy and policy formulation Registration of taxpayers

Planning, budgeting, resource allocation Taxpayer services:
x Taxpayer education
x Taxpayer assistance
x Facilitation of voluntary compliance
Monitoring and evaluation Processing of declarations and payments
Coordination Monitoring of tax withholders and collecting
agents
Financial management Collection of information about taxable
transactions
x Collection of information from third parties
x Intelligence operations
x Search and seizure and survey operations to
obtain incriminating evidence
Personnel management Risk analysis and selection of cases for audit and
investigation
Information technology management Audit and investigation
Asset management Recovery of tax arrears
Internal control Legal and judicial matters:
x Legislation
x Appeals
x Prosecution
Anti-corruption Code of ethics, disciplinary rules, vigilance and
cooperation with external anti-corruption agencies
External relations Effective interaction with important environmental
actors to promote the tax administration objectives,
meet external challenges and exploit emerging
opportunities offered by the environment
Source: Gill (2003, p. 7)

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In order to perform the above task, a tax administration requires certain resources/inputs. Gill
(2000) stated that inputs for a tax administration in tangible forms are, for example, tax
employees, budget allocations, information technology systems, and infrastructure. On the
other hand, the intangible resources can take the form of legal authority granted to the tax
administration for the execution of the tax laws, and the perception of taxpayers on the
transparency, integrity and enforcement capacity of the tax administration.

Outputs of a tax administration are, for example, the number of audits carried out by each tax
inspector; percentage of stop-filers as compared to the registered and active taxpayers;
average time to detect stop-filer; tax debt as percentage of annual tax revenue; recovery rate
of tax debt; share of fines collected; and administrative cost as percent of total tax revenue
(James et al., 2007).

Outcomes of a tax administration can be both mid-term and long-term outcomes. A mid-term
outcome of a tax administration is taxpayer satisfaction towards the quality of services that
they received, while long-term outcome involves taxpayers’ compliance level (OECD, 2008).
There is empirical evidence that voluntary compliance by taxpayers improves when the tax
administration provides better services to the taxpayers (Wallschutzky, 1984). Studies such as
Taliercio (2004), Klun (2004), Serra (2005), and von Soest (2006) have included taxpayer
satisfaction as an outcome indicator for tax administration performance.

In order to measure performance of the tax administration task, it is significant to measure

performance in terms of inputs, outputs and outcomes as discussed above. However, many
existing measurement frameworks and methodologies appear to stop at this point. Once the
strategies have been identified and the right performance measures established, it is assumed
that everything will be fine. Yet studies suggest that some 90 percent of managers fail to
implement and deliver their organisation’s strategies (Neely et al., 2007). According to Neely
et al. (2007), a key reason for strategic failure is that an organisation’s processes are not
aligned with its strategies, and, even if its processes are aligned, then the capabilities required
for operating these processes are not. Measurement should play a crucial role by allowing
managers to track whether or not the right processes and capabilities are in place, to
communicate which processes and capabilities matter, and to encourage people within the

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organisation to maintain or proactively nurture these processes and capabilities as appropriate.
This may involve gaining an understanding of which particular business process and
capabilities must be competitively distinctive and which merely need to be improved or
maintained. Hence, there is a need to diagnose the connection among inputs, processes and
outputs/outcomes related to task execution in a tax administration to find out whether the
appropriate tax collection processes and capabilities are in place to achieve the strategic goals
and objectives in the strategic plan.

Processes do not function independently. Even the most brilliantly designed process needs
people with certain skills, some policies and procedures regarding the way things are done,
some physical infrastructure for it to happen, and, more likely, some technology to enhance it.
In fact, capabilities can be defined as the combination of an organisation’s people, practices,
technology and infrastructure that, collectively, represents that organisation’s ability to create
value for its stakeholders through a distinct part of its operation (Neely et al., 2007). Very
often the distinct part will be a business process. Measurement will need to focus on those
critical component elements that make it distinctive and also allow it to remain distinctive in
the future. Competitive benchmarks will be needed in order to understand the size of the gap.
A benchmark is a form of standard, and best practice standards have an inspirational character
that can motivate employees (Trosa and Williams, 1996). It can be standard at the process
level, and in this case it would be the processes of the best practice organisation. Best practice
standards for processes may not be visible to clients and hence may require internal rather
than external support to be attained.

A benchmark can also be a target for performance specifying a level of desired outcome or
setting broader goals. It may apply at the time being or the objectives for the future and can
also be used to improve performance. It is about comparison, and comparison is a driver of
performance. Benchmarks allow employees to find out for themselves how they are
performing compared to others and can give them ideas that they can implement to improve
performance (Trosa and Williams, 1996). The American Institute of Certified Public
Accountants (AICPA) (AICPA, 1998) stated that benchmarking is the performance
measurement tool which compares costs, staffing, productivity, quality, service, value added,
technology and organisational structure; identifies areas that offer the greatest opportunities

69
for efficiency and effectiveness improvement; helps sell the need for change internally; and
provides access to the best practices of world-class performers.

Hanninen (2011) proposes the use of benchmarking for the purpose of tax administration
performance management. Gallagher (2005) used performance indicators to assess a tax
administration of a country and compared them with international benchmarks. In Gallagher’s
(2005) study, benchmarking is a means of comparing a set of specific indicators that capture
the fundamental nature of almost any tax system to either international best or probably most
relevant practices. It also allows the tax authority to establish goals and specific targets for tax
collection process improvement and modernisation. Specific benchmarks can be tracked over
time and can show how reform or modernisation efforts are being implemented and even how
they contribute to the tax administration’s performance. The advantages of using international
benchmarks as performance indicators make them appropriate to be used to measure the
performance of the tax administration task. Benchmarking with external parties is particularly
useful in an open system approach to performance management that considers the external
environment in which a tax administration exists. This is because the greatest performance
gains from process benchmarking are likely to come from comparisons with external parties
(Trosa and Williams, 1996). There is also a danger that managers may not take an integrated
approach to performance measurement and management and may perceive the different sorts
of performance indicators to be an extra load to their work, rather than being integral to their
work. Process benchmarking and results benchmarking are all part of the performance
information picture necessary to determine how a tax administration is performing at all
levels (Trosa and Williams, 1996).

The relevant documents which contain the data and statistics on the
achievement/accomplishment of the tax administration task are the first source of information
to evaluate the performance of a tax administration. In case of insufficient documentation
available for such data, an alternative source will be the people who possess the information
on the outputs and outcomes of the task performed. For measuring the outputs, the person
with such information will be the head of the department who manages the functioning of the
specific task. In order to obtain the source for measuring tax administration outcomes, for

70
example the quality of taxpayer services, the best way is to get the opinion of the taxpayers on
their perceived satisfaction towards the quality of services provided by the tax administration.

iv) People

In an organisational context, people are the employees of the organisation. The process of
measuring and subsequently actively managing employee performance in order to improve
organisational performance is seen as critical to the development and survival of organisations
(Den Hartog et al., 2004). Initially such initiatives stress the need to make employee
performance explicit and measurable to make performance more ‘manageable’. However,
performance management has come to signify more than a list of singular practices aimed at
measuring and adapting employee performance (Heinrich, 2002). Rather, it is seen as an
integrated process where managers work with their employees to set expectations, measure
and review results, and reward performance for the purpose of improving employee
performance, with the ultimate aim of positively affecting organisational success (Mondy et
al., 2002). Measures send people messages about what matters and how they should behave.
When the measures are consistent with the organisation’s strategies, they encourage
behaviours that are consistent with strategy (Neely et al., 2007). The right measures, then,
offer not only a means of tracking whether strategy is being implemented but also a means of
communication strategy and encouraging implementation.

For tax administration, the people who perform the core tax administration tasks are indeed an
important element that determines tax administration performance. The importance of tax
employees in the tax administration context has long been highlighted by Mikesell (1974, p.
618):
Whether any tax system achieves the goals set by society depends in large part on the
success of the tax administrative procedure and tax administrators [or personnel] in
carrying out the procedure. While some tax legislation can be so bad as to render it
impossible to administer competently, incompetent administration can render any tax
system bad.

The above assertion indicates that an employee is an important element in a tax administration
as the employee is the one to carry out procedures such as tax collection to ensure that the
system is performing in an efficient manner. Tax administrations should therefore give

71
particular focus to personnel as well as specific technical initiatives because what matters
most is the combination of both the institutional environment and the qualities of the tax
administration personnel. When the right experts are placed in a setting conducive to training
and skill transfer, they have a significant impact, and if these conditions are not met then the
tax administration is vulnerable to organisational failure (Schlemenson, 1992). The
administration of human resources is a fundamental pillar of tax administration, which will
affect its efficiency and effectiveness. Bird and Zolt (2008) asserted that efficient tax
administration requires qualified tax officials. In addition, Jenkins et al. (2000) suggested that
the availability and retention of trained human resources are by far the most important factors
in determining the efficiency of a tax administration.

In addition to possessing the right skills to perform the assigned task, the behavioural aspect
of the employees also plays an important role in determining organisational performance
(Section 2.5). However, limited studies have been undertaken to investigate employees’
attitude and behaviour in the tax administration context. Bird and Casanegra de Jantscher
(1992), for example, stated that there have been limited studies on tax officials, of why and
how they do what they do; and governments in some developing countries have little day-to-
day control over tax officials, little knowledge of what they do, and, furthermore, no easy way
to obtain such knowledge. To date, there are only three published studies on tax employees’
attitudes in relation to tax administration performance measurement, which are on tax
employees’ commitment and work systems (Tayib, 1998; Manaf et al., 2004), and tax
employees’ perceptions of tax collection processes (James et al., 2006). It is therefore
important to include the evaluation of the behavioural aspect of the employees in the context
of tax administration performance management.

Li (2008) stated that performance of government employees is very important: it concerns

government image and the efficiency of government management (Li, 2008). Better
performance will lead to greater citizen trust in government (Kaifeng and Marc, 2006).
Section 2.5 discusses that behavioural factors can significantly affect an employee’s
performance and, in turn, affect the overall organisational performance. The literature
suggests that the efforts to improve performance of employees centre on the ability to
successfully motivate these employees (Li, 2008). Research in the field of public

72
administration in the US, South Korea and other countries has proven that motivation has an
important influence on government employee performance (see, for example, Perry and Wise,
1990; Naff and Crum, 1999; Brewer and Selden, 1998; Choi, 2001).

In addition to motivation, the concept of organisational commitment has also received

considerable attention as a factor that can affect employee performance. Commitment
represents the attachments that individuals form to their organisations and has been of interest
to various researchers for some time (Ketchand and Strawser, 2001). Porter et al. (1974, p.
604) defined organisational commitment as “the relative strength of an individual’s
identification with and involvement in a particular organisation”. They conceptualised
organisational commitment as a singular construct comprised of multiple attitudes on the part
of an organisation’s employees; such as loyalty to the organisation, willingness to exert effort
on behalf of the organisation, congruence of individual goals and values with those of the
organisation, and desire to maintain membership of the organisation.

Another important factor is employee job satisfaction, which has been identified as the most
intensely studied variable in organisational research (Rainey, 1991). Job satisfaction is a
general attitude that employees have towards their jobs, and is directly tied to individual
needs including challenging work, equitable rewards and a supportive work environment and
colleagues (Ostroff, 1992). According to Quarstein et al. (1992), overall satisfaction is a
function of a combination of situational characteristics and situational occurrences. The
situational characteristics commonly proposed as key factors in job satisfaction are the work
itself, pay, promotion, supervision and co-workers (Smith et al., 1969), which influence
employees’ performance in an organisation.

Occupationally-induced stress is another major problem for both individuals within an

organisation and for the organisation itself (Leong et al., 1996). Stress is seen as an
undesirable phenomenon which is brought about by inadequate coping with environmental
sources of stressors associated with a particular job - for example, work overload, role
conflict/ambiguity, poor working conditions - which results in negative mental and physical
health consequences (Cooper and Payne, 1988). Stress at work can contribute to an
employee’s poor job performance.

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Notwithstanding the value of understanding tax employees’ motivation, commitment,
satisfaction and work stress which can affect performance, a study on these four factors is not
evident in the literature on tax administration performance. Therefore, it is important to
investigate these factors and diagnose the correlation among them to find out their possible
effect on tax employees’ performance. Employees’ behavioural aspects regarding motivation,
organisational commitment, job satisfaction and work stress are best measured based on their
opinions and this can be done by asking them to provide such information.

3.4.3 Diagnose the Congruence among the Four Components

The next phase after performance measurement in the performance management cycle is to
take corrective action where performance is falling short of targets. However, this cannot be
properly done without getting the feedback from the performance measurement phase. In this
case, it is essential to use the data from performance measurements on the formal
organisation, informal organisation, task and people to diagnose the congruence among them.
If these components exist in states of relative balance and fit with each other, then the
different parts of an organisation can fit well together and function effectively. The findings
from the diagnosis can be used to better integrate performance management at the strategic,
operational and individual levels. This is because the diagnosis can provide feedback on the
reasons the strategic plan is not fully accomplished by identifying the aspects of the strategic
level (strategic planning process and culture), operational level (task), and individual level
(employees) that are possibly contributing to underperformance. Therefore, corrective action
can be taken if performance is falling short of targets (negative feedback) or perhaps to push it
even further from the target where the target is being exceeded (positive feedback). Then the
performance management cycle can start again with a new strategic plan being drawn up to
include new policies that can improve performance.

3.4.4 Summary of the Guidelines

The guidelines for applying the performance management framework in this study are
summarised in Figure 12. Three main procedures are provided in the guidelines based on the
performance management cycle. The procedures are: a) investigate the formal organisational

74
arrangements of a tax administration to observe whether a strategic plan has been established;
b) measure the performance of a tax administration by evaluating the strategic planning
process and the achievement of the strategic plan, measure the task performance, and evaluate
the informal organisation and people; and c) diagnose the congruence among the elements in
the formal organisation, informal organisation, task and people holistically to provide
feedback on whether these elements are in congruence with each other to achieve the strategic
plan of a tax administration.

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 Figure 12: Guidelines for Applying the Performance Management Framework

Procedures

a). Investigate the formal organisational arrangements of a tax administration to observe whether a strategic plan has been established. This will
typically involve identification of the relevant documents and key people involved in the strategic planning process. Focus on the strategic
planning process - who are involved in the process, the history of strategic planning in the tax administration, and the use of a strategic planning
systems (short-term plan, mid-term plan, or long-term plan). Find out whether there is a specific model used for the strategic planning systems.

b). Measure the performance of a tax administration by evaluating the strategic planning process and the achievement of the strategic plan,
measuring the task performance, and evaluating the informal organisation and people.

Component Element Evaluation Source of Data

Formal x Strategic plan x Evaluate the strategic planning process of a x Strategic plan
organisation x Vision/Goals tax administration and how it relates to documentation
x Evaluation of plan vision/goals, involvement of the internal and x People involved in the
x Stakeholders external stakeholders, strategic management strategic planning
practices, allocation of resources, process
performance management activities, and
performance measurement activities
x Evaluate the outcomes of the strategic plan
in terms of its implementation and
achievement
Strategic Level

Institutional Factors
x Diagnose the connection among the strategic
planning process, evaluation of strategic plan
and stakeholders’ involvement to find out
how they affect the implementation and
achievement of the strategic goals in the
strategic plan

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 Procedures

Component Element Evaluation Source of Data

Task x Systems/Processes x Evaluate the systems and processes involved x Documents which
x Input in performing the task contain the data and
x Output x Measure performance in terms of inputs, statistics on the task
x Outcome outputs and outcomes x People who possess the
x Performance measurements x Compare performance with performance relevant information
x Performance standards standards x Performance standards
x Diagnose the connection among the inputs, from the strategic plan
processes and outputs/outcomes related to documentation and from
task execution to find out whether the the international
Operational Level

Institutional Factors
appropriate tax collection processes and benchmarks
capabilities are in place to achieve the
strategic goals and objectives in the strategic
plan

Informal Organisational culture: x Investigate the type of culture that exists in a Employees of the tax
organisation x Hierarchical culture tax administration administration
x Rational culture x Find out whether there is a balance among
x Group culture the four types of culture
x Developmental culture x Identify the dominant culture
x Diagnose the connection between the
dominant culture and the other types of
culture
Strategic Level

Behavioural Factors
77
 Procedures

People Employees’ attitudes: x Investigate employees’ level of work stress, Employees of the tax
x Stress motivation, commitment and satisfaction in administration
x Motivation performing tax administration task
x Commitment x Diagnose the correlation among employees’
x Satisfaction stress, motivation, commitment and
satisfaction to find out the possible effect on
Individual Level

employee performance

Behavioural Factors
c). Diagnose the correlation among the elements in the formal organisation, informal organisation, task and people holistically to provide feedback
on whether these elements are in congruence with each other to achieve the strategic plan.

Source: Author

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3.5 Summary

Performance management has great potential for improving tax administration efficiency.
Performance management is a continual process which contains activities of developing an
organisational goal through an established plan, implementing the plan, measuring whether
performance is in congruence with the plan, and reviewing the achievement of the plan. This
chapter has presented a framework for undertaking an integrated and open system approach to
tax administration performance management, as seen in Figure 10. A set of guidelines on how
to apply the framework is provided in Figure 12 to assist the systematic development,
assessment, and evaluation of performance management activities within a tax administration.
Chapter 4 presents the research design that will be used to apply the guidelines.

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Chapter 4 RESEARCH DESIGN

4.1 Introduction

As noted in Chapter 2, little research has been published on tax administration performance
management. Moreover, none of these publications provide details on how to undertake
performance management in tax administration. Nevertheless, it was concluded that there is a
need for an integrated approach to tax administration performance management. The review
of existing performance management practice discloses that there is a lack of integration
among the individual, operational, and strategic levels of performance management
specifically for public organisations. Due to this limited integration, public organisations
typically fail to adequately address the institutional and behavioural factors that can affect
organisational performance.

The general literature on performance management proposes that the different levels of
performance management can be effectively integrated using a system-thinking approach.
Chapter 3 has demonstrated how an integrated and open system approach can be undertaken
through the development of an ‘integrated – open system’ performance management
framework for tax administration based on theory building process. A set of accompanying
guidelines on how to apply the framework is also developed in Chapter 3.

This chapter sets out the research design to complete the theory building process, i.e. the
practice components of theory building where data/findings and experiential knowledge are
obtained to confirm, or disconfirm, and further refine and develop the existing theory (the
framework) to enhance the utility of the framework in practice. Firstly, the approach taken is
to test the framework through the application of the guidelines. A case study approach was
identified as the most appropriate research strategy for this purpose (Section 4.2). Next, the
data collection and analysis methods to be used in the case study are outlined (Section 4.3);
which include the documentary study (Section 4.3.1), face-to-face interview (Section 4.3.2)
and questionnaire survey (Section 4.3.3). The ethical considerations in this study are then set
out (Section 4.4). Finally, Section 4.5 provides the summary of this chapter.

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4.2 Case Study Approach

Performance management involves improving strategic focus and organisational efficiency

and effectiveness through continuously securing improvements in the performance of
organisation, teams and individuals within an agreed framework of planned goals, objectives
and standards of an organisation. In this regard, performance management is specific to the
context of the organisation. The context therefore plays a central role. Given the fact that
contextual issues were highly pertinent to this study, the case study approach was appropriate
for applying the guidelines for performance management presented in Chapter 3. The
guidelines in Chapter 3 demonstrate the elements of performance management practice which
are specific to a tax administration context. According to Yin (2003, p. 13), a case study is
defined as an empirical inquiry that:
x investigates a contemporary phenomenon within its real-life context, especially when
x the boundaries between phenomenon and context are not clearly evident.

The use of a case study approach allows for a particular detailed exploration of performance
management practices in a tax administration. This is because case studies allow researchers
to retain the meaningful characteristics of real life events in order to gain a unique insight into
real people living in actual situations (Cohen et al., 2007). The case study as a research
strategy has been used in many situations to contribute to our knowledge of individual, group,
organisational and social phenomena (Yin, 2009).

Case studies also have a distinct place in organisational research, for example, to explain the
presumed causal links in real-life interventions, where explanations would link system
implementation with system effects (United States General Accounting Office, 1990). The
case study method allows investigators to retain the holistic and meaningful characteristics of
real-life events such as organisational and managerial processes. Reviewing the empirical
foundations of organisational research, Kalleberg et al. (1994) noted that the vast majority of
organisational research studies are based on a single organisation or a single-case study. As
this study is concerned with organisational research involving tax administration performance
management, a case study is therefore the most appropriate strategy to be employed.

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In addition to the above rationale for using a case study, Yin (2009) stated that the form of the
research question can provide an important clue regarding the appropriate research strategy to
be used. He added that research questions, which involve the ‘how’ question are more
explanatory and likely to lead to the use of case studies. The ‘how’ question is being asked
about a contemporary set of events, over which the investigator has little or no control. The
case study is an appropriate research approach to be undertaken as it addresses the ‘how’
research questions in this study.

As is the case with any research methodology, the case study has its limitations and
drawbacks. The first criticism relates to the ‘lack of rigor’ (Yin, 2003, p. 10). Bromley (as
cited in Robson, 2002, p. 180) stated that “the case studies are sometimes carried out in a
sloppy, perfunctory, and incompetent manner and sometimes even in a corrupt, dishonest
way”. To remedy this claim, Robson (2002, p. 18) suggested that today’s real-world
researcher adopt a ‘scientific attitude’. Robson believed that researchers should conduct the
study in a manner that is systematic and ethical. This study therefore followed a systematic
approach by identifying the appropriate data collection methods for the case study and
obtaining the ethics approval from the relevant parties before conducting the fieldwork.

The second criticism is the generalisation issue from a single case study (Yin, 2003). As
described by Eisenhardt (1989, p. 534), the case study, as a research methodology, “focuses
on understanding the dynamics present within single settings” and can be used to accomplish
various aims: (1) to provide description, (2) to test theory, or (3) to generate theory. Case
studies are generalisable to theoretical propositions and not to populations or universes.
According to Yin (2003), the case study does not represent a ‘sample’, and, in doing a case
study, the goal is to expand and generalise theories (analytical generalisation) and not to
enumerate frequencies (statistical generalisation). The focus of this study is to generalise
theories related to tax administration performance management, which justifies the case study
approach.

The third criticism regarding case study as a research method is that it takes too long and the
data are unwieldy (Yin, 2003). This criticism can be remedied when the scope of the study is
appropriately set; the data to be acquired are properly planned; and the data collected are

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analysed and summarised in understandable terms. In this study, the case study followed these
suggestions to ensure it has addressed the criticism.

Despite the above criticisms, the case study approach is deemed the best approach for this
study because other research methods available are not able to deal with the contextual nature
of this study to the same extent as a case study can. This view is supported by Yin (2003, p.
13) who suggested the limits of other research methods:
An experiment, for instance, deliberately divorces a phenomenon from its context, so
that attention can be focused on only a few variables (typically, the context is
‘controlled’ by the laboratory environment). A history, by comparison, does deal with
the entangled situation between phenomenon and context, but usually with non-
contemporary events. Finally, surveys can try to deal with phenomenon and context, but
their ability to investigate the context is extremely limited. The survey designer, for
instance, constantly struggles to limit the number of variables to be analysed (and hence
the number of questions that can be asked) to fall safely within the number of
respondents that can be surveyed.

Having determined that a case study approach is the most appropriate research strategy for
this study, it is also important to determine the case study design. Voss et al. (2002) discussed
case study research design in terms of number of cases. They categorised it as single cases
and multiple cases. Voss et al. (2002) stated that single cases have an advantage of greater
depth of observation as compared to multiple cases. In this study, a case study of singularity
as opposed to multiple cases was considered the best method to apply the guidelines as it is
expected to provide more opportunity for in-depth observation of a tax administration
performance management. The Royal Malaysian Customs was the tax administration chosen
for the case study. The selection of the Royal Malaysian Customs was due to two main
reasons: 1) it represents the ‘critical case’ for testing the guidelines for performance
management; and 2) it has a low tax collection performance.

According to Gerring (2007), an appropriate use of a single case study is when it represents
the ‘critical case’ in testing a theory. The theory has specified a clear set of circumstances
within which the theory is believed to be true. To confirm, challenge, or extend the theory, a
single case may meet all of the conditions for testing the theory. The single case can then be
used to determine whether a theory’s propositions are correct or whether some alternative set
of explanations might be more relevant. The Royal Malaysian Customs can represent a

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‘critical case’ in testing the applicability of the guidelines for performance management in
this study. This is because the utilisation of performance management systems in tax
administrations in developing countries is limited. According to Crandall (2010), tax
administration performance management systems are very well advanced and assuming
greater importance in many developed countries. On the other hand, such systems are
underdeveloped in tax administrations in developing economies. It is therefore critical to
apply the guidelines for performance management developed in this study on the Royal
Malaysian Customs to test whether the guidelines can assist in improving performance
management of a tax administration in a developing country.

In addition to being a ‘critical case’ in testing the guidelines, the selection of the Royal
Malaysian Customs was due to its low tax collection performance. A recent study on the
taxable capacity of the developing countries revealed that Malaysia was in the category of low
tax collection level (Le et al., 2008). Tax collection is a measure to evaluate tax
administration performance. In fact, Teera (2003), von Soest (2006), and James et al. (2007)
stated that tax revenue collection is the first performance measurement that should be
considered. They suggested that tax performance evaluation should focus on raising more tax
revenue, and that revenue performance constitutes the ultimate goal of any tax administration.
The low tax collection indicates the need to further investigate the tax administration
performance in Malaysia. In addition, the indirect tax collection performance has also been a
concern to the Malaysian Government in 2002, when the Royal Malaysian Customs was
unable to collect unpaid sales tax of RM75.7 million, services tax of RM46.8 million, customs
duties of RM46.7 million and excise duties of RM0.57 million (New Straits Times, 2002).
There was also evidence of an increase in the ratio of tax administrative costs to indirect tax
revenue, and increases in indirect tax arrears to indirect tax revenue throughout the years from
1991 to 2001 (Mansor et al., 2005). This calls attention to improving the tax administration
performance and to find ways for performance management to assist in the improvement
efforts.

The above factors indicate the appropriateness to choose the Royal Malaysian Customs as the
case study. In order to test the guidelines for performance management, the Royal Malaysian
Customs Wilayah Persekutuan Kuala Lumpur (RMC-WPKL), a state office of the Royal

84
Malaysian Customs, was selected as the case study. The selection of RMC-WPKL was
because it was considered as a ‘typical case’ representing the rest of the Royal Malaysian
Customs offices in Malaysia. This is because the Royal Malaysian Customs requires its
practices and procedures to be implemented uniformly in all its offices throughout the
country. According to Gerring (2007), a case study of singularity is an appropriate design
under several circumstances, one of which being the single case is a ‘representative or typical
case’. In order for a focused case study to provide insight into a broader phenomenon, it must
be representative of a broader set of cases. The single case study, for example, may represent
a typical ‘project’ among many different projects, a manufacturing firm believed to be typical
of many other manufacturing firms in the same industry, a typical urban neighbourhood, or a
representative school. The lessons learned from these cases are assumed to be informative
about the experiences of the average institution. The management practices at RMC-WPKL
represent the practices of other Customs offices in Malaysia, hence displaying the attribute of
a ‘typical case’ study.

4.3 Data Collection and Analysis

The guidelines for performance management developed in this study (Figure 12 in Chapter 3)
involve collecting and analysing data on formal organisation, task, informal organisation and
people in a tax administration. The guidelines propose that the information on these four
components can be derived from the following: 1) formal organisation - the strategic plan
documents and the relevant people who are involved in the strategic planning process; 2) task
- documents which contain the data and statistics on the specified task and the people who
possess the relevant information on the task performed; 3) informal organisation and people -
employees of the organisation. The data for this case study is therefore drawn from multiple
sources of evidence in the forms of both qualitative and quantitative data.

According to Yin (2009), an important note is that the case study method is not just a form of
qualitative research, even though it may be recognised among the array of qualitative research
choices. Yin (2009) stated that some case study research goes beyond being a type of
qualitative research, by using a mix of quantitative and qualitative evidence. Gerring (2007)
also stated that to study a single case intensively does not limit an investigator to qualitative

85
techniques. In fact, case study strategy should not be confused with ‘qualitative research’
(Denzin and Lincoln, 1994). Case studies can include and even be limited to quantitative
evidence or be based on any mix of quantitative and qualitative evidence; and using multiple
strategies in any given case study (e.g. a survey within a case study or vice versa) is also
acceptable (Yin, 2009).

Qualitative researchers study people and events in natural settings and attempt to make sense
of particular phenomena by examining the meanings people bring to such events (Denzin and
Lincoln, 1998). The methods of data collection and analysis in qualitative research provided
the necessary rich in-depth contextual information required for understanding the nature and
process of an organisation. Meanwhile, quantitative researchers perceive social research in an
instrumental way where research is a tool for studying social events and learning about them
and their interconnections so that general causal laws can be discovered, explained and
documented (Sarantakos, 2005). Quantitative researchers believe that knowledge of events
and social laws allows society to control events and to predict their occurrence and outcomes.
Quantitative and qualitative methods are tools for researchers to use as and when appropriate.
However, it is suggested that they are always more powerful when used in combination than
in isolation (Gorard and Taylor, 2007).

This study used both qualitative and quantitative evidence in the forms of documentary study,
face-to-face interview, and questionnaire survey to give construct validity to the case study
(Yin, 2009). To further increase the trustworthiness of the findings of this case study, the
triangulation method was applied. Triangulation is characterised by combining methodologies
to study the same phenomenon (Denzin and Lincoln, 2000). Early authors such as Jick (1979)
referred to triangulation as the mixing of qualitative and quantitative methods, promoting the
use of both as complementary rather than rival camps. Denzin (1978) advocated for
triangulation to be used in qualitative research to enhance a study’s ability to be generalised
and to establish acceptance of qualitative approaches. Denzin (1978) described four basic
types of triangulation: 1) data - use of several different types of data sources; 2) investigator -
use of several different researchers; 3) theory - use of multiple perspectives to interpret a
single set of data; and 4) methodological - use of multiple methods to study the one
phenomenon. In this study, data triangulation method was used to increase the validity of the

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findings from the case study. The following sections describe the methods of data collection
and data analysis for the case study.

4.3.1 Documentary Study

This study used the documentary study to obtain information on the formal organisation and
the task performed at RMC-WPKL. Documentary methods appear in a variety of forms,
addressing a whole range of documents, from documents as the unit of analysis to texts. One
of the most common forms of documentary methods is document studies. According to
Sarantakos (2005), the focus of document studies is on the description, identification of
trends, frequencies and interrelationships, and statistical analysis. Written document and
records are an important source of data that enable researchers to acquire an insider’s
perspective, providing a deeper knowledge of the context in which events occurred (Holloway
and Wheeler, 1996). There are various sources of documentation such as press articles, letters,
meeting agendas and minutes, progress reports and official reports. Documents are useful in
case study research as they help to corroborate and augment evidence from other sources
(Yin, 2009). A key benefit of documentation is that these sources are generally easy to access,
meaning that re-checking is easier and there is less reliance on individuals’ memories of
events (Kellehear, 1993).

However, the documentary study has several limitations. According to Sarantakos (2005),
these limitations include the lack of representativeness since documents are not necessarily
representative of their kind and thus do not allow generalisations; some documents are not
easily accessible such as confidential documents; some documents are not complete or up to
date; the reliability of some documents is questionable; and comparisons between documents
are not always possible. With regards to this study, the documentary study may not provide
all the essential information to assess the formal organisation and task of RMC-WPKL.
Hence, this study also included interview and questionnaire survey as the alternative methods
of data collection in order to get the necessary information. This is because, according to
Mucciarone (2008), for most of the government departments in Malaysia, official documents
are only available upon request and the access to such documents is restricted.

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Personal visits to RMC-WPKL were made by the researcher to obtain the information from
the relevant documents between the periods of August to November 2009. Published
information about the Royal Malaysian Customs was limited. Most of the reports produced by
the department were for internal use or only for the relevant ministries. The reports were not
meant for the public. Therefore, the researcher had to make strenuous efforts during personal
visits to the department to see all the relevant officers and obtain the reports and other
additional data not included in the reports. Obtaining the information proved to be a very
demanding task as some of the data required were classified as confidential under the
Customs rules and regulations. Furthermore, the researcher had to follow the procedures for
access to such information imposed by the Royal Malaysian Customs at the head office as
well as at the state level. A number of appointments, for example, had to be arranged to meet
several officers ranked from the Director General of the Royal Malaysian Customs at the head
office to the Director of RMC-WPKL and finally to the officers who held the relevant
information. The process of collecting this information was thus very costly and time
consuming in the absence of publicly available information.

The sources of documented data used in this case study are listed below:
1. Document on Strategic Action Plan for RMC-WPKL
2. Royal Malaysian Customs Annual Reports
3. Quality Report of RMC-WPKL
4. Malaysian Economic Reports
5. Progress reports and briefing papers
6. Other documentations from various departments within RMC-WPKL.

The above documents were first analysed to see if they can provide information on the formal
organisation at RMC-WPKL. Specifically, the intention was to find the data on the strategic
planning process at the department. However, it was discovered that the documents did not
provide enough information to analyse the strategic planning process, hence requiring further
enquiries through the face-to-face interview with the relevant people who were involved in
the strategic planning process at the department.

88
The documents were then used for the purpose of evaluating the performance of tax
administration task at RMC-WPKL. A total of 48 task items were evaluated based on the
general task proposed by Gill (2003) and detailed out by Gallagher (2005) (refer to Section
3.4.2). These 48 items were classified according to the following seven categories:
1. Enforcement
a) Auditors as percent of tax administration staff
b) Auditors as percent of registered taxpayers
c) Percent of taxpayers subject to annual audit
d) Comprehensive audit plan, type of audit generally used and audit selection criteria
e) Simultaneous or separate audit for different type of taxes
f) Unified domestic and import audits
g) Separation of taxpayers by size or nature
h) Enforcement powers of the tax administration
i) Advance notification of the intention to take enforcement action against the taxpayer

2. Payments and Collections

a) Electronic payment methods
b) Percent of large taxpayers paying via internet
c) Numbers of stop-filers as percent of registered taxpayers and active taxpayers
d) Average time to detect a stop-filer and procedure to detect stop-filers
e) Tax debts as percent of annual tax revenue
f) Recovery of tax debt
g) Share of fines collected
h) Administrative cost as percent of total tax revenue
i) Institutions that establish revenue targets

3. Automated Systems
a) Computerised tax administration functions
b) Interconnectivity between headquarters and local tax offices
c) Data and systems backups
d) Operating taxpayer current account
e) Operating taxpayer registry

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f) Automated audit selection
g) Tax declaration entry with automatic error correction
h) Use of external data, exogenous information and third party databases
i) Crossing information among taxes
j) Late or stop-filers system

4. Planning and Coordinating

a) Planning, monitoring and evaluation systems for tax organisation
b) Coordinate information with ministries and others in the government

5. Tax Personnel Management / Human Resources

a) Number of taxpayers per tax administration staff
b) Percent of staff in core operational functions
c) Percent of employees with university degrees
d) Ratio of director salaries to that of tax auditors
e) Ratio of average tax administrator’s salary to average GDP per capita
f) Existence of administrative career plan and formal retirement plan
g) Specialised training for staff

6. Sanctions and Penalties

a) Tax administration code
b) Existence of tax fraud law
c) Application of tax fraud felony sanctions
d) Appeals tribunal
e) Type of penalties and late payment interest rates

7. Organisation, Institutional Credibility and Public Confidence

a) Stability of top-level position
b) Professionalism of top-level staff
c) Tax fraud unit in the tax administration
d) Unit for investigation of internal corruption
e) Internal regulation

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f) Diversity and quality of taxpayer services

The above 48 items concerning RMC-WPKL were evaluated based on the document analysis.
The items were then compared against the data in the strategic plan documentation of RMC-
WPKL and the international benchmarks as proposed by Gallagher (2005). Comparison data
for the benchmarking purpose was also derived from the report of the World Bank (2009) and
OECD (2009). The purpose of benchmarking is to measure the task performance at RMC-
WPKL.

4.3.2 Face-to-Face Interview

This study employed the face-to-face interview to investigate the formal organisation at
RMC-WPKL. Specifically, the purpose of the interview was to investigate the strategic
planning process at RMC-WPKL, which was not available from the document sources. In
addition, only a small group of people who were involved in the strategic planning process
have the required information, which made the face-to-face interview more appropriate as
compared to a survey method. On the main advantage of face-to-face interviews, Sekaran
(2003) indicated that the researcher can adapt the questions as necessary, clarify doubts and
ensure that the questions are properly understood by repeating or rephrasing the questions.
These aspects of interviews were particularly useful in investigating a strategic planning
process of a tax administration, which required clarifications and lengthy explanations.

The most common interviews are the semi-structured and unstructured ones, and more
generally those that comply fully with the standards and principles of qualitative research
(Sarantakos, 2005). Semi-structured interviews lie between the structured and unstructured
interviews. They contain elements of both, with some being closer to structured interviews,
and others closer to unstructured ones. This study used the semi-structured interviews to
obtain the relevant information from RMC-WPKL. The semi-structured interview approach
uses a specific set of questions, but the interviewer is free to probe beyond the answers (May,
2001).

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To evaluate the strategic planning process, this study followed the methodology used by
Poister and Streib (2005), which consists of questions about the use and status of the strategic
planning system and the specific steps in the strategic planning process. Poister and Streib
(2005) stated that, even though many public managers have embraced strategic planning, it is
unlikely to produce benefits they anticipate unless they drive it through budgeting,
performance measurement and performance management processes. Subsequently this study
evaluated the strategic planning process at RMC-WPKL by focusing on its relationship to the
vision/goals of the department, involvement of stakeholders in the process, strategic
management practices and allocation of resources, performance management activities,
performance measurement activities, and the overall accomplishment of the strategic plan.
All the items in the interview questionnaire were developed based on the criterion specified
by Poister and Streib (2005). The interviews were guided discussions that assumed a
conversational manner, but were directed by a detailed set of questions as stipulated by Yin
(2009). A copy of the interview questionnaire is provided in Appendices 7 and 8.

Personal visits to the RMC-WPKL were made by the researcher to conduct the interviews
with the tax officials involved in the strategic planning process of RMC-WPKL. The
fieldwork for the interviews was carried out in October 2009. Interviews were held with the
tax officials who are members of the Strategic Planning Unit of RMC-WPKL. The unit
consists of a head of the unit who oversees the overall implementation and achievement of the
strategic plan for RMC-WPKL, and nine members who represent the different departments at
the RMC-WPKL.

Specifically, this study evaluated the strategic planning process at RMC-WPKL from the
following aspects:
1. Use of strategic planning system
2. Number of years implemented the strategic planning system
3. Status of the implementation of the strategic planning system
4. Stakeholders’ involvement
5. Strategic planning elements
6. Strategic management practices
7. Allocation of resources

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8. Performance management activities
9. Performance measurement activities
10. Estimated percentage of accomplishment for the strategic goals and objectives
11. Satisfaction with the implementation of the strategic planning system
12. Satisfaction with the achievement of the strategic planning system.

Based on the above aspects, fifteen questions were developed for the interviews in this study.
The ten members of the Strategic Planning Unit were invited to take part in the interviews.
All the participants agreed to be involved. They were provided with a copy of the questions
prior to the interviews in order to obtain considered responses. The questionnaire provided
some direction for the running of the interviews; however, probing and clarification of new
themes occurred as they emerged. All interviews were conducted by one investigator and
were audio taped with written permission from participants. The duration of each interview
ranged from 60 to 75 minutes. All the interviews were conducted in-person at a time and
place convenient to the participants.

The data for the close-ended questions in the interview were transcribed verbatim by the
investigator. The data for the open-ended questions were thematically analysed using the
constant comparative method. The constant comparative method is based on repeated
inspection of data and analysis into themes, which are then compared to discover relationships
between them (Glaser and Strauss, 1967). The process of thematic analysis involved scanning
the data for common themes and then finding relationships between these themes.

4.3.3 Questionnaire Survey

Surveys are the most commonly used method of data collection in the social sciences - they
quite often are mistakenly taken to be the general method of social research (Sarantakos,
2005). Surveys which involve questionnaires consist of many items, which in combination,
would produce more reliable measures than would any single item (Dooley, 2001). In general,
surveys are methods of data collection in which information is gathered through oral or
written questioning (Sarantakos, 2005). Written questioning is accomplished through
questionnaires, which are administered to the respondents by mail or handed to them

93
personally by the researcher in their homes, at work or any other place; they are returned to
the researcher after completion. A survey method is basically the process of questioning those
who are believed to possess the required information (Cox, 1979). Kerlinger (1973) argued
that the sample survey could also determine the incidence, distribution, and interrelations
among sociological and psychological variables such as opinion and attitudes of the
respondents.

This study used a questionnaire survey to investigate the informal organisation and people at
RMC-WPKL. The survey was also used to get the data related to task, which could not be
obtained from the documentary method. Specifically, the survey was conducted for evaluating
the following elements:
x Informal organisation - the type of organisational culture at RMC-WPKL.
x People - tax employees’ level of work stress, motivation, commitment, and satisfaction.
x Task - outcome in terms of taxpayers’ service satisfaction.

A survey method was considered appropriate because the above information was required
from a large number of tax employees and taxpayers. According to Sarantakos (2005), a
survey method has several advantages as follows: 1) the scope and coverage are wider and
more information can be obtained; 2) survey research is less expensive than laboratory and
field experiments but potentially the amount of information is greater; 3) the researchers
undertake sample surveys for the purposes of understanding the larger population from which
the sample was initially selected; and 4) the survey method allows the use of statistical
techniques in which the characteristics of the population may be estimated from a
representative sample group.

Sample Design for Tax Employees

The tax employees were selected from RMC-WPKL. The total number of employees at
RMC-WPKL at the time of data collection (September to November 2009) was 697. Since the
information available on the number of employees of RMC-WPKL was according to the
departments, this study employed a proportionate stratified random sampling method to select
the number of employees from each department at RMC-WPKL. On the merits of stratified

94
sampling, Sarantakos (2005) noted that such samples are employed when there is a need to
represent all groups of the target population in the sample. In this sense, the method is very
economical, and offers a high degree of representativeness. In addition, some degree of
stratification is relatively simple to accomplish and it usually is a desirable feature of a sample
design.

In determining the sample size, Sekaran (2003, p. 294) provided a table that generalised
scientific guidelines for sample size decisions. Based on the table by Sekaran (2003), the
appropriate sample size for this study was 248. Assuming a response rate of around 80
percent, 315 questionnaires were distributed to the tax employees to get an effective sample
size of approximately 248. Table 2 shows the sampling procedure employed in this study.

Table 2: Proportionate Stratified Random Sampling

Department Number of Staff Number of Staff Actual Sampling
Selected Fraction

Customs 171 80 0.4678

Internal Taxes 197 80 0.4060
Technical Services 122 60 0.4918
Management 127 60 0.4724
Preventive 80 35 0.4375
Total 697 315 0.4519
Source: RMC-WPKL staff database

Sample Design for Taxpayers

For the survey on taxpayers, the sample was derived from the list of registered taxpayers of
RMC-WPKL. According to Sekaran (2003), for a population size of 20,000, the appropriate
sample size is 377. Since the total number of registered taxpayers of RMC-WPKL was 20,543
as at September 2009, the appropriate sample size of the taxpayers was 380. Assuming a
response rate of around 80 percent, the researcher distributed 475 questionnaires to the
taxpayers to get an effective sample size of about 380. Using the Statistical Package for Social
Sciences (SPSS) package, 475 potential taxpayer survey participants were randomly selected
from the eligible list of taxpayers from the registry of RMC-WPKL for the year 2009. In
respect of the specific procedures in selecting potential respondents, the taxpayers were

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stratified into type of taxes paid and size (based on annual turnover) to enable all population
groups to be represented in the final sample. Then the RMC-WPKL provided the physical
street addresses of the 475 taxpayers included in the sample.

Writing of the Questionnaire

The process of writing the questionnaire took about three months to complete. The
questionnaire for tax employees was divided into two parts. The first part was designed to
obtain the demographic characteristics of the tax employees. The second part was designed to
measure the organisational culture, work stress, motivation, organisational commitment and
job satisfaction at RMC-WPKL. The questionnaire for tax employees contained 50 items.

Organisational culture was measured using the items proposed by Zammuto and Krakower
(1991) and adopted by Moynihan and Pandey (2004), and Moynihan and Pandey (2007). Tax
employees’ work stress was measured based on the criterion introduced by Rizzo et al. (1970)
and adopted by Chang (2008). Tax employees’ motivation was measured based on the
criterion developed by Li (2008), adapted from Perry (1996) and Li (2007). Employees’
organisational commitment was measured based on the Organisational Commitment
Questionnaire (OCQ) developed by Porter et al. (1974), which demonstrated good
psychometric properties and was used for a wide range of job categories (Mowday et al.,
1979). This questionnaire was also adopted by Leong et al. (1996) and Testa (2001). Job
satisfaction of the tax employees was measured based on the job satisfaction items developed
by McCue and Gianakis (1997), which were based partly on Aranya and Ferris’s (1984)
satisfaction scale among accountants, as modified by Gunz and Gunz (1994).

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A five-point Likert scales was used for all the items in the questionnaire for tax employees.
The response format contained five possible answers from (1) to (5). These response labels
were as follows:
1. Strongly Disagree
2. Disagree
3. Neutral or Undecided
4. Agree
5. Strongly Agree

The questionnaire for taxpayers was also divided into two parts. The first part was designed to
obtain the demographic characteristics of the taxpayers. The second part of the questionnaire
was designed to measure the respondents’ satisfaction of the service quality provided by
RMC-WPKL. Taxpayer service satisfaction was measured based on the criterion developed
by Pollack (2009). Twenty questions were designed based on this criterion. A five-point
Likert scale was also used for all the items in the questionnaire for taxpayers.

The first version of the questionnaire was prepared in English. Many drafts had to be made
after consulting the supervisors and colleagues at Atax, University of New South Wales. The
content validity of the questionnaire in terms of the understanding and relevance of the
questions were further checked by two academics at UUM who had previous working
experience with the Royal Malaysian Customs; and an officer of the Royal Malaysian
Customs. Copies of the questionnaire for the survey are provided in Appendices 10 and 11
(questionnaire for tax employees), and Appendices 13 and 14 (questionnaire for taxpayers) of
this thesis.

Translation of Questionnaire

Before the data collection instrument could be used on tax employees and taxpayers in
Malaysia, it had to be translated to Bahasa Malaysia (the Malaysian language). For this
purpose the questionnaire, which was prepared in English, was translated by the researcher
into Bahasa Malaysia. The Bahasa Malaysia version was further checked by a lecturer at
Universiti Utara Malaysia who is competent in both languages. The translated version was

97
then given to another lecturer to be translated back into English. Corrections were made if the
retranslated version indicated that the Bahasa Malaysia version did not really represent the
original English version. This was done to ensure that the Bahasa Malaysia version of the
questionnaire was equivalent to the original English version. Finally, the research was
designed in such a way that the questionnaire distributed to respondents contained both
versions5.

Pilot Test and Actual Data Collection

A pilot questionnaire was conducted in both English and Bahasa Malaysia. The test was
carried out in Malaysia for a period of three weeks (middle August 2009 to early September
2009). Participants in the pilot test were also asked to suggest means of improving the
questionnaire in order to increase understanding. The participants taking part in the pilot test
are shown in Table 3.

Table 3: Respondents of Pilot Test

Respondents Characteristics

Tax Employees 40 tax employees from Perlis Royal

Malaysian Customs

Taxpayers 36 taxpayers from Perlis Royal Malaysian

Customs

Source: Pilot surveys on tax employees and taxpayers

The responses for the pilot test were then checked and analysed. Questions that were found to
be ambiguous were then reworded. The attention of the analysis thus became more focused on
the reliability and validity of the questionnaire. The reliability of a measure indicates the
extent to which it is without bias (error free) and hence ensures consistent measurement
across time and across the various items in the instrument (Sekaran, 2003). In other words, the
reliability of a measure is an indication of the stability and consistency with which the
instrument measures the concept and helps to assess the ‘goodness’ of a measure.

5
This was done by putting the English version on top and the Bahasa Malaysia version underneath in a different
font size. Sometimes the respondents need both languages to better understand the situation and also to avoid a
different version going to different respondents.

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The main test of inter-item consistency reliability is Cronbach’s coefficient alpha, which is
used for multipoint-scale items (Sekaran, 2003). Inter-item consistency is a measure that
assesses the degree to which the item used is internally consistent with other items comprising
the scale. The higher the coefficients, the better the measuring instrument. If the coefficient
alpha is too low, either the scale has too few items measuring the same construct or there are
too few items in the scale. Therefore, the term reliability coefficient used in this section refers
to the inter-correlation of items within a scale using the coefficient alpha technique.

This pilot study used Cronbach’s alpha as the reliability coefficient. Based on Cronbach’s
alpha, the lowest reliability coefficient score for the pilot questionnaire was 0.681. Generally,
the reliability coefficients indicate that there was a high level of consistency in the responses
given by the respondents. The various parts of the questionnaire had reliability coefficient
scores as shown in Table 4.

Table 4: Reliability Coefficients for Pilot Test

Questionnaire Part Score6
Tax Employees Organisational Culture 0.814
Stress 0.837
Motivation 0.681
Commitment 0.786
Job Satisfaction 0.814
Taxpayers Service Quality 0.907
Source: Pilot surveys on tax employees and taxpayers

As for the construct validity, i.e. the ability of a measure to accurately measure what is
supposed to be measured; several efforts have been taken into account during the process of
developing the questionnaire. Most of the items used to develop measures of organisational
culture, work stress, motivation, organisational commitment, job satisfaction, and service
satisfaction were taken from various sources in the literature which have been used repeatedly
by various researchers as previously mentioned. Therefore, no further construct validity test
was conducted in this study.

6
The closer Cronbach’s alpha is to one, the higher the internal consistency of reliability (Sekaran, 2003).

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The fieldwork for the actual data collection through questionnaire surveys in this study was
carried out from August 2009 to November 2009. During this four-month period, the
researcher travelled from her main base, i.e. Universiti Utara Malaysia (UUM) to Wilayah
Persekutuan Kuala Lumpur. The full survey was conducted during September to November
2009. Both questionnaires for the tax employees and taxpayers were administered personally,
i.e. the researcher personally delivered the questionnaires to the participants and then
collected the questionnaires from them.

In the implementation of the survey on tax employees, the questionnaires were personally
distributed to various departments of RMC-WPKL through the Training Department and the
researcher personally collected them from the departments. For the survey on taxpayers, the
general approach adopted was first to locate the potential respondents (using their physical
addresses). In the implementation of the taxpayer survey, several problems emerged. Locating
potential respondents using the physical (street) addresses obtained from RMC-WPKL was
difficult since the researcher is not from the state and is unfamiliar with the location of the
taxpayers under RMC-WPKL’s jurisdiction. The researcher had to locate each potential
respondent according to the list provided by RMC-WPKL by wandering around the locality
and trying to find the business premises of the taxpayers according to the addresses provided.
This process took considerable time and effort on the part of the researcher.

At the conclusion of the survey on both the tax employees and the taxpayers, quantitative data
was entered into SPSS version 17.0 for analysis of frequency of response distributions. Cross-
tabulation analysis was also performed on the data.

4.4 Ethical Considerations

This study was conducted in a professional manner in accordance with the University of New
South Wales’ Code of Human Research Ethics. Ethics approval was obtained from the
University of New South Wales before the commencement of fieldwork (see Appendix 4).
Written approval to conduct the study was also obtained from the Royal Malaysian Customs
head office and RMC-WPKL. The research subjects were provided with details regarding the
study and given opportunity to choose not to participate in the research.

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Direct consent to participate was collected from the research subjects individually. All
participants of the interviews were issued consent forms to give permission to audiotape
interviews and it was made clear to all involved that answers would be kept anonymous (see
Appendix 5). The right of the research subjects to keep their identity private was respected
and preserved throughout this research study. Anonymity was promised to both ensure the
research subjects would feel comfortable about being as open as possible during the research
and to assure them there would be no consequences in the workplace where negative views
were expressed or negative outcomes were evident.

For the surveys on tax employees and taxpayers, consent forms were attached to the
questionnaires (see Appendices 9 and 12). By completing and returning the questionnaires,
the participants indicated their informed consent to participate in the survey.

In accordance with the undertaking to preserve participants’ anonymity, no identifying

information has been disclosed in reporting research findings. In addition to anonymity,
participants’ privacy has been maintained by ensuring the data collected has remained
confidential. This data was stored under lock and key in the researcher’s office at Universiti
Utara Malaysia.

4.5 Summary

This chapter presents the research methodology used to conduct this study. In order to apply
the guidelines for tax administration performance management developed in Chapter 3 and
answer the research question in this study, a case study as a research strategy was adopted. A
case study of singularity was considered the best method to apply the guidelines as it is
expected to provide more opportunity for in-depth observation of tax administration
performance management. The Royal Malaysian Customs was the tax administration chosen
for the case study. The case study used three methods of data collection: documentary study,
face-to-face interview, and questionnaire survey. Using these three methods, both quantitative
and qualitative data were collected from RMC-WPKL and its taxpayers. The following

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chapter presents the results of the case study. The results are presented according to the
procedures in the guidelines in Figure 12 (Chapter 3).

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Chapter 5 RESULTS OF THE CASE STUDY

5.1 Introduction

The results of the case study on the Royal Malaysian Customs are presented in this chapter.
Essentially, the guidelines developed to assist in undertaking performance management in tax
administration in developing countries (Figure 12 in Chapter 3) were applied. The methods
outlined in Chapter 4 were chosen to enable the application of the guidelines by an external
researcher. Consequently, certain procedures in the guidelines specifically regarding the data
collection methods were modified accordingly, due to limitations in obtaining some relevant
data from the Royal Malaysian Customs. The results from the different methods according to
the procedures in the guidelines in Figure 12 (Chapter 3) are first reported. At the end of each
result section, a summary of the result is provided. Specifically, Section 5.2 and its
subsections explain the result and summary for procedure (a) of the guidelines. Section 5.3
and its subsections discuss the result and summary for procedure (b) for strategic plan.
Section 5.4 and its subsections describe the result and summary for procedure (b) for task.
The result and summary for procedure (b) for both informal organisation and people are
discussed in Section 5.5 and its subsections. This is because the data for these two
components are derived from the same source, which are the tax employees of the Royal
Malaysian Customs. Section 5.6 diagnoses the congruence in the transformation process
according to procedure (c) in the guidelines. Finally, Section 5.7 presents the summary of the
chapter. The results obtained under the different procedures in the guidelines are jointly
discussed in the subsequent chapter to address the research questions.

5.2 Result for Procedure (a) of the Guidelines

The first step of the performance management process under the guidelines relates to the
strategic plan. Strategic plan is the highest level of organisational plan and forms the basis for
formal arrangements of a tax administration (Section 3.4.1). In the case of RMC-WPKL, this
involved personal visits to the office to examine its strategic planning process. This included
inquiries as to whether strategic planning was undertaken, whether a plan was documented,
and whether a process was established and documented. However, it was discovered that

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there was insufficient documentation with regards to the strategic planning process (Section
4.3.1). The only relevant document available was the ‘Strategic Action Plan for Royal
Malaysian Customs Wilayah Persekutuan Kuala Lumpur (2009)’, which presented the general
strategies of the department without detailed information on the process of implementing the
strategies. The document did not provide enough information to examine the strategic
planning process as required by the guidelines. Consequently, face-to-face interviews were
also conducted with the relevant people who were involved in the strategic planning process
at the department (Section 4.3.2). The results from the document analysis regarding the
establishment of the strategic plan at RMC-WPKL are presented in Section 5.2.1 and Section
5.2.2. The results from the interviews on the detailed strategic planning process which
addressed the core information according to the guidelines such as how it relates to the
department’s vision/goals, involvement of the internal and external stakeholders, strategic
management practices and allocation of resources, performance management activities,
performance measurement activities, and the outcomes of the strategic plan are presented in
Section 5.3 and its subsections.

5.2.1 History of Strategic Planning Systems

Before the year 2009, a five-year plan entitled ‘ICTR’ (‘Integrity, Core Business, Technology,
and Rakyat’7) was developed and implemented at RMC-WPKL. The goals outlined in this
plan were reported to have been achieved in 90 percent of the cases (Action Plan: Strategic
Planning for the Royal Malaysian Customs Wilayah Persekutuan Kuala Lumpur, 2009). For
the year 2009, a one-year plan, ‘Insan, Sistem, dan Output’ or ‘Human, System, and Output’
was developed. It was claimed that the plan was 85 percent completed as at November 2009
when this study was conducted. The strategic plan for ‘2010–2015’ was not yet available
during the data collection period for this study. In summary, RMC-WPKL has been
implementing the strategic planning system for more than five years with one plan completed
and another one underway. The focus of this study was on the strategic plan for the year 2009,
which was the year of data collection for this study.

7
Rakyat means the public.

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5.2.2 The Use of Strategic Planning Systems

RMC-WPKL has a formal strategic planning system and its own strategic planning unit which
consists of a leader who was in charge of the overall implementation of the strategic plan and
another nine members who were the representatives from each department/unit. RMC-WPKL
has a strategic plan document entitled ‘Action Plan: Strategic Planning for the Royal
Malaysian Customs Wilayah Persekutuan Kuala Lumpur (2009)’, which was based on the
general strategic plan document prepared by the Royal Malaysian Customs head office. The
document was used to implement the strategic plan of RMC-WPKL. However, the document
only stated the general seven strategies for RMC-WPKL for the year 2009 as follows:
x Strategy 1: Collect customs duties and taxes accurately and correctly
x Strategy 2: Implement the actions to ensure the safety of the global trading and give
balance facilitation in order not to impede the legal trading flows
x Strategy 3: Prevent smuggling, trading fraud and violation of law
x Strategy 4: Increase compliance of the law through voluntary and informed compliance by
the customers and through programmed auditing system
x Strategy 5: Ensure customs ruling, classification and evaluation of goods are confidently
viewed as well as manage revenue accounting and drafting systems efficiently
x Strategy 6: Increase competitiveness of industrial and trading sectors of the country
through incentives and facilitations granted in line with the foundation of the industrial,
trading and tourism sectors of the country
x Strategy 7: Manage the department resources efficiently and effectively

The strategic plan document did not include the detailed performance indicators for RMC-
WPKL. Detailed indicators which were set up for each department at RMC-WPKL were for
internal use and were inaccessible by the public. An example of the elements included in the
strategic plan document of RMC-WPKL is presented in Table 5. The same format was used
for all the seven strategies of the department. Every month, RMC-WPKL has to submit a
report on the achievement of the targeted strategies to the Royal Malaysian Customs head
office. The format of the report is shown in Table 6.8

8
Table 5 and Table 6 are only intended to demonstrate the structure of the relevant documents as detail elements
in the documents were inaccessible by the public.

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 Table 5: Strategic Action Plan for RMC-WPKL for the Year 2009

Strategy 1: Collect customs duties and taxes accurately and correctly

Focus Programs / Period of Responsible Performance

Activities Implementation Department/ Indicators
Unit/People
Human 1. Jan - Dec 1. 1.
Development 2. 2. 2.
3. 3. 3.
Systems 1. Jan - Dec 1. 1.
Development 2. 2. 2.
3. 3. 3.
Outputs 1. Jan - Dec 1. 1.
Development 2. 2. 2.
3. 3. 3.
Source: Strategic Action Plan for Royal Malaysian Customs Wilayah Persekutuan Kuala Lumpur (2009, p. 5)

Table 6: Report on Implementation of the Strategic Action Plan for RMC-WPKL for
the Year 2009
Department:
Month:
Strategy:
No. Focus Programs / Period of Responsible Scale of Note
Activities Implementation Department/ Achievement
Unit/People
1.
2.
3.
Source: Strategic Action Plan for Royal Malaysian Customs Wilayah Persekutuan Kuala Lumpur (2009, p. 5).
Note for the scale of achievement: Level 1 and 2 - early plan; Level 3 and 4 - early implementation; Level 5 and
6 - smooth implementation; and Level 7 and 8 – objective achieved.

Procedure (a) in the guidelines also states that a researcher should find out whether a tax
administration under study has a specific model that is used for its strategic planning system.
In the case of RMC-WPKL, the strategic plan document of the department contained a
strategic planning model entitled the ‘Customs Transformation Model’ as depicted in Figure
13. It includes the vision, mission, strategies, focus and organisational values of the
department. The vision of the department is to be a respected, recognised and world class
customs administration. The department’s mission focuses on collecting taxes and customs
duties, providing facilitation to trade and industrial sectors and ensuring compliance to
legislation in protecting national economic, social and security interests. The focus of the

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model is on human capital, system and output. The strategic plan also included how the
elements of human capital development, systems development and output development were
managed to achieve each of the seven strategies developed by the department. As for the
emphasis values at RMC-WPKL, it engages an organisational value of ‘T-R-U-S-T’, which
are togetherness, respect, understanding, spiritual and totality.

Figure 13: Royal Malaysian Customs Transformation Model

VISION
VISION

MISSION MISSION

S STRATEGY
T
R
A
T
1 2 3 4 5 6 7
E
G
Y

H S O
F
O U Y U
C M S T
U
S A T P
N E U
M T
VALUES Togetherness Respect Understanding Spiritual Totality

Source: Strategic Action Plan for Royal Malaysian Customs Wilayah Persekutuan Kuala Lumpur (2009, p. 7).

The ‘Customs Transformation Model’ has three main limitations. First, the focus on the
human-system-output as the transformation process of RMC-WPKL lacks consideration for
the organisational behaviour aspect of a tax administration. The model focuses only on the
institutional aspect of the human, system and output elements in developing the strategies to
achieve the objectives of RMC-WPKL. However, it has been established that the behavioural

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aspect of an organisation is equally important in organisational performance management
(Section 2.5 in Chapter 2).

Second, the model does not provide ways to evaluate the internal components in the tax
administration transformation process to identify areas that need improvement and help
enhance the department’s performance. Regardless of any performance management system
employed by an organisation, its success will not materialise without understanding and
overcoming the problems which exist in the organisation. Each organisation needs to appraise
its own performance management, identify the problem area and select a solution that best
fits. Identifying and solving problems must be done systematically by the same people,
because, by so doing, they learn from their own situation and then seek improvement. In this
case, evaluating the tax administration transformation process is an appropriate way for a tax
administration to improve its performance management system.

Third, an important aspect that is omitted from the model is the consideration for the external
stakeholders. Stakeholders’ requirements and expectations define the environment and
general constraints that a tax administration should recognise in its operations. Organisation
goals embody the vision or mission, which are expressions of its response to stakeholders’
expectations and requirements (Section 3.4.1 in Chapter 3). In this case, the requirements and
expectations of the external stakeholders (such as the Ministry of Finance and the taxpayers)
need to be included in the performance management system of RMC-WPKL.

The lack of consideration for behavioural aspects of a tax administration, inadequate

evaluation on the internal components of the transformation process, and limited
acknowledgement of the stakeholders’ requirements and expectations as reflected in RMC-
WPKL’s strategic planning model, resulted in limited integration of the individual,
operational and strategic levels of performance management.

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5.3 Result for Procedure (b) for Strategic Plan

Face-to-face interviews were used to obtain the data on the strategic planning process at
RMC-WPKL, which was not available from the document sources. This study followed the
methodology used by Poister and Streib (2005) which evaluates the strategic planning process
in relation to stakeholders’ involvement, strategic planning elements (including vision/goals),
strategic management practices and allocation of resources, performance management
activities, performance measurement activities, and overall accomplishment of the strategic
plan (refer to Section 4.3.2). Hence, all the items in the interview questions were developed
based on the criterion specified by Poister and Streib (2005). The interviews were conducted
with ten members of the Strategic Planning Unit of RMC-WPKL in October 2009 (refer to
Section 4.3.2). Sections 5.3.1 to Section 5.3.7 present the results of the interviews. A
summary of the result for the strategic planning process is provided in Section 5.3.8.

5.3.1 Stakeholders’ Involvement in Strategic Planning

One of the key areas of information that was sought, but unavailable in the strategic plan
document, was related to stakeholders’ involvement in the strategic planning of RMC-WPKL.
According to the guidelines, information on stakeholders’ expectations, benefits and reporting
was sought. Consequently, the participants of the interviews were asked about stakeholders’
involvement in the strategic planning process of RMC-WPKL. The result of the interviews
concerning various stakeholders’ involvement is shown in Table 7.

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 Table 7: Stakeholders’ Involvement in Strategic Planning
No. Items Applicability
1. The Ministry of Finance has been involved in the development of the Yes
strategic plan

2. The Director General of the Royal Malaysian Customs has been Yes
involved in the development of the strategic plan

3. The Deputy Director Generals have been involved in the development Yes
of the strategic plan

4. The Directors at the Head Office have been involved in the Yes
development of the strategic plan

5. The Directors at the state level have been involved in the development Yes
of the strategic plan

6. The Head Departments at the state level have been involved in the Yes
development of the strategic plan

7. The Senior Managers at the state level have been involved in the Yes
development of the strategic plan

8. Citizens and other external stakeholders have been involved in the No

development of the strategic plan

9. Lower level employees have been involved in the development of the No

strategic plan

10. Internal reporting to the internal stakeholders is made on a regular basis Yes

11. External reporting to the external stakeholders is made on a regular No

basis

12. The strategic plan has been communicated to all employees Yes

Source: Face-to-face interview

Table 7 shows that three out of twelve aspects concerning stakeholders’ involvement were not
undertaken by RMC-WPKL. First, RMC-WPKL did not involve the public and other external
stakeholders in the development of its strategic plan. Second, lower level employees of RMC-
WPKL did not participate in the development of its strategic plan. Third, there was no
reporting on a regular basis made to the external stakeholders (except for the related
ministries) on the achievement of the strategic plan of RMC-WPKL.

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5.3.2 Strategic Planning Elements

The Director General of the RMC-WPKL together with the Deputy Directors had a meeting
to discuss all the strategic planning elements before including them in the strategic and action
plan of the department. The strategic planning process of RMC-WPKL emerged as being
mission-driven and focusing on the future, setting goals, and initiating plans for
implementation. Table 8 shows the strategic planning elements included in the strategic and
action plan of RMC-WPKL.

Table 8: Strategic Planning Elements

No. Items Applicability
1. Review of Royal Malaysian Customs mission Yes

2. Identification of stakeholders’ needs and concerns Partly

3. Clarification of organisational mandates Yes

4. Evaluation of internal strengths and weaknesses Yes

5. Assessment of external threats and opportunities Yes

6. Development of a vision for the future Yes

7. Development of goals and objectives Yes

8. Development of a strategic agenda Yes

9. Feasibility assessment of proposed strategies Yes

10. Development of action plans Yes

Source: Face-to-face interview

5.3.3 Strategic Management Practices

Information on the extent to which RMC-WPKL tied its strategic plan to strategic
management practices to monitor the accomplishment of the strategic goals and objectives
was also sought during the interviews. Table 9 lists the items of strategic management
practices and their applicability to RMC-WPKL. The participants of the interviews revealed

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that there were still some items in the strategic plan for the year 2009 which were underway
or incomplete by the end of the year 2009. These items involved big scale changes in tax
policy as well as a huge amount of capital.

Table 9 shows that item 7 was not applicable to RMC-WPKL. There was no timely feedback
or evaluation from the Customs Head Office to improve the results/achievements of the
strategic plan after the report was submitted by RMC-WPKL. The results were supposed to be
monitored every six months by the head office. However, until November 2009, there was
still no evaluation process being carried out for the year 2009.

Table 9: Strategic Management Practices

No. Items Applicability
1. Strategic management exists Yes

2. Strategic planning completed or underway Yes

3. Strategic plan document produced Yes

4. Budget tied to strategic priorities Yes

5. Resource allocation to support the accomplishment of strategies Yes

6. Performance measures used to track strategic goals and objectives Yes

7. Changes in control and evaluation processes to provide feedback on the No

implementation of strategic plan

Source: Face-to-face interview

5.3.4 Allocation of Resources

The strategic planning process of the Royal Malaysian Customs is closely related to the
allocation of resources/budgeting process of the department. The process and parties involved
in preparing the strategic plan and budget for the department are as follows:

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1. The Royal Malaysian Customs head office (together with all the directors at the state
level)9 develops a master strategic plan document for the whole department of the Royal
Malaysian Customs.
2. Each Customs office at the state level (including RMC-WPKL) prepares its own specific
strategic plan document.
3. Each Customs office at the state level prepares a budget based on its strategic plan
document.
4. Each state office’s budget is submitted to the Royal Malaysian Customs head office for
consolidation.
5. The Royal Malaysian Customs head office submits a budget for the whole department to
the Ministry of Finance for approval.
6. The Royal Malaysian Customs head office allocates the resources to each individual state
office based on the budget approved by the Ministry of Finance.

The budgeting system at the Royal Malaysian Customs is based on the ‘Malaysian Budgeting
System’ (MBS) or also known as the ‘Modified Budgeting System’ which was introduced in
1990 and implemented in phases to cover all government ministries and departments by 1995.
The MBS is a system of management designed to establish logical linkages on the
relationship between inputs, outputs and impacts. The MBS is based on fundamental
management principles of letting managers manage, i.e. managers nearest to where outputs
are produced should be given as much flexibility/authority as practicable to manage their
resources. However, this authority must be matched with requisite accountability at all levels
of management. MBS was implemented with the explicit objectives of trying to improve
resources allocation by bringing about more efficient management of government programs
by way of improved accountability. The MBS has four main features, namely expenditure
target, program agreements and exceptions reports, cycle of program evaluations, and a more
generalised approach to expenditure control.

At the very start of the budget process, the Department of Treasury provides each ministry
with a single, specific, numerical target for expenditure from the operating budget for existing
and minor new policy purposes. Submissions for existing policy proposals cannot exceed the

9
The Royal Malaysian Customs has 14 state offices throughout Malaysia.

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expenditure target. A separate submission would be required for any proposed major policy
changes and one-off expenditures, if any. Excluded from these targets are charged
expenditures, one-offs and major new policy changes. Amongst the benefits derived from the
implementation of the expenditure target are the explicit and immediate recognition of the
government’s fiscal policy position at the operating ministry level and increased financial
discipline on ministries by forcing them to decide priorities and trade-offs within an overall
budget constraint.

Within the context of their expenditure target, the ministries are required to prepare an
integrated planning framework called the ‘Program Agreements’ consisting of the proposed
levels of performance for each activity and the proposed mix of resources to be used by the
activity. At the end of the financial year, ministries are required to provide the Department of
Treasury with ‘Exceptions Reports’ on areas where actual performance was inconsistent with
what was agreed upon in the ‘Program Agreements’ with the Treasury. These ‘Exceptions
Reports’ provide the trigger for ministries to take steps to address emerging problems and for
the conduct of more in-depth program evaluations.

The budget process under the MBS is divided into two phases, namely, one for existing
policies and another for new policies, one-offs, and saving proposals. Existing policies are all
functions carried out in the previous year while new policies are defined by exclusion as
anything which is not an existing policy or one-off. On the other hand, one-offs are non-
recurrent expenditure for a department.

The interviews on the strategic planning process involved six questions regarding specific
connections between the budget of RMC-WPKL and its strategic plan. Table 10 shows that
the annual budget prepared by the Director of RMC-WPKL strongly supported its strategic
goals and objectives, that its capital budget reflected these goals, and that the strategic plan
had a strong influence on the budget requests submitted by the department heads. Table 10
also reveals that the performance data tied to the strategic goals and objectives played an
important role in determining the allocation of resources. As for the ‘new money’ in the
budget (Item 4) which was targeted particularly for achieving strategic goals and objectives,
the interviewees responded that it was not applicable in the case of RMC-WPKL. There was

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no new budget allocated specifically for the purpose of achieving the strategic goals or
objectives which have not been accomplished, other than the annual budget.

Table 10: Allocation of Resources

No. Items Applicability
1. The annual budget prepared strongly supports the goals, objectives, and Yes
priorities established in the strategic plan

2. The Customs Department considers strategic goals and objectives when Yes
reviewing the annual budget

3. The capital budget sharply reflects the goals, objectives, and priorities Yes
established in the strategic plan

4. New money in the budget is targeted to achieving the strategic goals No

and objectives

5. The strategic plan has a strong influence on the budget requests Yes
submitted by department heads

6. Performance data tied to strategic goals and objectives play an Yes

important role in determining resource allocations

Source: Face-to-face interview

5.3.5 Performance Management Activities

The interviews also involved investigating the specific links between the strategic planning
process at RMC-WPKL and its performance management activities. Table 11 shows that
individual department heads were responsible for implementing specific initiatives and
projects emanating from their strategic plans, and the objectives established for department
heads were derived from the overall strategic plan. Annual evaluations of department heads at
RMC-WPKL were based largely on their accomplishment of the strategic goals and
objectives. The interviews revealed that RMC-WPKL held the chief administrator responsible
for implementing its strategic plan, and the evaluation of the chief administrator was based on
his accomplishment of the strategic goals and objectives. It was also indicated that the chief
administrator keeps RMC-WPKL focused on the strategic goals and objectives. However,
annual salary adjustments for the employees were not based on individual contributions to
advancing the overall strategic plan of the department (Item 4).

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 Table 11: Performance Management Activities
No. Items Applicability
1. Individual department heads are responsible for implementing specific Yes
initiatives and projects that are part of the strategic plan

2. Objectives established for department heads come from the overall Yes
strategic plan

3. Annual evaluations of department heads are based largely on their Yes

accomplishment of strategic goals and objectives

4. Annual salary adjustments are based on contributions to advancing the No

strategic plan

5. The Royal Malaysian Customs holds the chief administrator responsible Yes
for implementing the strategic plan

6. The evaluation of the chief administrator is based on accomplishment of Yes

the strategic goals and objectives

7. The chief administrator tries to keep the Royal Malaysian Customs Yes
focused on the strategic goals and objectives

Source: Face-to-face interview

5.3.6 Performance Measurement Activities

The interviews on RMC-WPKL also involved assessing the specific links between the
strategic plan of RMC-WPKL and its performance measurement activities. Table 12 indicates
that the department used performance measures to track the implementation of projects or
activities under the strategic plan, to evaluate the accomplishment of goals and objectives
contained in the strategic plan, and to examine the outcome conditions targeted by the
strategic plan. In terms of reports on performance measurements of the department, it was
discovered that the department reported performance measurements associated with the
strategic plan only to the related ministry on a regular basis but did not report on the same
measures to the public. RMC-WPKL did not target programs for more intensive evaluation
based on the goals and objectives of the strategic plan that it had developed. The department
also did not benchmark performance measurements against other jurisdictions to determine
the effectiveness of its strategic initiatives. However, RMC-WPKL did track its own

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performance data over time to determine whether performance in strategic results areas has
improved over previous levels.

Table 12: Performance Measurement Activities

No. Items Applicability
1. The department uses performance measures to track the implementation Yes
of projects or other activities under the strategic plan

2. The department uses performance measures to track the Yes

accomplishment of goals and objectives contained in the strategic plan

3. The department uses performance measures to track outcome conditions Yes

targeted by the strategic plan

4. The department reports performance measures associated with the Yes

strategic plan to the related ministry on a regular basis

5. The department targets programs for more intensive evaluation based No

on the goals and objectives of the strategic plan

6. The department reports performance measures associated with the No

strategic plan to the public on a regular basis

7. The department benchmarks performance measures against other No

jurisdictions to gauge the effectiveness of strategic initiatives

8. The department tracks performance data over time to determine Yes

whether performance in strategic results areas has improved over
previous levels

Source: Face-to-face interview

5.3.7 Outcomes of the Strategic Plan

This section discusses the result on the outcomes of the strategic plan, which was obtained
from the interviews with the members of the Strategic Planning Unit. The participants were
asked about the estimated percentage of accomplishment for the strategic plan according to
each department that they represented, and to what extent they were satisfied with the
implementation and achievement of their strategic plan to date (end of the year 2009). They
were also asked about the problems that they faced in implementing and achieving the plan
that were set out under the strategic planning system.

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Based on the findings in Table 13, it was discovered that almost all of the representatives of
various departments at RMC-WPKL were of the opinion that they have accomplished about
85 percent of the strategic plan of the department for the year 2009. The exception is for the
Human Resource Training Department. The department only achieved about 60 percent of the
plan targeted for the year 2009.

Table 14 reveals the satisfaction level of the participants with the implementation and
achievement of the strategic plan for the year 2009. It shows that all the departments were
satisfied with their achievements for the year 2009.

Table 13: Estimated Accomplishment of the Strategic Plan for the Year 2009
No. Department Estimated Percentage (%)

1. Overall RMC-WPKL 85
2. Companies Audit 85
3. General Exemption 85
4. Preventive 85
5. License Enforcement 85
6. Warehouse 85
7. Information Technology 85
8. Audit for Post-Import 85
9. Licensed Manufacturing Warehouse 85
10. Human Resource Training 60
Source: Face-to-face interview

Table 14: Level of Respondents’ Satisfaction with the Implementation and Achievement
of Strategic Plan for the Year 2009
No. Department Satisfaction
1. Overall RMC-WPKL Satisfied
2. Companies Audit Satisfied
3. General Exemption Satisfied
4. Preventive Satisfied
5. License Enforcement Satisfied
6. Warehouse Satisfied
7. Information Technology Satisfied
8. Audit for Post-Import Satisfied
9. Licensed Manufacturing Warehouse Satisfied
10. Human Resource Training Satisfied
Source: Face-to-face interview

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It can be seen that, even though the estimated accomplishment for the Department of Human
Resource Training was only 60 percent for the year 2009 (see Table 13); the level of
satisfaction for the department is classified as ‘satisfied’ (see Table 14). This is because the
target of achievement for the department was low. The reason was due to the lack of
commitment from the tax employees in attending training or courses organised by the
department. The participants in the interviews stated that certain training and courses were not
tailored towards providing the skills needed for their tasks, hence discouraging them from
attending the courses.

During the interview, the problems faced by RMC-WPKL in implementing/achieving its

strategic plan for the year 2009 were also explored. The summary of the responses is provided
in Table 15.

Table 15: Tax Officials’ Responses on the Implementation/Achievement of the Strategic

Plan of RMC-WPKL
No. Department Summary of Responses
1. Overall RMC-WPKL x Problems of fully accomplishing the strategic goals and
objectives were mainly due to the heads of the
departments/employees not submitting formal reports on
activities that have been conducted related to the strategic
plan.
x The heads of the departments/employees were more
focused on routine tasks and were not fully committed to
monitoring the tasks associated with the strategic plan.
2. Companies Audit x Difficulties in getting feedback from staff on the
implementation of the strategic plan in the form of formal
reports on which tasks have or have not been executed.
x Unsynchronised reports between tasks that were
performed and reported to be performed due to low
commitment from staff to report on the accomplishment
of the strategic plan.
3. General Exemption x Did not achieve strategies involving other
departments/units, especially training for staff under
human resource development.
x Lacked specific training related to tasks for staff.
x Lack of staff available to do monitoring tasks.
x Difficulties in getting direct information or direct access
to certain information relating to tasks from the “Customs
Information System”.
4. Preventive x Logistics problems for operational tasks as staff from the
Preventive Department of RMC-WPKL have been called

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 to perform tasks for the Head Office whenever needed due
to its proximity. Therefore, some of the items under the
strategic plan for the state level could not be achieved due
to these additional tasks for the Head Office.
x Lack of staff – total post: 95; filled: 76; vacant: 19.
5. License Enforcement x Problems in determining the type of taxes for certain types
of services due to the ‘grey area’ in the Act.
x Some cases have to be sent to the Head Office for
decision, depending on a case-to-case basis.
6. Warehouse x Frequent staff changes.
x Lack of participation in training/courses for staff
developmental purposes.
7. Information x Insufficient budget allocation to implement special
Technology projects in the plan for the state level for example, to
install wireless internet access for staff at the Customs
quarters.
x The ‘Customs Information System’, which is the main
system used by the Customs Department, is controlled by
the Head Office and there are no changes or updates that
could be done at the state level to improve the system
which is quite outdated.
x Lack of appropriately qualified staff with information
technology knowledge and skill.
x Problems in acquiring any new computers/systems in a
timely manner due to systems and controls for approval
(must go through the Head Office).
x Some of the elements in the strategic goals and objectives
focused on items that were perceived as not necessary for
the Department of Information Technology.
8. Audit for Post-Import x Staff lacking in experience in conducting audit due to
frequent staff changes among the departments within and
outside the state level.
x Some staffs have the experience but are without the
appropriate educational background while others have the
appropriate educational background but not the necessary
audit experience, especially in the Customs operation.
x The lack of appropriate and qualified staff can delay the
audit process.
9. Licensed x With the economic downturn, the number of active
Manufacturing licensees has decreased from 142 in 2007 to 125 in 2008.
Warehouse x The amount of sales tax collected for this department
decreased from RM18,054,372.68 in 2007 to
RM1,446,659.28 in 2008.
10. Human Resource x There has always been ad-hoc training for staff required
Training by the Head Office, therefore the original strategic plan
for training at the state level is hard to achieve completely.
x Certain training required outside parties as trainers and

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 this creates problems when the trainers could not commit
to the task at the last minute and no replacement could be
found, hence the strategic plan for the year could not be
achieved.
x Staff involvement for the training/courses organised by
the department is low where only about 60 percent of the
targeted group of staff attended any training/courses
provided.
x Financial constraint is also the main problem to organise
sufficient training/courses for the staff.
Source: Face-to-face interview

The responses from the interviews revealed two main issues which contributed to the
problems of unattainable goals in the strategic plan of RMC-WPKL. The first issue is lack of
resources, while the second issue is lack of commitment for strategic planning activities from
the tax employees. The issue of resources concerning RMC-WPKL was related to lack of
staff, lack of staff with specialised skills, logistic problems, insufficient budget allocation for
information technology development and training purposes, and employees at RMC-WPKL
were required to perform tasks for the Customs Head Office from time to time due to its
proximity. The issue of lack of commitment from the tax employees concerned the
unwillingness to formally report on the activities related to or the achievement of the strategic
goals and objectives under the strategic plan to the management of RMC-WPKL. The tax
employees perceived that the activities of preparing relevant reports on the achievement of the
strategic plan of the department as extra workload that had no direct relation to their routine
tasks.

5.3.8 Summary of Result for Strategic Plan

Overall, RMC-WPKL has been utilising a strategic planning system similar to other
international revenue authorities. Looking at international scenarios on strategic planning
systems, a study by the OECD (2009) on revenue bodies in 43 countries (30 OECD and 13
non-OECD countries) revealed that the practice of preparing a multi-year strategic plan
appears to be almost universal. It was reported that 42 out of 43 revenue bodies set up such
plans. However, a significantly lower number of revenue bodies made such plans publicly
available (27 surveyed bodies). The use of strategic planning systems is a good practice due to

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the positive performance implications of the system as have been reported by researchers over
the past three decades (Glaister et al., 2008). Previous research shows that the practice of
strategic planning is beneficial for organisations (Sarason and Tegarden, 2003), and, over
time, the use of strategic tools will enhance the effectiveness of the planning system itself
(Ramanujam et al., 1986). The strategic management literature implies that there is a positive
association between strategic planning and organisational performance, with directional
causality from strategic planning to performance (Greenley, 1994). Strategic planning is
effective as a process of management, regardless of the performance achieved (Glaister et al.,
2008). In this regard, RMC-WPKL is on the right track. The department also prepares a multi-
year strategic plan and makes the plan publicly available.

Strategic planning is an action-oriented type of planning that is useful only if it is carefully

linked to implementation – and this is often where the process breaks down (Poister and
Streib, 2005). Mintzberg (1994) is one of the most vocal critics of strategic planning systems
precisely because organisations’ planning activities are too often completely divorced from
other critical decision-making processes such as stakeholders’ involvement, strategic
management practices, allocation of resources, and performance measurement and
management activities. Even though tax administrations around the world have embraced
strategic planning, it is unlikely to produce the anticipated benefits unless they relate their
strategic planning process to other critical decision-making processes in a tax administration.
The following discussion focuses on the five critical aspects that were not addressed in the
strategic planning process at RMC-WPKL, based on the results of the interviews.

1. Lack of involvement from both the internal and external stakeholders

The interviews revealed two issues regarding stakeholders’ involvement that are inapplicable
to RMC-WPKL. First, RMC-WPKL did not involve the taxpayers (as the external
stakeholders) in the development of its strategic plan. This should not be the case as
stakeholders’ involvement enables managers to ensure that the strategic and operational
direction of an organisation addresses stakeholder perceptions (Section 3.4.2). Consultative
meetings between the tax authority and the taxpayer representatives (through taxpayers’
associations) can provide opportunities for both parties to air grievances, share views, seek

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clarification and make suggestions to resolve issues involving both parties. This should be the
place where the views of the taxpayers are taken into consideration for the purpose of
developing the strategic goals and objectives of a tax administration. Due to the lack of
involvement from the external stakeholders, the taxpayers in particular could not voice out
their opinion with regards to the quality of services provided by RMC-WPKL. This practice is
inconsistent with the international norms. According to the OECD (2009), around two-thirds
of the 43 revenue bodies in OECD and non-OECD countries reviewed in its study regularly
survey taxpayers and other stakeholders to gauge their views and perceptions of service
delivery and the overall tax administration performance. This problem can be resolved if
RMC-WPKL provides a medium for the taxpayers to communicate their dissatisfaction and
involves the taxpayers in the development of its strategic plan. This indicates that RMC-
WPKL adopted a ‘closed’ system to performance management as it did not consider the
importance of involving the stakeholders in its external environment.

Second, lower level employees of RMC-WPKL were not involved in the department’s
strategic planning process. However, the employees were directed by the management to
report on their activities concerning the achievement of the strategic plan without really
understanding the rationale or importance of doing so. This resulted in lack of commitment
from the lower level employees to formally report on their activities related to or the
achievement of the strategic plan to the management of RMC-WPKL. The reason for the lack
of commitment for such activities was the limited understanding of management expectations
on the part of the operational level, as well as insufficient information regarding the
operational constraints in implementing the strategic initiatives. This shows that it is
important for RMC-WPKL to incorporate the knowledge and experience of employees at all
levels in developing actionable strategic initiatives that integrate the different levels of
performance management.

2. No reporting to the external stakeholders

It was revealed that there was no reporting on a regular basis made to the external
stakeholders (taxpayers) on performance measurement activities and the achievement of the
strategic plan of RMC-WPKL. The practice of preparing annual performance reports is

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almost universal, i.e. 42 out of 43 revenue bodies surveyed by the OECD (2009). The Canada
Revenue Agency (CRA) and the United States Internal Revenue Service (IRS), for example,
publish an Annual Performance Report and Accountability Report. For both CRA and IRS,
agency plans and key elements of program activity are subject to external scrutiny. In a study
by Mucciarone (2008), it was revealed that, for most of the government departments in
Malaysia, performance-related documents are only available upon request. A person
interested in the performance of a government department actually has to contact the
department for a copy of the required information. This is also the case for RMC-WPKL. The
annual reports and other performance-related documents could only be obtained upon request
and are mostly restricted by confidentiality issues. In this case, RMC-WPKL did not approach
performance management from an open system view of a tax administration as it did not
address the external stakeholders’ expectation for external reporting on the benefits and
outcomes of a tax administration.

3. No intensive evaluation and timely feedback on the achievement of the strategic plan

The evaluation of the strategic management practices of RMC-WPKL showed that there was
no evaluation or timely feedback to improve the results/achievements of the strategic plan
after the report was submitted to the management. This situation is contradictory to the
emphasis of the performance management cycle, where the reports on results should be
interpreted to obtain information and identify areas for improvement (OECD, 2009).
Consequently, appropriate changes could not be made to the management structures and
delivery mechanisms concerning the strategic plan of RMC-WPKL. Also, the relevant
benchmarks and/or data collection strategies could not be revised accordingly. Poister and
Streib (1999) stated that strategic management requires continual monitoring of the ‘fit’
between the organisation and its environment and tracking external trends and forces that are
likely to affect the governmental jurisdiction or agency. Poister and Streib (1999) added that
successful strategic management requires the development and dissemination of innovations
and encourages the flow of useful feedback from managers and employees regarding the
viability and effectiveness of the strategies.

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RMC-WPKL also did not target programs for more intensive evaluation based on the
achievement of the goals and objectives of the strategic plan that it had developed. The
department did not benchmark performance measurements against other jurisdictions or
countries to determine the effectiveness of its strategic initiatives. The practice of
benchmarking performance results should be encouraged as it is difficult to assess the
performance of a tax administration without comparing it to some performance standards
(Section 3.4.2). According to the OECD (2009), countries continue to struggle with the issues
of target level and numbers. There are problems with setting targets too low and/or too high.
Setting targets too low means that tax administrations are not challenged to improve
performance. Setting them too high creates unrealistic expectations and situations in which
the tax administrations will fail. It takes time to get the right level and to get the comparative
data to realise that targets are set at too high or too low a level. In this case, benchmarking
with international benchmarks is an appropriate tool for evaluating the performance of a tax
administration (Section 3.4.2). Benchmarking is used by some to refer to goals and outcome
measures which are linked to a strategic plan or vision (Link and Oldendick, 2000). In the
case of RMC-WPKL, no comparison was made between its performance and any form of
benchmarks or performance standards.

The lack of evaluation and timely feedback on the achievement of the strategic goals and
objectives of RMC-WPKL can affect its performance management cycle. This is because
performance measurements and prompt feedback on the performance of a tax administration
can help to improve the execution of its tasks, hence producing better outputs. Performance
measurement is an important stage in the performance management cycle. Its purpose is to
measure whether performance is developing in line with the tax administration’s plan or not.
Only by doing this can corrective action be taken where performance is falling short of
targets.

4. Insufficient allocation of resources in the strategic planning process

Basically, the annual budget prepared by the Director of RMC-WPKL supported its strategic
goals and objectives, the capital budget reflected these goals, and the strategic plan had a
strong influence on the budget requests submitted by the department heads. The performance

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data tied to the strategic goals and objectives also played an important role in determining the
allocation of resources at RMC-WPKL. The existence of these elements for strategic planning
process is in accordance with what was proposed by Poister and Streib (2005). However, the
result of the interviews revealed that there was no new budget granted to RMC-WPKL
specifically for the purpose of achieving the strategic goals or objectives which have not been
accomplished by the department. On the contrary, in Poister and Streib’s (2005) study, it was
found that almost 84 percent of the municipal governments in the United States reported that
new money in particular was targeted to achieving strategic goals and objectives of the
departments. Their finding indicates the importance of allocating sufficient resources for the
purpose of achieving strategic goals and objectives of public sector organisations, which
should also be the case for RMC-WPKL. Insufficient resources can affect operational and
individual performance, hence affecting the achievement of the strategic goals and objectives
of RMC-WPKL.

5. Employees’ salary was not based on contributions to advancing the strategic plan

At RMC-WPKL, the annual salary adjustments for the employees were not based on their
contributions to advancing the strategic plan of the department. This resulted in employee
unwillingness to be concerned with the accomplishment of the strategic plan of the
department, as they perceived that ‘business’ will be as usual and it had no direct effect on
their individual promotion, even if they did not contribute to achieving the strategic plan. A
study by Poister and Streib (2005) on the municipal governments in the United States also
revealed that only 30 percent of the municipals adjusted annual salary for the employees
based on the contributions towards the strategic plan. On the other hand, management theory
and empirical researches concluded that a strong performance incentive increases motivation
and performance of employees (Rynes et al., 2005). The appraisal system for employees
should be in line with the organisation’s budget and organisational plans and allow employee
performance and contributions to be more closely measured against organisational objectives
(Joinson, 2001). Tying employees’ performance to the achievement of the organisation’s
strategic plan is an important factor to increase motivation and performance of employees.

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5.4 Result for Procedure (b) for Task

The evaluation of the task performance at RMC-WPKL involved the following seven
categories: 1) enforcement; 2) tax payments and collections; 3) automated systems; 4)
planning and coordinating; 5) sanctions and penalty system; 6) organisation, institutional
credibility and public confidence; and 7) tax personnel management. In total, 48 items were
evaluated under these seven categories based on document analysis (refer to Section 4.3.1).
Personal visits to RMC-WPKL were made by the researcher to obtain the information from
the relevant documents between the periods of August to November 2009. Published
information about the Royal Malaysian Customs was limited. Most of the reports produced by
the department were for internal use or only for the relevant ministries. The reports were not
meant for the public. Therefore, the researcher had to make strenuous efforts during personal
visits to the department to see all the relevant officers and obtain the reports and other
additional data not included in the reports to assess the task items (refer to Section 4.3.1).

The guidelines in this study (Figure 12 in Chapter 3) proposed that the performance of these
task items should be compared against the performance indicators/standards from the strategic
plan of RMC-WPKL. However, as stated in Section 5.2.2, the strategic plan document only
included the general seven strategies of RMC-WPKL and did not cover the detailed
performance indicators for achieving the strategic goals and objectives of the department.
Detailed indicators which were set up for each department at RMC-WPKL were for internal
use and were inaccessible by the public. Due to unavailability of performance indicators from
RMC-WPKL, this study evaluated the 48 task items of RMC-WPKL by comparing them
against the international benchmarks as proposed by Gallagher (2005) (refer to Section 4.3.1).
Comparison data for the benchmarking purpose was also derived from the report of the World
Bank (2009) and OECD (2009). The results from the evaluation of these items are
summarised in Table 16.

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 Table 16: Task Performance of RMC-WPKL
International Royal
Items Evaluated Benchmarks Malaysian
Customs
1. Auditors per tax administrators 16% - 40% 7.20%
2. Auditors per registered taxpayers - 411:1
3. Percent of taxpayers subject to annual audit 1% - 10% 1.38%
4. Comprehensive audit plan, type of audit and Yes Yes
audit selection criteria
5. Simultaneous or separate audit for different type Simultaneous Simultaneous
of taxes
6. Unified domestic and import audits Trend Trend
7. Separation of taxpayers by size or nature Yes Yes
8. Enforcement powers of the tax administration Broad Broad
9. Advance notification of intention to take Yes Yes
enforcement action
10. Electronic payment methods Yes Yes
11 Percent of large taxpayers paying via internet 100% n.a.
12. Numbers of stop-filers as percent of active 5% 13.38%
taxpayers
13. Average time to detect stop-filer and procedure Minimum Minimum
to detect stop-filer
14. Tax debt as percent of annual tax revenue 5% 1.54%
15. Recovery of tax debt 33% - 50% 32%
16. Share of fines collected 80% 70.90%
17. Administrative cost as percent of total tax 0.75% - 1% 0.26%
revenue
18. Institutions that establish revenue targets Ministry Ministry
19. Computerised tax administration functions Yes Yes
20. Interconnectivity between head office and local Yes Yes
tax offices
21. Data and systems backups Yes Yes
22. Operating taxpayer current account Yes Yes
23. Operating taxpayer registry Yes Limited
24. Automated audit selection Yes No
25. Tax declaration entry with automatic error Yes Yes
correction
26. Use of external data, information and databases Yes Yes
27. Crossing information among taxes Yes Yes
28. Late or stop-filer system Yes Yes
29. Planning, monitoring and evaluation system Yes Yes
30. Coordinate information with ministries and other Yes Yes
departments
31. Number of taxpayers per tax administration staff 150 to 250:1 104:1
32. Percent of staff in non-core operational functions 20% 40%
33. Percent of employees with university degrees 70% 29.70%
34. Ratio of director salaries to the tax auditors 2:1 3.2:1

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35. Ratio of tax administrator’s salary to average 2:1 0.15:1
GDP per capita
36. Existence of administrative career plan and Yes Yes
formal retirement plan
37. Specialised training for staff Yes Yes
38. Tax administration code Single code Variety of laws
39. Existence of tax fraud law Yes Yes
40. Application of tax fraud felony sanctions Little Little
41. Appeals tribunal Yes Yes
42. Penalties and late payment interest rates Yes Yes
43. Stability of top-level position Fixed Fixed
appointment appointment
44. Professionalism of staff Excellent Moderate
45. Tax fraud unit in the tax administration Yes Yes
46. Unit for investigation of internal corruption Yes Yes
47. Internal regulation Yes Yes
48. Quality of taxpayer services Yes Moderate
Source: Various document sources as described in Section 4.3.1

The findings indicated that 14 out of 48 items that were below the international benchmarks
are related to enforcement (1 item), payment and collection (4 items), information system (2
items), tax personnel management (4 items), sanction and penalty (1 item), and organisation,
institutional credibility and public confidence (2 items). Specifically, the aspects of tax
administration which were less efficient as compared to the international benchmarks are the
number of auditors as compared to tax administrators, the availability of tax payment via the
internet or electronic filing, the percentage of stop-filers as compared to the registered and
active taxpayers, the share of fines collected, the administrative cost as percent of total tax
revenue, the taxpayer registry, the audit selection, the number of taxpayers per tax
administrators, the number of staff performing core operational functions, the percentage of
tax administrators with university degrees, the ratio of average tax administrators’ salary to
average GDP per capita, the existence of a large variety of laws, the professionalism of the tax
employees, and the service quality to the taxpayers.

The detailed findings for the above 48 items are presented in Section 5.4.1 to Section 5.4.8.
Section 5.4.9 summarises the findings for task performance of RMC-WPKL.

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5.4.1 Tax Enforcement

Auditors as percent of tax administration staff

The international benchmark indicates that about 30 percent of tax administration staff should
be dedicated to audit (Gallagher, 2005). Several countries with effective audit operations have
also found a target of 30 percent is desirable to ensure adequate audit coverage (Silvani and
Baer, 1997). However, tax auditors account for approximately 10 to 15 percent or less of the
tax department’s staff in many developing countries. In a survey by the OECD (2009), 12
revenue bodies reported allocation of staff resources to audit, investigation and other
verification functions in excess of 40 percent and another 12 in the range of 25 to 40 percent.
The ratio for Australia was 30.1 percent, New Zealand 16.6 percent, and the UK 38.3 percent.
At RMC-WPKL, it was found that there were only 50 tax auditors out of 697 tax
administration staff for the year 2009, which accounts for approximately 7.20 percent. This
figure was much lower than the desirable target of 30 percent.

Auditors as percent of registered taxpayers

The international benchmark considers that there should be a balance between the numbers of
auditors as compared to the numbers of taxpayers (Gallagher, 2005). According to Silvani and
Baer (1997), in many developing countries the number of audit staff in relation to the number
of registered taxpayers decreased significantly between 1975 and 1995, by some as much as
80 percent. As a result of this trend, fewer taxpayers are being audited. For RMC-WPKL, the
ratio of registered taxpayers per tax auditor was 411:1 or one auditor for every 411 taxpayers
for the year 2009. This is quite a large amount of taxpayers to be catered to by the tax
auditors.

Percent of taxpayers subject to annual audit

The international benchmark suggests that too much auditing implies inefficiency and
harassment, and too little calls into question the enforcement efforts of the tax administration
(Gallagher, 2005). According to Gallagher (2005), the percentage of audited taxpayers to total

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taxpayers should be around 1 percent. Gill (2003) noted that the percentages of cases selected
for audit is usually between 1 percent and 10 percent. The coverage achieved from audit
activities measured as a proportion of the estimated size of the taxpayer population for the
revenue bodies surveyed by the OECD (2009) revealed that, for 11 revenue bodies, the
coverage was less than 1 percent, for 14 revenue bodies the rate was between 1 to 4 percent,
while for another 13 the rate was calculated as exceeding 4 percent. The ratio for Australia
was 3.7 percent, the US 2.4 percent, New Zealand 0.2 percent, and the UK 0.5 percent. For
RMC-WPKL, the number of audited taxpayers for the year 2009 was 284 as compared to the
number of registered taxpayers of 20,543; which shows that 1.38 percent of taxpayers were
subjected to annual audit. The audit rate for RMC-WPKL was very close to the lower limit (1
percent) according to the rate suggested by Gill (2003). It must be acknowledged that the
optimal audit rate for any tax administration depends on the underlying objectives of the tax
administration i.e., whether it adopts the adversarial or the cooperative approach to tax
compliance (Vazquez-Caro and Bird, 2011). A tax administration with an adversarial
approach might have a higher audit rate as compared to the one with a cooperative approach.
According to Vazquez-Caro and Bird (2011), most developed countries have rejected the
adversarial approach and moved towards cooperative compliance as a new way to relate to
taxpayers. As RMC-WPKL still practices the adversarial approach, the audit rate for
taxpayers could be improved to be higher than 1 percent.

Comprehensive audit plan, type of audit generally used, and audit selection criteria

According to the OECD (2004), the CRA employs a variety of means to assess tax
compliance risk. The macro-level and aggregate-level analyses identify compliance trends,
while the national systems examine the characteristics of each and every personal and
corporate income tax filer, as well as goods and services tax account, and flag areas of
potential non-compliance. For VAT risk, the UK HMRC used Central Risk Analysis, which is
a multi-variable risk modelling tool which uses a statistical technique called Regression
Analysis (OECD, 2004). The tool applies the results from all VAT audits except those to the
very largest businesses to the tax return and standing data for all VAT-registered businesses.
The analysis is carried out on a stand-alone processor using downloaded data and takes place
annually, although after six months the analysis results are applied to refreshed data. In the

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USA, most tax returns are scored for audit potential and ranked at the macro level using a
statistical method called discriminate function (DIF) analysis (OECD, 2004). The DIF scores
are developed from the audit results of a stratified random sample of tax returns. DIF is used
by the IRS to create a fair and nationally consistent scoring method for identifying for audit
the potentially most non-compliant individuals and the low-asset business tax returns.

At RMC-WPKL, an audit plan was developed by the Head Office and distributed to the state
level. Consequently, the plan was circulated to the departments and units at the state level.
There were three types of audit conducted by the department based on the audit plan: normal
audit, special audit and operational audit. Normal audit is a routine audit conducted on the
taxpayers, special audit is based on an issue identified by the relevant department, and
operational audit is based on the instruction by the Royal Malaysian Customs Head Office.

RMC-WPKL employed random selection analysis by looking at tax payment flows to see if
there is any sudden change in tax payment trend. Risk analysis was based on certain niche,
selectivity, category or industry of taxpayers. After conducting the audit, the taxpayers could
be grouped under the category of low risk, moderate risk or high risk. Follow-up audit will be
conducted based on these criteria, i.e. more frequent audits for high risk taxpayers as
compared to moderate or low risk taxpayers. The audit selection process was manually
conducted without assistance of any statistical tool.

Simultaneous or separate audit for different type of taxes

This item raises the question of whether the taxpayers are audited for all type of taxes at the
same time or are separate audits conducted for each major type of tax. According to Gallagher
(2005), the tax authority should not audit the tax but audit the person as he or she may be
obliged to pay several types of taxes. There were two types of audit used by RMC-WPKL, i.e.
program audit and ad-hoc audit. During the program audit, if the taxpayer pays more than one
type of taxes, all type of taxes will be audited at the same time. In contrast, for ad-hoc audit, a
separate audit will be conducted for different type of taxes according to the target of the audit
task.

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Unified domestic and import audits

The international benchmark suggests that audit should be combined, i.e. audit for sales tax,
service tax, excise duty and taxes on import are unified (Gallagher, 2005). At RMC-WPKL,
for normal cases, domestic and import audits were separated. However, if there is any issue
found during one audit task which concerns the other, information about the issue will be
forwarded to the relevant department.

Separation of taxpayers by size or nature

According to Gallagher (2005), tax administrations should separate the largest taxpayers from
the rest of the taxpayers. This will allow the tax administrators to focus less resources and
effort on the small taxpayers. It is proposed that special attention in terms of audit and
enforcement should be focused on the largest taxpayers (Gallagher, 2005). A more recent
development among a small number of developed countries (e.g. the US) has been to organise
service and enforcement functions principally around ‘segment of taxpayers’; for example,
large businesses, small/medium businesses, and individuals (OECD, 2009). The rationale for
organising these functions around taxpayer segments is that each group of taxpayers has
different characteristics and tax compliance behaviours and, as a result, presents different
risks to the revenue. In order to manage these risks effectively, the revenue body needs to
develop and implement strategies that are appropriate to the unique characteristics and
compliance issues presented by each group of taxpayers. According to OECD (2009), 33 out
of 43 revenue bodies in its surveyed countries established special dedicated units for large
taxpayers (Large Taxpayer Units) to manage the aspects of the tax affairs of their largest
taxpayers.

At RMC-WPKL, the taxpayers were classified according to the size of the company, the type
of industry, and the risk category based on the risk analysis. However, the comprehensive
‘taxpayer segment’ model as described above was not yet adopted. Despite the claim that
segregated large taxpayers units is one of the characteristics for ‘good’ tax administration, it is
not always good for developing countries. According to Vazquez-Caro and Bird (2011), for
such practice to become integral parts of ongoing tax administration systems in particular

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developing countries, they often need careful and sometimes substantial development and
context modification. Vazquez-Caro and Bird (2011) put forward an example of where such
segregated practice was not successfully implemented in Uruguay, It was demonstrated that,
while the ‘large taxpayers unit’ may have resulted in better services for large taxpayers, it
created chaos for the rest. A good tax administration therefore needs to consider how to
improve services to ‘non-large’ taxpayers as well - or perhaps in some instances even to
exclude them from being expected to meet all the legally required formal tax obligations.

Enforcement powers of the tax administration

This item concerns the enforcement powers possessed by a tax administration, i.e. in terms of
lien on a taxpayer’s property, seizure and sale of a taxpayer’s business as well as private
properties. According to the survey conducted by the OECD (2009), revenue bodies in most
of the surveyed countries have traditional powers to enforce tax debt collection:
1) to grant taxpayer further time to pay (39 out of 43 countries);
2) to make payment arrangements (all of 30 OECD countries and 9 out of 13 non-OECD
countries);
3) to collect from third parties that have liabilities to taxpayer (all 30 OECD countries, 10 out
of 13 non-OECD countries);
4) to seize a taxpayer’s assets (40 out of 43 countries although of these in 6 countries a court
order is required);
5) to offset a taxpayer’s liabilities to his/her tax credits (40 out of 43 countries, although only
for direct taxes in Cyprus); and
6) to initiate bankruptcy (39 out of 43 countries, of these in 13 countries a court order is
required).

Other powers less widely available include:

1) obtaining lien over a taxpayer’s assets (37 out of 43 countries, in 7 countries a court order
is required);
2) withholding government payment to debtor taxpayers (27 out of 43 countries);
3) requiring tax clearance for government contracts (32 out of 43 countries); and

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4) imposing tax liabilities on company directors when certain conditions are satisfied (32 out
of 43 countries, with a court order required in 6 countries).

RMC-WPKL has the power to grant further time for taxpayers to pay, make payment
arrangements, collect from third parties, restrict overseas travel by debtor, arrange seizure of
debtors’ assets, impose tax debts on company directors and initiate bankruptcy.

Advance notification of the intention to take enforcement action against the taxpayer

This item requires information on whether the taxpayer is notified in advance of the intention
of the tax administration to take enforcement action (Gallagher, 2005). The OECD (2009)
revealed that 37 out of the 43 revenue bodies in the countries surveyed are responsible for the
collection of tax debt. For RMC-WPKL, whenever there is non-compliance on the taxpayer’s
part, a roundtable discussion between the tax officer and the taxpayer is conducted. Then the
department will issue a reminder letter to the taxpayer for payment. Another discussion with
the taxpayer on the payment term (i.e. lump sum or instalment) will be held. If the payment is
still not received, the department will issue a letter again to the taxpayer, and the Department
for Account Receivables will follow up the progress of the case.

5.4.2 Payments and Collections

Electronic payment methods

A tax administration should move to tax payment through the electronic payment methods,
which is regarded as a more efficient method as compared to the manual payment at the tax
authority offices (Gallagher, 2005). These methods are, for example, phone banking, internet
banking, direct debit payments, and the greater use of credit cards. Electronic payment
methods, in particular the use of direct debiting which may induce some taxpayers to be more
compliant than would otherwise be the case, are widely used in countries such as Austria,
Germany, Denmark, Ireland, Netherlands, Norway, Slovenia and the UK (OECD, 2009).
Countries such as Japan and the US have also made considerable efforts to expand their
electronic (direct debit) payment capabilities. RMC-WPKL uses ‘Electronic Fund Transfer’

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(EFT) system for payment of all type of taxes. This method is in line with the information
technology development throughout the world. However, taxpayers are still allowed to pay at
the counter at the department.

Percent of large taxpayers paying via internet

The use of internet for payment of tax obligations by the taxpayers can reduce compliance
costs and improve tax accounting. This can reduce the opportunities for direct contact
between taxpayers and tax administrators, hence reducing the possibility for corruption
(Gallagher, 2005). There has been a growth in the number of revenue bodies using electronic
filing for income tax and VAT and the rate of take-up achieved over the last four years. A
report by the OECD (2009) showed that 39 out of 43 countries in its study introduced systems
of electronic filing for the reporting of monthly/quarterly VAT liabilities. The periods of time
given to large and medium traders for the payment of VAT liabilities vary substantially across
OECD countries, ranging from 10 to 60 days after the end of the relevant liability period.
According to the OECD (2009), Australia introduced the use of electronic filing for value-
added tax since 2001, New Zealand since 1992, and the UK since 2005. The rates of
electronic filing for value-added tax for Australia, New Zealand and the UK were 44 percent,
16 percent and 9 percent respectively for the year 2007. As for RMC-WPKL, the payment of
indirect taxes via the internet is unavailable. The indirect tax administration is considered left
behind by its counterpart (the Inland Revenue Board of Malaysia which handles direct taxes)
in this regard. This is because the Inland Revenue Board of Malaysia has implemented the
electronic filing for its taxpayers since 2006.

Numbers of stop-filers as percent of registered taxpayers and active taxpayers

This item is concerned with how many taxpayers have stopped filing their tax returns. It
suggested that tax administration should have automated notification systems that
immediately remind taxpayers to file and pay their tax obligations. The international
benchmark suggests that the percentage of stop-filers to active taxpayers should be around 5
percent (Gallagher, 2005). However, for RMC-WPKL, the number of stop-filers detected as a
percentage of active taxpayers was 13.38 percent for the year 2009. As for the number of

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stop-filers as a percentage of total registered taxpayers, the percentage was 11.80 percent for
the year 2009. These figures were much higher than the international benchmark.

Average time to detect a stop-filer and procedure to detect stop-filers

The information system used by the tax administration to detect a stop-filer must be up-to-
date and requires minimum time for detection (Gallagher, 2005). The ‘Customs Information
System’ used by RMC-WPKL automatically detects a stop-filer and generates a reminder
letter when due payment is not received from the taxpayer at the scheduled payment date. The
relevant tax officer will manually check the stop-filers’ account according to the reminder
letter generated by the ‘Customs Information System’ when the account payment is due from
the taxpayer.

Tax debt as percent of annual tax revenue

A tax administration should manage delinquent taxpayers efficiently and make every effort to
keep these delinquents under control. According to the international benchmark, the
percentage of tax debt to total tax receipts should be around 5 percent (Gallagher, 2005). In a
survey by the OECD (2009), 18 revenue bodies had a ratio of less than 5 percent, 6 were
between 5 percent and 10 percent, 4 were between 10 percent to 20 percent, and 4 were more
than 20 percent. For Australia the ratio was 4.3 percent, New Zealand 4.3 percent, and the UK
2.7 percent (OECD, 2009). Based on the survey responses from OECD (2009), the revenue
bodies with exceptionally low debt inventories (i.e. those with net year-end debt inventories
less than 4 percent of annual net revenue collections) were Argentina, Austria, Denmark,
Germany, Ireland, Japan, Korea, Netherlands, Norway, Slovenia and the UK. For the year
2009, the amount of tax debt for RMC-WPKL was RM143,617,169.81 as compared to the
amount of tax revenue collection of RM9,327,435,899.65. Therefore, the percentage of tax
debt to total tax revenue was 1.54 percent for RMC-WPKL. This figure indicated that RMC-
WPKL was within the 5 percent range.

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Recovery of tax debt

This item concerns the total amount of tax debt and the amount of debt recovered by the tax
administration. According to the OECD (2009), Canada has a recovery rate of 50.5 percent,
France 41.8 percent, Korea 39.9 percent, and the US 33.2 percent. For RMC-WPKL, the ratio
of the tax debt recovered as compared to the total tax debt was 32.32 percent for the year
2009. This figure shows that there is still room for improvement in the effort to recover the
tax debt for the indirect taxes.

Share of fines collected

Share of fines collected is also an indicator of tax administration efficiency, where it concerns
the adjustments and fines on taxpayers that are able to be collected by the tax authority.
According to the international benchmark, the share of fines collected should be around 80
percent (Gallagher, 2005). The share of fines collected for RMC-WPKL was below the target
at 70.90 percent.

Administrative cost as percent of total tax revenue

Administrative cost as a percentage of total tax revenue is a gross indicator of efficiency and
it covers a number of differences in tax administration, economic structure, and overall
societal modernity. It answers the question of how much does it cost, in administrative terms,
for a government to collect taxes from its people. The international benchmark indicates that
the percentage should be around 1 percent (Gallagher, 2005). For Australia the ratio was 0.93
percent, New Zealand 0.75 percent, and the UK 1.10 percent (OECD, 2009). The
administrative cost as a percentage of total tax revenue for RMC-WPKL was 0.26 percent,
which reflected that the resources for tax administration for the department were too low,
hence reducing the ability to manage the tax administration in an efficient manner.

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Institutions that establish revenue targets

This item is to determine which government agency has the power of establishing the tax
revenue targets for the tax authority. This is to find out the process of setting revenue targets
for the tax administration. For RMC-WPKL, the Ministry of Finance is the ministry which is
responsible to set the revenue targets for the indirect taxes.

5.4.3 Automated Systems

Computerised tax administration functions

Computerised systems for a tax administration should cover all the major tax administration
functions as extensively as possible. Computerisation of tax administrations is an important
tool to improve efficiency. According to Gallagher (2005), all modern tax administrations
employ automated systems for most major processes, such as document receipt and
management, issuances of notices, filing and imaging, taxpayer service-related information
sharing and so on. RMC-WPKL utilised the ‘Customs Information System’ for its daily use
for tax administration functions. For RMC-WPKL, taxpayer registration, data processing and
matching, monitoring of stop-filers, risk analysis for audit purposes, data exchange with other
government departments, and most taxpayer service functions have been computerised.

Interconnectivity between headquarters and local tax offices

In many developing countries, sharing of information is considerably lagging where the

modern technological system is sometimes unavailable; and paper trails, physical transfers
and photocopying are the order of the day (Gallagher, 2005). In some of these countries, data
transfer is done through physical delivery of data disks or tapes. Taxpayer and tax payment
information is transferred usually on a one-way basis between the local offices and the
headquarters, on a batch basis a few times per day. This method is exposed to errors, untimely
delivery of information, and could also result in information loopholes that could be exploited
by fraudulent taxpayers. In the case of RMC-WPKL, the Head Office is connected to the local

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tax offices through the centralised server at the Head Office and the regional computer
centres.

Data and systems backups

Modern tax administrations should ensure that their data and computer systems are backed up
on a daily basis. This is particularly important as the taxpayer database is the absolute core of
the tax system, and the value of this database and its daily backups cannot be overstated
(Gallagher, 2005). According to Gallagher (2005), such backup systems are routine in
developed countries, but in many emerging countries the effort and expense for backing up
these systems is just not sufficiently appreciated, leaving these tax administrations at great
risk. For RMC-WPKL, the department practiced data and systems backups for all computer
uses to ensure the safety of taxpayers’ information as well as other administrative functions.

Taxpayer current account

This item represents the taxes a taxpayer owed and the monies owed to the taxpayer (for
example, as a rebate). The information required for this indicator is to find out the state of the
current account, whether there are automated payments or receipts systems, an up-to-date
taxpayer registration system, and careful monitoring of taxpayer liabilities (Gallagher, 2005).
For RMC-WPKL, there were automated payments and receipts systems, and careful
monitoring of taxpayers liabilities. However, the task of monitoring taxpayers’ liabilities was
not fully automated. The relevant officer manually classifies the liability into different types
of classes based on the information available from the ‘Customs Information System’ and
enters the information back into the system.

Taxpayer registry

The taxpayer registry should contain all taxpayers in the country, along with their addresses,
economic activities and links to their other asset ownerships. The registry should be
automated, easy to operate and easy to be linked to other administration departments
(Gallagher, 2005). Comprehensive systems of taxpayer registration and numbering are a

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critical feature of the tax administration arrangements in most countries, supporting most tax
administration processes and underpinning all return filing, collection and assessment
activities (OECD, 2009). According to the OECD (2009), 27 out of 43 revenue bodies in
surveyed countries utilise a unique taxpayer identifier for personal taxation purposes; in
general these numbering systems are all numeric, do not incorporate taxpayer specific
information, and incorporate a check digit for point-of-entry validation purposes. In 35 out of
43 countries, a similar system exists for corporate income tax; and in 33 out of 43 countries
for VAT.

In the case of RMC-WPKL, the unique taxpayer identifier was used and recorded in the
taxpayer registry. However, it was estimated that only 80 percent of the current information
on taxpayers’ personal details in the taxpayer registry was up-to-date. This is because the
Royal Malaysian Customs can only make the necessary changes when it was informed by the
taxpayer through related forms provided by the department. In addition, the taxpayer registry
was not easily accessible by other relevant departments at RMC-WPKL. Only limited access
was granted, making it difficult for the relevant tax officers to get information for the purpose
of performing their duties.

Automated audit selection

It is becoming increasingly common to base case selection methodologies on the results from
statistical analyses. The international benchmark suggests that audit selection should be done
using an unbiased risk assessment based on statistically determined parameters (Gallagher,
2005). According to the OECD (2004), the statistical analyses may involve the use of
techniques such as Discriminate Function Analysis (as in the case of the US) to predict that
certain classes of tax return fall into ‘high’ or ‘low’ risk categories; the use of data mining
techniques to identify patterns of non-compliance in the past and to identify those
characteristics in the current population; and the use of large-scale data matching techniques
to highlight disparities in tax return data. The challenge in the use of these methods, however,
is that they require significant investments in information technology, both hardware and
software, and in the acquisition of accurate data on which the information technology
programmes can operate. If the electronic infrastructure does not support such investments or

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the skills are not available to the tax administration, then this is a difficult task to implement.
RMC-WPKL did not have an automated audit selection system or statistically determined
parameters for tax audit purposes in 2009. The audit selection was done manually without the
assistance of any statistical software. It was only based on tax auditors’ judgement and
experience.

Tax declaration entry with automatic error correction

According to the international benchmark, a tax administration requires a good information

technology system to record tax declaration entry with automatic error correction (Gallagher,
2005). It will be more efficient and effective for a tax administration to have such a system in
place. At RMC-WPKL, the first tax declaration entry for the new taxpayer was checked and
corrected through a system. However, the following entry for the same taxpayer was
manually checked and only audited after a three-year period.

Use of external data, exogenous information and third party databases

It is suggested that a tax authority needs to have access to information about taxpayers on
details such as ownership of other companies and vehicle registrations, which could be the
source for investigation in case of inconsistencies in tax declaration (Gallagher, 2005). It is
also proposed that those data should be available on-line. According to the OECD (2009), all
the 43 revenue bodies in the countries involved in its survey have powers to obtain relevant
information from taxpayers and in 41 out of 43 countries these powers can be extended to
requests to third parties. In 19 of 30 OECD countries (including Denmark, Iceland and
Portugal), tax officials can request a search warrant without the help of other government
agencies. This is less prevalent in the non-OECD countries surveyed (only 5 out of 13
countries reported this power). In the case of RMC-WPKL, the department has access to the
databases of other relevant government agencies in Malaysia to acquire certain information
about the taxpayers, both through manual request as well as online databases.

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Crossing information among taxes

According to Gallagher (2005), a tax administration should have immediate and useful
crossing of information among the different type of taxes that their taxpayers are paying and
declaring, to improve understanding of the taxpayers. In this regard, RMC-WPKL practiced
crossing information among different type of taxes paid by a taxpayer.

Late or stop-filers system

The international benchmark proposes that a tax administration should have automated
notification systems that immediately remind taxpayers of their responsibility to file and pay
their tax obligations (Gallagher, 2005). The ‘Customs Information System’ of RMC-WPKL
generated a reminder letter automatically when the taxpayer account was due and not
received.

5.4.4 Planning and Coordinating

Planning, monitoring and evaluation systems for tax organisation

According to the international benchmark, a tax authority should have a corporate planning
department that sets performance targets, monitors the attainment of these targets, plans for
capital programs, and leads the overall direction of the development of the tax department
(Gallagher, 2005). According to the study by the OECD (2009), the practice of preparing a
multi-year business plan is just about universal (39 out of 43 surveyed revenue bodies).
However, significantly fewer (i.e. 27) revenue bodies make such plans publicly available. The
study also reflected that a growing number of revenue bodies have taken steps to increase the
focus of their planning and performance evaluation towards the outcome to be achieved from
their administrations. For those revenue bodies, this has included the use of: 1) direct and
indirect measures of taxpayers’ compliance across the major risk types; 2) measures that
reflect the quality of services delivered to taxpayers and tax professionals; 3) reductions in
taxpayers’ compliance burden; and/or 4) measures reflecting the level of taxpayer satisfaction
with and confidence in the revenue body.

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The Royal Malaysian Customs has its own Corporate Planning Department at the Head Office
which plans and monitors the performance of all the Customs offices at the state level. At the
state level, the Corporate Planning Division has its subunits, namely Strategic Management
Unit, Quality Management Unit, Research and Training Unit, and Multimedia and Publication
Unit. These units handle tasks such as performance measurement for the department’s
programmes, quality and productivity issues of the department, research on
legal/system/procedural tasks to ensure facilitation of customer trading, and preparation of
annual reports for the department.

Coordinate information with ministries and others in the government

A tax administration should have information-sharing arrangements with the central bank, the
Ministry of Finance and the local governments (Gallagher, 2005). The information can
include total revenue receipts by type of tax, macroeconomic and microeconomic data, public
investment, imports, exports and international capital flows, data related to criminal behaviour
and data related to international transfer pricing. For RMC-WPKL, the information needed
was easily accessible from the related ministries and government agencies.

5.4.5 Tax Personnel Management / Human Resources

Number of taxpayers per tax administration staff

This item reflects the number of registered taxpayers with the tax authority. It is suggested
that a tax authority should make adequate effort to increase the number of tax registrants. Tax
administration processes are interdependent. Inefficient function in one area will affect the
function of another and result in a tax administration with generally weak performance.
Adequate staffing is an important requirement for the tax administration to fulfil its tasks.
Both over-staffing and under-staffing should be avoided. The international benchmark
indicates that the ratio of taxpayers to tax administrators should be around 150 to 250:1
(Gallagher, 2005). According to Gallagher (2005), in the US the number was about 1,000
taxpayers per Internal Revenue Service employee. The ratio for Armenia was 616:1, Moldova
520:1, and Bosnia 462:1. For RMC-WPKL, the number of registered taxpayers per tax

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administrator was only 104:1 for the year 2009. This figure indicates that RMC-WPKL has
ample room to increase the number of tax registrants in its tax rolls and make adequate effort
to extend their presence into society.

Percent of staff in core operational functions

The total number of staff provides no indication of the staff allocation to specific tax
administration functions. A problem of staff allocation in many developing countries is the
high percentage of total staff performing administrative rather than core operational functions,
specifically the audit function which often lacks a sufficient number of reasonably qualified
staff (see for example Silvani and Baer, 1997). A study by the OECD (2009) shows that, in
Australia, the percentage of staff involved in the client account management functions was 23
percent, audit related functions 30.1 percent, debt collection functions 12.5 percent, and
management functions 18.6 percent. For New Zealand the percentages were 43.8 percent,
16.6 percent, 9.8 percent, and 17.2 percent respectively. For the UK the percentages were 41.7
percent, 38.3 percent, 7.5 percent, and 11.9 percent respectively. It could be seen that the
percentage of staff involved in management functions for these countries were all below 20
percent. According to Silvani and Baer (1997), 25 percent of total staff performing
administrative functions is already considered as an excessively high proportion. For RMC-
WPKL, it was revealed that the percentage of staff in core operational functions as compared
to total staff was about 60 percent for the year 2009, while another 40 percent of the staff
performs administrative functions. The percentage of staff performing
administrative/management functions was too high for RMC-WPKL. The department should
therefore consider increasing the proportion of staff performing its core operational functions.

Percent of employees with university degrees

Gallagher (2005) suggested that university graduates tend to have a much higher
representation among tax employees in developed countries compared to emerging market
countries. The international benchmark suggests that the percentage of employees with
university or college degrees should be around 70 percent (Gallagher, 2005). RMC-WPKL
has a ratio of only 29.70 percent of employees with university or college degrees as compared

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to the total employees for the year 2009. This figure was much lower even compared to the
Central America benchmark of 40 percent, or a country such as Guatemala with also a 40
percent proportion (Gallagher, 2005).

Ratio of director salaries to that of tax auditors

The international benchmark proposes that the directors in the tax administration for
developed countries are paid twice the salary of the average tax auditors, i.e. 2:1 (Gallagher,
2005). For the Central America benchmark, the ratio was 4:1. The ratio for RMC-WPKL was
3.2:1, which was in the middle of both benchmarks and was considered reasonable.

Ratio of average tax administrator’s salary to average GDP per capita

In the developed countries, the average tax administrator’s salary is equivalent to twice the
average per capita income in the country (Gallagher, 2005). The salary could attract sufficient
professional staff to operate the tax administration. According to Ott (1998), the nature of
most of the tax authorities in developing countries which are neither independent nor
autonomous from the Ministry of Finance causes problems for tax administration. The
problems are in terms of capital, infrastructure, technology and salaries of employees which
are restricted by the budget from the government. This also makes it difficult to both attract
and keep high quality tax employees. This view is supported by Manasan (2003) in his study
of tax administration in the Philippines, who stated that the facts that characterise tax
administration in the developing countries includes the rigid civil service (i.e. recruitment,
retention, and compensation) rules and regulations for the public sector that tend to result in
low salaries for tax officials, thus making it difficult for the tax collection agency to attract
competent, professional personnel.

According to Gallagher (2005), the international benchmark suggests that the ratio of average
tax administrator’s salary to average GDP per capita should be 2:1, while the Central America
benchmark proposes the ratio of 5:1. In the case of RMC-WPKL, the ratio of average tax
administrator’s salary to average GDP per capita was 0.15:1.This figure was way below the

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par to attract high calibre professionals, as in the case of the tax employee salary for many
other developing countries (Manasan (2003).

Existence of administrative career plan and formal retirement plan

A tax administration should have a proper administrative career plan in place (Gallagher,
2005). There should also be a formal retirement plan for the tax administration staff in the tax
department. For RMC-WPKL, there was a proper and clear administrative career plan as well
as a formal retirement plan for its employees. The retirement plan for government employees
usually involved an option of an Employee Provident Fund (EPF) scheme or a pension
scheme.

Specialised training for staff

The internal benchmark suggests that specialised training for staff according to their functions
is important for a tax administration (Gallagher, 2005). Baurer (2005) stated that, for most tax
administration operations in the developing countries, training is considered an overhead
activity which does not justify much attention or resources. There are few or no training
professionals on staff. The emphasis of staff training is on teaching the contents of tax laws as
opposed to applying the laws. Little or no attention is paid to skills, techniques, procedures,
customer relations, or managerial training. In addition, Silvani and Baer (1997) revealed that
the shortage of auditors in many developing countries is aggravated by the fact that auditors
are not properly trained; hence they do not perform thorough audits and investigations, and
limit their actions to checking compliance with formal reporting requirements. For RMC-
WPKL, specialised training for staff according to functions was handled by a special academy
called the Academy for the Royal Malaysian Customs (AKMAL). However, the information
on the intensiveness of the training or courses organised was unavailable to the public.

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5.4.6 Sanctions and Penalties

Tax administration code

Gallagher (2005) suggested that an ideal tax code is a single, comprehensive piece of
legislation that defines all the legal rights, requirements and resources for taxpayers as well as
the tax administration. The tax code defines all terms that are to be used in the tax system, and
establishes overall procedures, such as filing and retention of information, organisational
setup of the tax administration, and establishment and roles of various organisations such as
the appeals tribunal. According to Gallagher (2005), the tax code in many developing
countries exists as a large variety of laws, often contradicting each other, with roles, rights
and responsibilities of taxpayers and tax authorities often not clearly established. According
to the OECD (2009), the vast majority of countries in its survey provided public and private
rulings. All OECD member countries provided public rulings and 28 of 30 OECD countries
provided private rulings on demand. Of the non-OECD countries, all provided public rulings
and 12 of 13 provided private rulings.

In Malaysia, there are four different Tax Acts for different types of indirect taxes, i.e.
Customs Act 1967, Sales Tax Act 1972, Service Tax Act 1975, and Excise Act 1976. Public
and private rulings are also issued from time to time to clarify the application of the law
specifically in situations where taxpayers may be impacted by particular provisions and/or
where a particular provision has been found to be causing confusion and/or uncertainty.
According to the Executive Director of the Price Waterhouse Coopers Malaysian Branch, the
existing sales tax and service tax laws in Malaysia are quite outdated (Sales Tax Act 1975 and
the Service Tax Act 1975); and the tax authorities have changed the original concept of the
taxes with ad-hoc amendments to the laws, resulting in ambiguity in the implementation and
administration (Business Times, 2002). This view supported the need to improve the indirect
tax administration laws in Malaysia.

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Existence of tax fraud law

The international benchmark proposes that each country should have appropriate tax fraud
law that imposes sanctions for fraudulent declarations and false documentation. The tax fraud
law makes enforcement effort easier for the tax authority (Gallagher, 2005). According to a
study by the OECD (2009), tax fraud function has been a part of the organisational structure
of revenue bodies in 38 out of 43 countries surveyed. For RMC-WPKL, the tax fraud laws are
stipulated according to the type of taxes under the different acts, i.e. Customs Act 1967, Sales
Tax Act 1972, Service Tax Act 1975, and Excise Act 1976.

Application of tax fraud felony sanctions

According to the international benchmark, too many applications of tax fraud laws means low
voluntary compliance by the taxpayers, or tax laws are being used for the wrong reasons. On
the other hand, too little application of the tax fraud laws indicates less power that the tax
authority has in exercising its duty (Gallagher, 2005). At RMC-WPKL, there is an average of
five civil cases files opened per year. However, not all the cases have been brought to court
for enforcement.

Appeals tribunal

A tax administration should have an appeals tribunal for taxpayers to dispute the decisions of
the tax authority, hence protecting taxpayer’s rights, giving credibility to the tax system of the
country, and exposing the tax authority to external review (Gallagher, 2005). According to the
OECD (2009), administrative review is an integral part of tax administration in 40 of the 42
revenue bodies that participated in its study. It is the process by which a taxpayer can
challenge the revenue body’s decision without or prior to entering the legal system. In 29
countries (e.g. Finland, Korea and Slovenia) an administrative review is compulsory before a
taxpayer can seek legal recourse, although for Cyprus this is only in the case of direct taxes.
In 37 countries the process is undertaken by the revenue body itself, although in 8 countries
they are assisted by another government body such as the Ministry of Finance. The time
period in which taxpayers can appeal to administrative review varies considerably between

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countries. The minimum time period is 8 days, and the maximum is 5 years. Where a case is
under administrative review, 25 countries can collect the disputed tax, although in Cyprus this
only applies in the case of certain direct taxes. In Malaysia, there is also an administrative
review or appeals tribunal where the Customs Head Office handles the appeal cases for all the
Customs offices at the state level. It is a compulsory review before the court review, and the
tax authority is in charge of the administrative review. The initial appeal period is 30 days,
followed by a 12 month legal decision period. It is allowable for the tax authority to collect
the disputed taxes during the administrative review and court review.

Type of penalties and late payment interest rates enforced to sanction non-compliance

According to the OECD (2009), all countries in its study impose a type of interest on taxes
not paid by the prescribed date. The rate of interest applied varies greatly across countries, but
is generally influenced by market/bank interest rates and inflation factors. A number of
countries set the rate of interest according to an official bench rate plus a few percentage
points (e.g. in Canada the interest rate is calculated at 4 percent above the average interest rate
on 90-day Government of Canada Treasury Bills). Such rates are reviewed and adjusted
periodically. The application of interest also varies between countries – ranging from daily
(e.g. Ireland) to annually (e.g. Italy). 27 out of 43 countries have a consistent penalty response
for failure to pay tax on time across personal income taxes, corporate income taxes and VAT.

For indirect taxes in Malaysia, tax payment is due every 28th of March for the Jan/Feb period.
If payment is not received by 29th of March, a 10% penalty will be imposed. After a month,
another 10 percent penalty will be imposed. The penalty will increase until the maximum of
50 percent. After the 50 percent penalty, the account turns into account receivable. Then three
reminder letters will be issued to the taxpayer with the interval of 14 days apart. The Account
Receivable Unit will forward the case to the Legal Unit if payment is still due from the
taxpayer. Then, a 14-day notice will be issued to the taxpayer to make payment. If no
payment is received, the taxpayer will be sued. For a case amounting to lower than
RM30,000, the seizure and sale of business property as well as private property (if needed)
will be executed. For a case amounting more than RM30,000, the action taken is to file for
bankruptcy for individual taxpayers and to wind up the business for company taxpayers.

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Consequently, another summons will be issued to order for committal which could result in
imprisonment. For the year 2008, there were 83 cases of fines imposed amounting to
RM69,350 for RMC-WPKL.

5.4.7 Organisation, Institutional Credibility and Public Confidence

Stability of top-level positions

The international benchmark suggests that the top-level positions in a tax administration
should be stable (Gallagher, 2005). This study investigated whether the top leadership at
RMC-WPKL are being appointed through fixed appointment, on contractual basis or by other
means. It was discovered that, for RMC-WPKL and other Customs offices in Malaysia, the
top-level leadership are being appointed through fixed-appointment. This aspect is also
important because, if the tenure of the top-level leadership is seen to be highly unstable,
second level managers and the institution as a whole will not pay much attention to the
instructions or directives coming from the top (Silvani and Baer, 1997). Instability of
appointment could also cause a high turnover of the tax administration’s top management,
which usually results in the absence of strategic plans and clear definition of medium and
long-term objectives for the tax department.

Professionalism of staff

This item is for assessing the professionalism of staff in a tax authority. This is important to
ensure good performance of a tax administration. Staff in different positions in the
organisation should have the skills and experience required to carry out tasks of each job and
be appropriately compensated for the job (Gallagher, 2005). The international benchmark
suggests that the professionalism level should be excellent. In the case of RMC-WPKL, the
level of professionalism was ranked as moderate instead of excellent. This study found that
there have been frequent staff transfers taking place at RMC-WPKL (both within and outside
of the local offices) for a period of less than a year. In certain cases, the transfers took place in
less than a three-month period. This frequent transfer resulted in the staff being
inexperienced, with lack of skills, ability and specialisation in any particular task.

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Tax fraud unit in the tax administration

This item concerns the existence of a tax fraud unit in the tax department to prosecute cases of
tax fraud. This involves tax employees with knowledge and expertise in tax fraud legislation,
courts and appeals systems, and law enforcement (Gallagher, 2005). According to a study by
the OECD (2009), the great majority of surveyed revenue bodies in OECD countries maintain
a dedicated organisational unit responsible for the investigation of serious cases of tax
fraud/evasion. In two OECD member countries, this work is performed mainly by a separate
law enforcement agency (i.e. in Italy, the Guardia di Finanza; and in Hungary, the Customs
and Finance Guard). At RMC-WPKL, there is no particular unit which specifically handles
tax fraud cases. The department that manages the tax fraud investigation is the Department of
Preventive that other functions include intelligence tasks, prevention of smuggling, trade
fraud, drugs trafficking and other violation of laws under the Royal Malaysian Customs rules
and regulations. The lack of specialisation on tax fraud investigation at RMC-WPKL raised
concerns on the professionalism of the department.

Unit for investigation of internal corruption

The purpose of a unit for investigation of internal corruption is to ensure the integrity and
accountability of the tax employees as well as the tax department itself (Gallagher, 2005).This
is important to encourage voluntary compliance by the taxpayers when the reputation of the
tax authority is highly regarded by the public. RMC-WPKL has its own committee called the
‘Disciplinary Committee’ which investigates any staff disciplinary problems including those
related to corruption.

Internal regulation

The international benchmark suggests that all tax authorities need to clearly specify their
internal regulations, rules or procedures that are to be followed by the tax employees in
carrying out their duties. Manuals or handbooks which explain the basic organisational
functions, personnel policies, financial control, tax administration processes, and other main
tax administration business processes should be provided (Gallagher, 2005). In the case of

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RMC-WPKL, the department has its own internal regulations, as with any other government
agencies in Malaysia.

Quality of taxpayer services

Good taxpayer services and well-designed and targeted publicity campaigns will encourage
taxpayers to comply with the tax legislation (Gallagher, 2005). It is important to find out
whether a tax administration provides taxpayers with consistent, impartial, courteous, and
prompt service to facilitate voluntary compliance. The benchmark proposes that the diversity
and quality of taxpayer services should be good. The practice of establishing service standards
and measuring the performance achieved against them remains a relatively new practice
across revenue bodies surveyed by the OECD (2009), with no more than half of surveyed
countries having a comprehensive set of standards for the relevant areas of service delivery. In
addition, just over half of the surveyed revenue bodies published the results achieved against
delivery standards. Countries such as Australia, New Zealand, the US, and the UK developed
service delivery standards, published service delivery standards, and published service
delivery results (OECD, 2009).

RMC-WPKL developed service delivery standards and reported the service delivery results in
its annual report and other departmental reports. However, these reports are only available
internally and for the related ministry. Public access to such reports is very limited. Therefore,
this study conducted a questionnaire survey on the taxpayers of RMC-WPKL to investigate
their satisfaction towards the quality of services provided by the department (refer to Section
4.3.3). Overall, the quality of taxpayer services for RMC-WKPL was ranked as moderate.
This is based on the result of the questionnaire survey on taxpayers as discussed in the
following section.

5.4.8 Survey on Taxpayer Services

This section presents the result of the survey on the taxpayers regarding the quality of services
provided by RMC-WPKL. A total of 418 questionnaires were able to be distributed to the
taxpayers out of the potential respondents of 475. Out of 418 respondents, questionnaires

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were distributed to only 405 respondents while another 13 respondents declined to participate.
Examination of the response rate shows that it is excellent. The response rate for the survey
on taxpayers and the details of the sample are summarised in Table 17.

Table 17: Taxpayers Survey: Response Rate

Taxpayers
Sample selected 475
Questionnaires distributed 418
Questionnaires returned 405
Response rate (%) 96.9
Usable responses 400
Source: Survey on taxpayers

To provide for the reliability of the questionnaire, this study employed Cronbach’s alpha as
the reliability coefficient. Based on Cronbach’s alpha, the reliability coefficient score for the
survey on taxpayers was 0.791. This reliability coefficient indicates that there is a high level
of consistency in the responses given by the respondents (Sekaran, 2003).

The respondents provided demographic data as shown in Table 18. The majority of the
respondents came from the group of non-listed companies, private limited, services industry,
annual turnover between RM250,000 to RM500,000, number of employees between 10 to 50,
pay services tax, and have been paying taxes for more than five years.

Table 18: Demographic Information on Taxpayers

Items Frequency Percent
Status of Business:
Bursa Malaysia Main Board 0 0.0
Bursa Malaysia Second 2 0.5
Board 398 99.5
Not Listed 400 100.0
Total

Legal Form of Business:

Public Limited 4 1.0
Private Limited 369 92.3
Partnership 19 4.8
Sole Proprietor 8 2.0
Total 400 100.0

Type of Industry:

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Consumer Product 81 20.3
Industrial Product 70 17.5
Construction 50 12.5
Services 161 40.3
Infrastructure 10 2.5
Hotel 2 0.5
Technology 25 6.3
Customs Agent 1 0.3
Total 400 100.0

Annual Turnover:
Below RM250,000 71 17.8
RM250,000-RM500,000 128 32.0
RM500,001-RM750,000 113 28.3
RM750,001-RM1,000,000 76 19.0
Above RM1,000,000 12 3.0
Total 400 100.0

Number of Employees:
Less than 10 23 5.8
10 - 50 195 48.8
51 - 100 128 32.0
More than 100 54 13.5
Total 400 100.0

Type of Tax Paid:

Sales tax only 57 14.3
Services tax only 178 44.5
Excise duty only 2 0.5
More than one type of tax 163 40.8
Total 400 100.0

Period Being a Taxpayer:

Less than 3 years 66 16.5
3-5 years 118 29.5
More than 5 years 216 54.0
Total 400 100.0

Source: Taxpayers survey

This study also provides a descriptive analysis of the data gathered pertaining to taxpayers’
perceptions about the quality of services delivered by RMC-WPKL. A 5-point Likert scale
was used in the questionnaire. The scales used are as follows: 1 = Strongly Disagree; 2 =
Disagree; 3 = Neutral or Undecided; 4 = Agree; and 5 = Strongly Agree. For convenience of
analysis in this section, the Likert scale was treated as an interval scale (an ordinal scale plus

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the equality of interval). Strictly speaking, a Likert scale is only an ordinal scale in the sense
that the difference between two successive ordinal numbers need not be the same. For
example, the distance between rank 3 and rank 2 is not necessarily the same as that between
rank 4 and rank 3.

The finding is based on the strengths of agreement about the degree of presence of the service
quality items. The rankings of the items are based on the mean scores of the degree of
agreement towards the items as perceived by the respondents. Table 19 tabulates the
satisfaction of the taxpayers regarding the service quality items according to their relative
agreements.

The highest agreements in satisfaction with the service quality received by the respondents in
the sample as shown in the table are:
x E3 – the employees understand that taxpayers rely on the employees’ knowledge (mean =
3.13, S.D. = 0.84);
x B1 – the taxpayers can count on the employees to address their needs (Mean = 3.12, S.D. =
0.81); and
x T3 – the department knows the services required by the taxpayers (mean = 3.12, S.D. =
0.89).

Table 19: Summary Statistics of Service Quality as Perceived by Taxpayers

Q SQI Service Quality Frequency Mean Rank
Items (SQI) (S.D.)
1 2 3 4 5
Q10 E3 The Customs 13 66 189 119 13 3.13 1
Department 3.3% 16.5% 47.3% 29.8% 3.3% (0.84)
employees
understand that I
rely on their
knowledge to meet
my needs
Q5 B1 I can count on the 12 65 193 122 8 3.12 2
Customs 3.0% 16.3% 48.3% 30.5% 2.0% (0.81)
Department
employees taking
actions to address
my needs
Q17 T3 The Customs 20 59 194 108 19 3.12 3
Department knows 5.0% 14.8% 48.5% 27.0% 4.8% (0.89)

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 the kind of services
the taxpayers are
looking for
Q20 V3 I believe the 26 66 160 132 16 3.12 4
Customs 6.5% 16.5% 40.0% 33.0% 4.0% (0.95)
Department knows
the type of
experience the
taxpayers want
Q2 A1 You can count on 4 63 218 114 1 3.11 5
the Customs 1.0% 15.8% 54.5% 28.5% 0.3% (0.69)
Department
employees being
friendly
Q3 A2 The Customs 11 61 205 118 5 3.11 6
Department 2.8% 15.3% 51.3% 29.5% 1.3% (0.77)
employees’ attitudes
demonstrate their
willingness to help
me
Q19 V2 I believe they try to 14 75 179 119 13 3.11 7
give me a good 3.5% 18.8% 44.8% 29.8% 3.3% (0.86)
experience
Q14 WT3 The Customs 6 75 208 106 5 3.07 8
Department 1.5% 18.8% 52.0% 26.5% 1.3% (0.75)
understands that
waiting time is
important to me
Q18 V1 When I leave, I 20 67 196 101 16 3.07 9
usually feel that I 5.0% 16.8% 49.0% 25.3% 4.0% (0.88)
had a good
experience
Q15 T1 I am consistently 6 75 218 92 9 3.06 10
pleased with the 1.5% 18.8% 54.5% 23.0% 2.3% (0.75)
services they
provide
Q16 T2 I like them because 11 77 195 109 8 3.06 11
they provide the 2.8% 19.3% 48.8% 27.3% 2.0% (0.81)
services that I want
Q8 E1 You can count on 18 62 212 98 10 3.05 12
the Customs 4.5% 15.5% 53.0% 24.5% 2.5% (0.82)
Department
employees knowing
their jobs
Q7 B3 The behaviour of the 15 61 221 99 4 3.04 13
Customs 3.8% 15.3% 55.3% 24.8% 1.0% (0.77)
Department
employees indicates
to me that they
understand my
needs
Q11 OQ I feel good about 15 84 189 104 8 3.01 14

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 their services to the 3.8% 21.0% 47.3% 26.0% 2.0% (0.84)
taxpayers
Q9 E2 The Customs 23 81 172 115 9 3.01 15
Department 5.8% 20.3% 43.0% 28.8% 2.3% (0.90)
employees are able
to answer my
questions quickly
Q6 B2 The Customs 7 99 184 107 3 3.00 16
Department 1.8% 24.8% 46.0% 26.8% 0.8% (0.79)
employees respond
quickly to my needs
Q4 A3 The Customs 28 73 184 101 14 3.00 17
Department 7.0% 18.3% 46.0% 25.3% 3.5% (0.93)
employees’ attitudes
show me that they
understand my
needs
Q13 WT2 The Customs 20 97 182 91 10 2.94 18
Department tries to 5.0% 24.3% 45.5% 22.8% 2.5% (0.88)
keep my waiting
time to a minimum
Q12 WT1 Waiting time at the 17 97 190 91 5 2.92 19
Customs 4.3% 24.3% 47.5% 22.8% 1.3% (0.83)
Department is not
too long
Q1 IQ Overall, I’d say that 8 114 188 87 3 2.91 20
the quality of my 2.0% 28.5% 47.0% 21.8% 0.8% (0.78)
interactions with the
Customs
Department
employees is
excellent
Source: Taxpayers survey

On the other hand, the items with the lowest agreements about their satisfaction are:
x WT1 – waiting time is not too long (mean = 2.92, S.D. = 0.83), and
x IQ – quality of interaction is excellent (mean = 2.91, S.D. = 0.78).

To further understand the two service quality items which have the lowest agreement among
the respondents in this study, i.e. waiting time 1 (WT1) and interaction quality (IQ), cross-
tabs analysis between these items and the respondents’ demographic background were
conducted. Table 20 reveals that, for IQ, the highest percentage of disagreement came from
the partnership group, i.e. 36.8 percent of the total respondents for this group disagreed that
the quality of interaction with the Customs employees is excellent.

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 Table 20: Cross-tab between Interaction Quality and Legal Form of Business
Agree Disagree Total Percent
Respondents Disagree
Legal form of Public limited 1 1 4 25.0
business Private limited 86 112 369 30.4
Partnership 2 7 19 36.8
Sole Proprietor 1 2 8 25.0
Total 90 122 400 30.5
Source: Taxpayers survey

Table 21 indicates that that the taxpayers from the services/hotel industry were the group with
the highest percentage of disagreement towards IQ, which is 34.4 percent of the total
respondents from this industry.

Table 21: Cross-tab between Interaction Quality and Type of Industry

Agree Disagree Total Percent
Respondents Disagree
Type of industry Consumer product 15 26 81 32.1
Industrial product 21 18 70 25.7
Construction 12 14 50 28.0
Services/Hotel 32 56 163 34.4
Infrastructure 4 0 10 0.0
Technology 6 8 25 32.0
Customs agent 0 0 1 0.0
Total 90 122 400 30.5
Source: Taxpayers survey

A cross-tab analysis between IQ and the annual turnover of the taxpayers reveals that the
taxpayers within the income group below RM250,000 represented the category of respondents
with the highest percentage of disagreement (40.8 percent) towards IQ (refer Table 22).

Table 22: Cross-tab between Interaction Quality and Annual Turnover

Agree Disagree Total Percent
Respondents Disagree
Annual Below RM250,000 14 29 71 40.8
Turnover RM250,000-RM500,000 28 46 128 35.9
RM500,001-RM750,000 20 30 113 26.5
RM750,001-RM1,000,000 22 16 76 21.1
Above RM1,000,000 6 1 12 8.3
Total 90 122 400 30.5
Source: Taxpayers survey

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For the type of tax paid and the period of being a taxpayer, the service taxpayers and those
who have been paying taxes for a period of less than three years represented the groups with
the highest percentage of disagreement towards IQ, which are 34.8 percent and 50.0 percent
respectively. These results are presented in Table 23 and Table 24.

Table 23: Cross-tab between Interaction Quality and Type of Tax Paid
Agree Disagree Total Percent
Respondents Disagree
Type of tax paid Sales tax only 9 19 57 33.3
Services tax only 34 62 178 34.8
Excise duty only 0 0 2 0.0
More than one type 47 41 163 25.2
Total 90 122 400 30.5
Source: Taxpayers survey

Table 24: Cross-tab between Interaction Quality and Period Being a Taxpayer
Agree Disagree Total Percent
Respondents Disagree
Period being a Less than 3 years 10 33 66 50.0
taxpayer 3 - 5 years 25 39 118 33.1
More than 5 years 55 50 216 23.2
Total 90 122 400 30.5
Source: Taxpayers survey

The cross-tabs analysis between waiting time (WT1) and the respondents’ legal form of
business, type of industry, annual turnover, type of tax paid, and the period of being a
taxpayer were also conducted. Table 25 shows that the taxpayers from the partnership entity
have the highest disagreement that the waiting time at the Customs Department is not too
long.

Table 25: Cross-tab between Waiting Time and Legal Form of Business
Agree Disagree Total Percent
Respondents Disagree
Legal form of Public limited 2 1 4 25.0
business Private limited 88 106 369 28.7
Partnership 4 6 19 31.6
Sole Proprietor 2 1 8 12.5
Total 96 114 400 28.5
Source: Taxpayers survey

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Table 26 indicates that that the taxpayers from the services/hotel industry are the group with
the highest percentage of disagreement towards WT1, which is 30.7 percent of the total
respondents from this industry.

Table 26: Cross-tab between Waiting Time and Type of Industry

Agree Disagree Total Percent
Respondents Disagree
Type of industry Consumer product 18 24 81 29.6
Industrial product 21 18 70 25.7
Construction 15 13 50 26.0
Services/Hotel 33 50 163 30.7
Infrastructure 1 2 10 20.0
Technology 8 7 25 28.0
Customs agent 0 0 1 0.0
Total 96 114 400 28.5
Source: Taxpayers survey

A cross-tab analysis between WT1 and the annual turnover of the indirect taxpayers reveals
that the taxpayers within the income group ranging from RM500,001 to RM750,000
represented the category of respondents with the highest percentage of disagreement (36.3
percent) towards WT1 (see Table 27).

Table 27: Cross-tab between Waiting Time and Annual Turnover

Agree Disagree Total Percent
Respondents Disagree
Annual Below RM250,000 14 14 71 19.7
Turnover RM250,000-RM500,000 29 36 128 28.1
RM500,001-RM750,000 29 41 113 36.3
RM750,001-RM1,000,000 17 20 76 26.3
Above RM1,000,000 7 3 12 25.0
Total 96 114 400 28.5
Source: Taxpayers survey

For the type of tax paid and the period of being a taxpayer, the sales taxpayers and those who
have been paying taxes for a period of less than three years represented the groups with the
highest percentage of disagreement towards WT1, which are 33.3 percent and 31.8 percent
respectively. These results are shown in Table 28 and Table 29.

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 Table 28: Cross-tab between Waiting Time and Type of Tax Paid
Agree Disagree Total Percent
Respondents Disagree
Type of tax paid Sales tax only 16 19 57 33.3
Services tax only 35 54 178 30.3
Excise duty only 0 0 2 0.0
More than one type 45 41 163 25.2
Total 96 114 400 28.5
Source: Taxpayers survey

Table 29: Cross-tab between Waiting Time and Period Being a Taxpayer
Agree Disagree Total Percent
Respondents Disagree
Period being a Less than 3 years 15 21 66 31.8
taxpayer 3 - 5 years 25 36 118 30.5
More than 5 years 56 57 216 26.4
Total 96 114 400 28.5
Source: Taxpayers survey

In summary, the finding from the survey on the taxpayers shows a moderate level of
satisfaction towards the quality of services delivered by RMC-WPKL. This finding is derived
from the mean scores for the service quality items in this study which range from 2.91 to 3.13
based on the scale of 1 (strongly disagree) to 5 (strongly agree). The findings revealed the
taxpayers’ dissatisfaction with the quality of interaction with the Customs employees and the
waiting time at the department. The finding also represented the outcome of RMC-WPKL’s
task performance. Gelders et al. (2008) stated that, for public sector organisations, the
perceptions and expectations of citizens about governmental services are determined by the
quality of these services, hence reflecting the outcome of the organisation.

Based on the results of the taxpayers’ survey, the group of taxpayers with the least satisfaction
towards ‘interaction quality’ with RMC-WPKL are the taxpayers with partnership businesses,
involved in the services or hotel sectors, paying service taxes, small in size with annual
turnover below RM250,000 and have been paying indirect taxes for a period of less than three
years. This survey finding is supported by the data obtained from the Quality Report 2009 for
RMC-WPKL (Quality Report Royal Malaysian Customs Wilayah Persekutuan Kuala
Lumpur, 2009). In the report, it was revealed that about 53 percent of the total defaulted
indirect tax payment discovered through tax audits for the year 2009 came from the service
taxes. From these defaulted service taxpayers, security companies were the highest
contributor (78.5 percent of the total unpaid service taxes), followed by advertising firms,

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architects and engineers, management services, consultants, private clubs, restaurants,
quantity surveyors, accountants, health services, parking services, and customs agents.

This result indicates that the quality of customer services at RMC-WPKL should be improved
to better serve the taxpayers. Empirical evidence suggests that voluntary compliance by the
taxpayers improves when the tax administration provides better services to the taxpayers
(Wallschutzky, 1984). In addition, customer satisfaction is a crucial goal for any organisation,
and it has proven effective to improve the long-term performance of the organisation (Mittal
et al., 2005; Ittner and Larcker, 1998; Aaker and Jacobson, 1994; Andersen et al., 1994;
Capon et al., 1990).

5.4.9 Summary of Result for Task

This section summarises the result of the evaluation of task performance at RMC-WPKL.
Statistical and explanatory data gathered from various documents and tax officials who held
the relevant information were used to examine RMC-WPKL in performing its tax
administration tasks. In addition, a survey was conducted on the taxpayers to get their
perceptions on the quality of services provided by RMC-WPKL. The measurement of task
performance involved analysing 48 items related to tax enforcement, payments and
collections system, information technology systems, planning and coordination, tax personnel
management, sanctions and penalties, and organisational credibility and public confidence.
These 48 items were then compared with the international benchmarks from Gallagher
(2005), the World Bank (2009), and the OECD (2009).

The findings identified key problems in task performance of RMC-WPKL, which were below
the international benchmarks. From the findings, 14 out of 48 items that showed a divergence
from the international benchmarks are related to enforcement (1 item), payment and collection
(4 items), information system (2 items), tax personnel management (4 items), sanction and
penalty (1 item), organisation, institutional credibility and public confidence (2 items).

Specifically, the aspects of tax administration which were less efficient as compared to the
international benchmarks are:

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1. Existence of a large variety of laws
2. Incomplete and not up-to-date taxpayer registry
3. High percentage of stop-filers as compared to registered and active taxpayers
4. Low share of fines collected
5. Manual audit selection
6. Moderate taxpayer service quality
7. Too low administrative cost as compared to total tax revenue
8. Unavailability of tax payment via the internet or electronic filing
9. Large number of taxpayers per tax administrators
10. Small number of tax administrators performing core operational functions
11. Small number of tax auditors as compared to tax administrators
12. Low percentage of tax administrators with university degrees
13. Moderate professionalism of the tax administrators
14. Low tax administrators’ salary as compared to GDP per capita

Basically, the above items can be classified into two main issues, i.e. tax collection process
(items 1 to 6) and capabilities (items 7 to 14). According to Neely et al. (2007), many existing
measurement frameworks and methodologies do not address the issue of processes and
capabilities in achieving organisational strategies. Once the strategies have been identified
and the right performance measures established, it is assumed that everything will be fine.
However, studies suggest that some 90 percent of managers fail to implement and deliver
their organisation’s strategies, and the key reason for strategic failure is that an organisation’s
processes and capabilities are not aligned with its strategies (Neely et al., 2007). In this case,
measurement plays a crucial role by allowing managers to track whether or not the right
processes and capabilities are in place and to communicate which processes and capabilities
matter to achieve an organisation’s strategies.

The findings in this study indicate that RMC-WPKL’s tax collection process and capabilities
were not aligned with its strategies. The department’s strategies for the year 2009 are as
follows:
1. Collect customs duties and taxes accurately and correctly

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2. Implement the actions to ensure the safety of global trading and give balance facilitation
in order not to impede the legal trading flows
3. Prevent smuggling, trading fraud and violation of law
4. Increase compliance of the law through voluntary and informed compliance by the
customers and through programmed auditing system
5. Ensure customs ruling, classification and evaluation of goods are confidently viewed, as
well as manage revenue accounting and drafting systems efficiently
6. Increase competitiveness of industrial and trading sectors of the country through
incentives and facilitations granted in line with the foundation of the industrial, trading
and tourism sectors of the country
7. Manage the department resources efficiently and effectively

However, it is difficult for RMC-WPKL to fully implement the above strategies. For example,
‘strategy 1’, i.e. to collect customs duties and taxes accurately and correctly, and ‘strategy 7’,
i.e. to manage the department resources efficiently and effectively, were not achieved due to
inefficiency in the tax collection process and limited capabilities in terms of capital and
human resources as indicated in the above 14 items.

This finding for Malaysia is in line with other studies where the issue of insufficient resources
is still impinging upon the tax administration performance in developing countries. A study
by Brondolo et al. (2008), for example, found that the tax authority in Indonesia experienced
serious staffing problems specifically in the key functions of strategic planning, audit and
taxpayer services. The Indonesian tax authority also suffered a problem of outdated
information technology systems. The same problem with information technology is also faced
by the tax authority in Egypt where the current systems do not yet meet the needs of the
modern customs administration (Crandall and Bodin, 2005).

The problems regarding staffing and information technology are also experienced by the Latin
American countries (Lledo et al., 2004) and Croatia (Ott, 1998). Another study in India (Das-
Gupta et al., 1992) revealed that poor use of information collected by the central intelligence
branch, ineffectiveness of surveys of business premises, absence of an adequate system of
taxpayer identification numbers, absence of an adequate system of third-party information

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collection, and deficiencies in the record keeping system could be solved if appropriate
systems and technology are available. Reflecting on the issue of resources, Bird (2004)
suggested that a tax administration must have adequate resources in terms of manpower,
infrastructure and an appropriate organisational structure in order to achieve an efficient and
effective tax administration system.

The findings of this study indicate the critical need to allocate sufficient resources in the
strategic planning process for the purpose of performing efficient tax administration tasks.
RMC-WPKL should carefully consider the capabilities of achieving its strategic plan in its
strategic planning process, hence preparing and submitting the annual budget that strongly
supports its strategic goals and objectives to the Royal Malaysian Customs head office and
consequently to the Ministry of Finance (refer to Section 5.3.4 for the process of preparing the
strategic plan and budget for the Royal Malaysian Customs). In this case, it is important to
have an integrated approach to performance management as it can indicate whether the
processes and capabilities at the operational and individual levels are appropriate to achieve
the strategic goals and objectives of a tax administration.

5.5 Result for Procedure (b) for Informal Organisation and People

The informal organisation and people at RMC-WPKL were investigated using a questionnaire
survey (refer to Section 4.3.3). The survey sought to identify the type of organisational culture
that exists at RMC-WPKL; and the levels of work stress, motivation, organisational
commitment and job satisfaction of the employees. The fieldwork for the surveys was carried
out from August 2009 to November 2009.

A total of 315 questionnaires were distributed to the tax employees. Examination of the
response rate shows that it is excellent. This is consistent with Sekaran (2003) who suggested
that personally administered questionnaires could yield almost a 100 percent response rate.
The response rate for the survey on the tax employees and the details of the sample are
summarised in Table 30.

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 Table 30: Tax Employees Survey: Response Rate
Employees
Sample selected 315
Questionnaires distributed 315
Questionnaires returned 288
Response rate (%) 91.4
Usable responses 250
Source: Survey on tax employees

To provide for the reliability of the questionnaires, this study employed Cronbach’s alpha as
the reliability coefficient. Based on Cronbach’s alpha, the lowest reliability coefficient score
was 0.782. This coefficient score is higher than the score in the pilot study. Generally, the
reliability coefficients indicate that there is a high level of consistency in the responses given
by the respondents. According to Sekaran (2003), reliabilities less than 0.60 are considered to
be poor, those in the 0.70 range are acceptable, and those over 0.80 are good. The various
parts of the questionnaire had reliability coefficient scores as shown in Table 31.

Table 31: Reliability Coefficients for Actual Study

Questionnaire Part Score
Tax Employees Organisational Culture 0.868
Stress 0.902
Motivation 0.782
Commitment 0.839
Job Satisfaction 0.864
Source: Survey on tax employees

The participants provided demographic data as shown in Table 32. It shows that the majority
of the respondents came from the group of female, Malay, age between 31- 40, married, hold
bachelor degrees, hold permanent employment status, work for the Customs division,
enforcement officers, and have been working with the Royal Malaysian Customs for a period
between three to five years.

Table 32: Demographic Information on Tax Employees

Items Frequency Percent

Gender:
Male 112 44.8
Female 138 55.2
Total 250 100.0

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Ethnicity:
Malay 206 82.4
Chinese 19 7.6
Indian 21 8.4
Other 4 1.6
Total 250 100.0

Age:
20-30 72 28.8
31-40 88 35.2
41-50 55 22.0
Above 50 35 14.0
Total 250 100.0

Marital Status:
Single 56 22.4
Married 188 75.2
Divorced 2 0.8
Other 4 1.6
Total 250 100.0

Highest Level of Education:

High School 67 26.8
Diploma 39 15.6
Bachelor Degree 128 51.2
Master Degree 14 5.6
PhD 1 0.4
Other 1 0.4
Total 250 100.0

Employment Status:
Permanent 247 98.8
Temporary 1 0.4
Contract 1 0.4
Part-time 1 0.4
Total 250 100.0

Department:
Customs 72 28.8
Internal Taxes 68 27.2
Technical Services 59 23.6
Management 27 10.8
Preventive 15 6.0
Other 9 3.6
Total 250 100.0

Occupation:
Managerial 23 9.2

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Enforcement Officer 99 39.6
Officer 78 31.2
Technical 6 2.4
Administrative/Clerical 42 16.8
Other 2 0.8
Total 250 100.0

Term of Employment:
Less than 1 year 5 2.0
1-2 43 17.2
3-5 49 19.6
6 - 10 31 12.4
More than 10 years 122 48.8
Total 250 100.0

Source: Survey on tax employees

A 5-point Likert scale was used in the questionnaire for the tax employees. Treating the Likert
attitudinal variables in questions 1 to 50 of the tax employees’ survey as an interval scale, the
mean score for each of the tax employees’ perception items was calculated.

Sections 5.5.1 to Section 5.5.6 present the results of the survey. Section 5.5.7 summarises the
findings for informal organisation and people.

5.5.1 Result for Organisational Culture

This section provides results of the perceptions of the tax employees regarding the
organisational culture that exists in their organisation. The findings are based on the strength
of the tax employees’ agreement with the items which represent the different types of
organisational cultures that exist in an organisation (refer to Section 3.4.2 and Section 4.3.3):
x OC1, OC2 and OC3 represented the rational culture;
x OC4, OC5 and OC6 represented the group culture;
x OC7 and OC8 represented the developmental culture; and
x OC9 and OC10 represented the hierarchical culture.

Table 33 presents summary statistics for the strength of agreement, including rankings, about
the perceived organisational culture that exists at RMC-WPKL. The respondents in this study

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indicated a high agreement towards the Customs Department emphasis on getting the job
done (OC2), the bureaucratic procedures that have to be followed (OC10) and the department
as a very formalised and structured place (OC9). The mean scores for the items OC2, OC10
and OC9 are 3.86, 3.82 and 3.78 respectively.

The items that have the weakest agreement are the perception that the Customs Department is
a very dynamic and entrepreneurial place (OC7) and the perception that the people at the
department are willing to stand up and take risks (OC8). The mean scores for items OC7 and
OC8 are 3.12 and 3.05 respectively.

Table 33: Summary Statistics of Organisational Culture as Perceived by Tax Employees

Q OCI Organisational Frequency Mean Rank
Culture Items (S.D.)
(OCI)
1 2 3 4 5
42 OC2 A major concern in 0 8 50 162 30 3.86 1
the Customs 0.0% 3.2% 20.0% 64.8% 12.0% (0.66)
Department is with
getting the job done
50 OC10 Bureaucratic 1 12 56 142 39 3.82 2
procedures generally 0.4% 4.8% 22.4% 56.8% 15.6% (0.76)
govern what people
do in the Customs
Department
49 OC9 The Customs 10 6 43 161 30 3.78 3
Department is a very 4.0% 2.4% 17.2% 64.4% 12.0% (0.84)
formalised and
structured place
44 OC4 The Customs 1 9 84 115 41 3.74 4
Department is a very 0.4% 3.6% 33.6% 46.0% 16.4% (0.79)
personal place
41 OC1 The Customs 10 23 53 127 37 3.63 5
Department is very 4.0% 9.2% 21.2% 50.8% 14.8% (0.98)
production oriented
45 OC5 The Customs 2 48 55 102 43 3.54 6
Department is like 0.8% 19.2% 22.0% 40.8% 17.2% (1.01)
an extended family
46 OC6 People in the 0 39 66 118 27 3.53 7
Customs 0.0% 15.6% 26.4% 47.2% 10.8% (0.88)
Department seem to
share a lot of
themselves
43 OC3 People in the 1 29 104 93 23 3.43 8
Customs 0.4% 11.6% 41.6% 37.2% 9.2% (0.83)
Department are very
personally involved

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 47 OC7 The Customs 16 55 82 78 19 3.12 9
Department is a very 6.4% 22.0% 32.8% 31.2% 7.6% (1.04)
dynamic and
entrepreneurial place
48 OC8 People at the 12 68 86 63 21 3.05 10
Customs 4.8% 27.2% 34.4% 25.2% 8.4% (1.03)
Department are
willing to stand up
and take risks
Source: Tax employees survey

Based on the overall results, RMC-WPKL was dominated by the hierarchical culture (OC10
and OC9). The following sections discuss the result for employees’ work stress, motivation,
organisational commitment, and job satisfaction at RMC-WPKL.

5.5.2 Result for Work Stress

This section provides results for the perceptions of the tax employees regarding the existence
of stress in their job and workplace. These findings are based on the strength of the tax
employees’ agreement with the questions relating to stress. Results are presented for the total
sample. The stress items are stated in negative statements, where agreement with the
statement indicates the respondents’ agreement with the existence of stress element in
performing their tasks. Table 34 presents the summary of statistics showing the strengths of
the tax employees’ agreement towards the existence of stress for the total sample in this study.

The items with the largest agreements shown by the respondents in the sample are:
x S10 - I do not feel certain how I will be evaluated for a raise or promotion (Mean = 3.23,
S.D. = 1.17); and
x S9 - I receive many assignments without the manpower to complete them within the
deadlines (Mean = 3.22, S.D. = 1.30).

On the other hand, the item which has the weakest agreement shown by the respondents in
this study is:
x S3 - There are no clear, planned goals and objectives for my job (Mean = 1.81, S.D. =
1.00).

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 Table 34: Summary Statistics of Stress as Perceived by Tax Employees
Q SI Stress Items (SI) Frequency Mean Rank
(S.D)
1 2 3 4 5
10 S10 I do not feel certain 13 67 60 69 41 3.23 1
how I will be evaluated 5.2.% 26.8% 24.0% 27.6% 16.4% (1.17)
for a raise or promotion
9 S9 I receive many 27 66 25 89 43 3.22 2
assignments without the 10.8% 26.4% 10.0% 35.6% 17.2% (1.30)
manpower to complete
them within the
deadlines
6 S6 I receive many 33 114 14 62 27 2.74 3
assignments without 13.2% 45.6% 5.6% 24.8% 10.8% (1.27)
adequate resources and
materials to execute
them
2 S2 There is a lack of 38 97 46 60 9 2.62 4
policies and guidelines 15.2% 38.8% 18.4% 24.0% 3.6% (1.11)
to help me
1 S1 I do not have enough 47 99 36 51 17 2.57 5
time to complete my 18.8.% 39.6% 14.4% 20.4% 6.8% (1.20)
work
8 S8 I receive assignments 41 112 32 46 19 2.56 6
that are not within my 16.4% 44.8% 12.8% 18.4% 7.6% (1.19)
training, capability and
job descriptions
7 S7 I feel that I work under 47 109 27 43 24 2.55 7
incompatible policies 18.8% 43.6% 10.8% 17.2% 9.6% (1.25)
and guidelines
4 S4 I receive incompatible 59 115 19 30 27 2.40 8
orders from two or 23.6% 46.0% 7.6% 12.0% 10.8% (1.27)
more colleagues
5 S5 I have to work under 62 112 20 42 14 2.34 9
vague directives or 24.8% 44.8% 8.0% 16.8% 5.6% (1.18)
orders
3 S3 There are no clear, 121 84 18 25 2 1.81 10
planned goals and 48.4% 33.6% 7.2% 10.0% 0.8% (1.00)
objectives for my job
Source: Tax employees survey

Table 34 shows that, generally, the tax employees perceived that they receive many
assignments without the manpower to complete them within the deadlines; and they did not
feel certain on how they will be evaluated for a raise or promotion.

To further understand these two stress items, i.e. stress item 9 (S9) and stress item 10 (S10),
cross-tabs analysis between these stress items and the respondents’ demographic background

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according to the department/division, occupation and term of employment were conducted.
Table 35 reveals that, for S9, the highest percentage of agreement came from the Preventive
Department, i.e. 93.3 percent of the total respondents for this department agreed that they
received many assignments without the manpower to complete them within the deadlines.

Table 35: Cross-tab between Stress Item 9 and Department/Division

Disagree Agree Total Percent
Respondents Agree
Department / Customs 20 45 72 62.5
Division Internal Taxes 25 37 68 54.4
Technical Services 24 27 59 45.8
Management 22 3 27 11.1
Preventive 1 14 15 93.3
Other 1 6 9 66.7
Total 93 132 250 52.8
Source: Tax employees survey

The cross-tab between S9 and occupation in Table 36 indicates that enforcement officers is
the group with the highest percentage of agreement (71.7 percent) that they received many
assignments without the manpower to complete them within the deadlines. The enforcement
officers also represented the highest number of respondents in this study, which are 99
respondents out of 250 total respondents or equivalent to 39.6 percent.

Table 36: Cross-tab between Stress Item 9 and Occupation

Disagree Agree Total Percent
Respondents Agree
Occupation Managerial 8 10 23 43.5
Enforcement Officer 21 71 99 71.7
Officer 34 34 78 43.6
Technical 3 2 6 33.3
Administrative/Clerical 26 14 42 33.3
Other 1 1 2 50
Total 93 132 250 52.8
Source: Tax employees survey

With regards to the term of employment, the employees in the range of 3 to 5 years in
employment have the highest percentage of agreement towards S9, i.e. 63.3 percent of the
total respondents from this category as reflected in Table 37.

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 Table 37: Cross-tab between Stress Item 9 and Term of Employment
Disagree Agree Total Percent
Respondents Agree
Term of Employment Less than 1 year 5 0 5 0.0
1 - 2 years 14 25 43 58.1
3 - 5 years 15 31 49 63.3
6 - 10 years 12 11 31 35.5
More than 10 years 47 65 122 53.3
Total 93 132 250 52.8
Source: Tax employees survey

In terms of S10 and the respondents’ demographic background, the cross-tabs between the
item and the respondents’ department/division are shown in Table 38. The table shows that
the Department of Internal Taxes (handling domestic sales tax, service tax and excise duty) is
the group with the highest percentage of agreement towards S10, representing 66.2 percent of
the total respondents from this department. S10 item concerned the respondents’ feeling of
certainty about how they will be evaluated for a raise or promotion.

Table 38: Cross-tab between Stress Item 10 and Department/Division

Disagree Agree Total Percent
Respondents Agree
Department / Customs 26 22 72 30.6
Division Internal Taxes 16 45 68 66.2
Technical Services 19 29 59 49.2
Management 9 12 27 44.4
Preventive 4 0 15 0.0
Other 6 2 9 22.2
Total 80 110 250 44.0
Source: Tax employees survey

Table 39 shows the cross-tab between S10 and occupation of the respondents. It was found
that 50 percent of the administrative/clerical staff who participated in this survey agreed that
they did not feel certain how they will be evaluated for a raise or promotion, while another
40.5 percent of them disagreed about the statement. This administrative/clerical staff also
represented the highest percentage of agreement towards S10.

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 Table 39: Cross-tab between Stress Item 10 and Occupation
Disagree Agree Total Percent
Respondents Agree
Occupation Managerial 9 10 23 43.5
Enforcement Officer 21 43 99 43.4
Officer 29 34 78 43.6
Technical 2 2 6 33.3
Administrative/Clerical 17 21 42 50.0
Other 2 0 2 0.0
Total 80 110 250 44.0
Source: Tax employees survey

A cross-tab analysis between S10 and the term of employment of the respondents was also
conducted. It was discovered that the respondents under the category of three to five years in
employment displayed the highest percentage of agreement towards S10. They represented
55.1 percent of the total respondents in their category. This result is shown in Table 40.

Table 40: Cross-tab between Stress Item 10 and Term of Employment

Disagree Agree Total Percent
Respondents Agree
Term of Less than 1 year 3 1 5 20.0
Employment 1 - 2 years 11 20 43 46.5
3 - 5 years 10 27 49 55.1
6 - 10 years 8 14 31 45.2
More than 10 years 48 48 122 39.3
Total 80 110 250 44.0
Source: Tax employees survey

It can be concluded from the results for work stress that the tax employees who perceived that
they received many assignments without the manpower to complete them within the deadlines
are the employees from the Preventive Department, working as enforcement officers, and
have been working for the Royal Malaysian Customs between three to five years. The tax
employees who expressed that they were not certain how they will be evaluated for a raise or
promotion are the employees from the Department of Internal Taxes, working as
administrative/clerical staff, and have been working for the Royal Malaysian Customs for a
period between three to five years.

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5.5.3 Result for Motivation

This section provides the results for the perceptions of the tax employees on the motivation
regarding their work and organisation. The findings are based on the strength of agreement
about the items tested under the motivation aspect. The results from the descriptive analysis
are presented for the total sample of the respondents who participated in this study.

Based on the responses given by the respondents, Table 41 tabulates the motivation items
according to their relative agreement. The ranking of these items are based on the mean scores
of the strength of agreement of the items as perceived by the respondents. Table 41 shows
summary statistics of the frequency, mean, standard deviation and ranking for the strengths of
agreement of the perceived motivation of the tax employees at RMC-WPKL.

Table 41: Summary Statistics of Motivation as Perceived by Tax Employees

Q MI Motivation Items Frequency Mean Rank
(MI) (S.D.)
1 2 3 4 5
17 M7 Serving the public 1 1 4 100 144 4.54 1
is meaningful 0.4% 0.4% 1.6% 40.0% 57.6% (0.60)
16 M6 Public officials 14 3 2 52 179 4.52 2
who are involved in 5.6% 1.2% 0.8% 20.8% 71.6% (1.01)
corruption are
unethical
15 M5 Ethical behaviour 3 3 10 133 101 4.30 3
of public officials is 1.2% 1.2% 4.0% 53.2% 40.4% (0.71)
as important as
competence
20 M10 The work I engage 0 5 28 127 90 4.21 4
in is meaningful to 0.0% 2.0% 11.2% 50.8% 36.0% (0.72)
me
13 M3 I unselfishly 2 7 18 136 87 4.20 5
contribute to my 0.8% 2.8% 7.2% 54.4% 34.8% (0.75)
community
18 M8 I wholeheartedly 1 3 35 126 85 4.16 6
support most of the 0.4% 1.2% 14.0% 50.4% 34.0% (0.73)
public programs
organised by the
Customs
Department
19 M9 Working in the 1 19 22 128 80 4.07 7
government 0.4% 7.6% 8.8% 51.2% 32.0% (0.86)
department gives
me a sense of self-
fulfilment

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 12 M2 I consider public 3 22 22 120 83 4.03 8
service my civic 1.2% 8.8% 8.8% 48.0% 33.2% (0.94)
duty
11 M1 I am prepared to 3 7 48 127 68 4.00 9
make enormous 1.2% 2.8% 18.0% 50.8% 27.2% (0.82)
sacrifices for the
good of the
Customs
Department
14 M4 I would prefer 5 8 65 122 50 3.82 10
seeing public 2.0% 3.2% 26.0% 48.8% 20.0% (0.86)
officials do what is
best for the whole
community even if
it harmed my
interests
Source: Tax employees survey

It can be derived from Table 41 that, generally, the respondents in this study agreed that
serving the public is meaningful (M7), public officials who are involved in corruption are
unethical (M6), and ethical behaviour of public officials is as important as competence (M5):
they are the tree items of motivation which have the highest rankings. The mean scores for the
items are 4.54, 4.52 and 4.30 respectively. On the other hand, the items that have the weakest
agreement about their importance are the perception that public service is a civic duty (M2)
with a mean score of 4.03, the preparedness to make sacrifices for the good of the
organisation (M1) with a mean score of 4.00, and the perception that public officials should
put the interest of the community above their own personal interests (M4) with a mean score
of 3.82. Overall, the above results show that the tax employees were generally motivated with
their jobs and workplace based on the percentage of agreement towards the motivation items
in the study.

5.5.4 Result for Organisational Commitment

Table 42 presents the summary of statistics showing the tax employees’ agreement towards
organisational commitment for the total sample in this study. The items with the largest
agreement shown by the respondents in the sample are:
x C9 – working for the Customs Department was not a mistake (Mean = 4.23, S.D. = 0.81);
x C1 – proud to tell others that they are part of Customs Department (Mean = 4.06, S.D. =
0.92); and

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x C5 – willing to put in extra effort for the Customs Department (Mean = 3.99, S.D. = 0.77).

On the other hand, the item which has the weakest agreement shown by the respondents in
this study is:
x C10 - always agree with the Customs Department’s policies on important matters relating
to employees (Mean = 3.36, S.D. = 0.94).

Table 42: Summary Statistics of Organisational Commitment as Perceived by Tax

Employees
Q CI Organisational Frequency Mean Rank
Commitment Items (S.D.)
(CI)
1 2 3 4 5
29 C9 *Deciding to work 3 7 21 118 101 4.23 1
for the Customs 1.2% 2.8% 8.4% 47.2% 40.4% (0.81)
Department was not a
mistake on my part
21 C1 I am proud to tell 2 18 32 109 89 4.06 2
others that I am part 0.8% 7.2% 12.8% 43.6% 35.6% (0.92)
of the Customs
Department
25 C5 I am willing to put in 2 9 36 146 57 3.99 3
a great deal of effort 0.8% 3.6% 14.4% 58.4% 22.8% (0.77)
beyond that normally
expected in order to
ensure that the
Customs Department
is successful
27 C7 *There is a lot to be 8 15 60 100 67 3.81 4
gained by sticking 3.2% 6.0% 24.0% 40.0% 26.8% (1.00)
with the Customs
Department
28 C8 It would take a lot of 13 19 27 136 55 3.80 5
changes in my 5.2% 7.6% 10.8% 54.4% 22.0% (1.03)
present
circumstances to
cause me to leave the
Customs Department
24 C4 The Customs 21 15 37 123 54 3.70 6
Department really 8.4% 6.0% 14.8% 49.2% 21.6% (1.13)
inspires the best in
me in respect of job
performance
22 C2 I am extremely glad I 2 24 77 94 53 3.69 7
chose the Customs 0.8% 9.6% 30.8% 37.6% 21.2% (0.94)
Department to work
for over others when

178
 I was considering at
the time I joined
23 C3 For me this is the 12 28 60 92 58 3.62 8
best organisation of 4.8% 11.2% 24.0% 36.8% 23.2% (1.10)
all to work for
26 C6 I would accept 3 16 83 121 27 3.61 9
almost any type of 1.2% 6.4% 33.2% 48.4% 10.8% (0.81)
job assignment in
order to keep
working for the
Customs Department
30 C10 I always find it easy 14 18 103 93 22 3.36 10
to agree with the 5.6% 7.2% 41.2% 37.2% 8.8% (0.94)
Customs
Department’s
policies on important
matters relating to its
employees
Source: Tax employees survey
Note: Questions denoted with ‘*’ indicate that the questions were reversed from their original negative
statements to make comparison of their average indexes with the rest of the positive statements meaningful (i.e.
if a participant responded 1 to the original question of C7 and C9, the score was reversed to reflect a response of
5).

Overall, the above result shows that the tax employees were generally committed to their jobs
and workplace based on the percentage of agreement towards the organisational commitment
items as compared to the percentage of disagreement from the employees in this study.

5.5.5 Result for Job Satisfaction

Table 43 presents summary statistics for the strength of agreement, including rankings, about
the perceived job satisfaction of the tax employees working at RMC-WPKL. It can be seen
from the table that, on the whole, the respondents in this study indicated satisfaction towards
their job (JS1), satisfaction towards their co-workers (JS3), and satisfaction with the
opportunity to contribute to the success of the organisation (JS7). The mean scores for the
items JS1, JS3 and JS7 are 3.98, 3.84 and 3.63 respectively.

The items with the weakest agreement are the department’s concern for its employees’
welfare (JS8) and the department’s system for recognising and rewarding performance (JS4).
The mean scores for the items JS8 and JS4 are 3.10 and 2.82 respectively.

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 Table 43: Summary Statistics of Job Satisfaction as Perceived by Tax Employees
Q JSI Job Satisfaction Frequency Mean Rank
Items (JSI) (S.D.)
1 2 3 4 5
31 JS1 I am satisfied with 0 17 34 135 64 3.98 1
my job 0.0% 6.8% 13.6% 54.0% 25.6% (0.82)

33 JS3 I am satisfied with 2 32 33 120 63 3.84 2

my co-workers 0.8% 12.8% 13.2% 48.0% 25.2% (0.97)

37 JS7 I am satisfied with 0 23 76 122 29 3.63 3

my opportunity ‘to 0.0% 9.2% 30.4% 48.8% 11.6% (0.81)
make a difference’
or to contribute to
the overall success
of the Customs
Department

36 JS6 I am satisfied with 17 15 59 129 30 3.56 4

my career progress 6.8% 6.0% 23.6% 51.6% 12.0% (1.01)
in the Customs
Department up to
this point

40 JS10 I am satisfied with 3 39 52 132 24 3.54 5

the overall quality 1.2% 15.6% 20.8% 52.8% 9.6% (0.91)
of the Customs
Department’s
services

35 JS5 I am satisfied with 13 30 61 130 16 3.42 6

the direction or 5.2% 12.0% 24.4% 52.0% 6.4% (0.96)
advice I receive
from others in the
Customs
Department

39 JS9 I am satisfied with 12 54 46 117 21 3.32 7

the Customs 4.8% 21.6% 18.4% 46.8% 8.4% (1.05)
Department’s
overall efficiency in
operations

32 JS2 I am satisfied with 21 59 48 98 33 3.32 8

my pay 4.8% 23.6% 19.2% 39.2% 13.2% (1.12)

38 JS8 I am satisfied with 18 68 57 86 21 3.10 9

the Customs 7.2% 27.2% 22.8% 34.4% 8.4% (1.11)
Department’s
concern for its
employees’ welfare

180
 34 JS4 I am satisfied with 38 65 73 53 21 2.82 10
the Customs 15.2% 26.0% 29.2% 21.2% 8.4% (1.18)
Department’s
system for
recognising and
rewarding
outstanding
performance

Source: Tax employees survey

Table 43 shows that the tax employees were dissatisfied with the Customs Department’s
concern for its employees’ welfare (JS8) and the department’s system for recognising and
rewarding outstanding performance (JS4). To further understand the lowest ranked job
satisfaction item (JS4), cross-tabs analysis between JS4 and the respondents’ demographic
background according to the department/division, occupation and term of employment were
conducted.

Table 44 reveals the highest percentage of disagreement came from the Technical Services
Department, i.e. 61 percent of the total respondents for this department disagreed that they
were satisfied with the Customs Department’s system for recognising and rewarding
outstanding performance.

Table 44: Cross-tab between Job Satisfaction Item 4 and Department/Division

Agree Disagree Total Percent
Respondents Disagree
Department / Customs 17 28 72 38.9
Division Internal Taxes 18 26 68 38.2
Technical Services 18 36 59 61.0
Management 15 8 27 29.6
Preventive 1 1 15 6.7
Other 5 4 9 44.4
Total 74 103 250 41.2
Source: Tax employees survey

Table 45 shows the cross-tab between JS4 and occupation of the respondents. It was found
that 83.3 percent of the technical staff who participated in this survey disagreed that they were
satisfied with the Customs Department’s system for recognising and rewarding outstanding
performance.

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 Table 45: Cross-tab between Job Satisfaction Item 4 and Occupation
Agree Disagree Total Percent
Respondents Disagree
Occupation Managerial 8 7 23 30.4
Enforcement Officer 18 39 99 39.4
Officer 25 37 78 47.4
Technical 1 5 6 83.3
Administrative/Clerical 21 14 42 33.3
Other 1 1 2 50.0
Total 74 103 250 41.2
Source: Tax employees survey

A cross-tab analysis between JS4 and the term of employment of the respondents was also
conducted. It was discovered that the respondents under the category of three to five years in
employment displayed the highest percentage of disagreement towards JS4. They represented
51 percent of the total respondents in this category. This result is shown in Table 46.

Table 46: Cross-tab between Job Satisfaction Item 4 and Term of Employment
Agree Disagree Total Percent
Respondents Disagree
Term of Less than 1 year 5 0 5 0.0
Employment 1 - 2 years 13 13 43 30.2
3 - 5 years 9 25 49 51.0
6 - 10 years 9 10 31 32.3
More than 10 years 38 55 122 45.1
Total 74 103 250 41.2
Source: Tax employees survey

The following section discusses the correlation between employee work stress and job
satisfaction, work stress and organisational culture, and job satisfaction and organisational
culture at RMC-WPKL. This is in accordance with procedure (b) of the guidelines where a
diagnosis on the correlation between these elements should be performed.

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5.5.6 Correlation between Stress, Job Satisfaction and Organisational Culture

To further test whether there is a correlation between work stress and job satisfaction,
between work stress and organisational culture, and between job satisfaction and
organisational culture from the survey on the tax employees, a nonparametric correlation test
using Spearman Rank Correlation Coefficient was employed. The items which have the
highest mean score for work stress, the lowest mean scores for job satisfaction, and the
highest mean scores for organisational culture were selected to test their correlations. These
items are as follows:
x Work Stress:
Item 10 - I do not feel certain how I will be evaluated for a raise or promotion.
x Job Satisfaction:
Item 4 - I am satisfied with the Customs Department’s system for recognising and
rewarding outstanding performance.
Item 8 - I am satisfied with the Customs Department’s concern for its employees’ welfare.
x Organisational Culture:
Both items 9 and 10 represented the hierarchical culture.
Item 9 - The Customs Department is a very formalised and structured place.
Item 10 - Bureaucratic procedures generally govern what people do in the Customs
Department.

The result of the correlation test is shown in Table 47. The result shows that the main source
of work stress (item 10) is significantly correlated with the two most dissatisfied items in job
satisfaction (items 4 and 8). Work stress item 10 is also significantly correlated with the
hierarchical culture represented by culture items 9 and 10. Job satisfaction items 4 and 8 are
also significantly correlated with culture item 9.

183
 Table 47: Nonparametric Correlations (Spearman Rank Correlation Coefficient)
Stress 10 Satisfaction 4 Satisfaction 8 Culture 9 Culture 10
Spearman’s rho Stress 10 Correlation Coefficient 1.000 -.460** -.438** .208** .126*
Sig.(1-tailed) . .000 .000 .000 .023
N 250 250 250 250 250
Satisfaction 4 Correlation Coefficient -.460** 1.000 .723** -.301** .020
Sig.(1-tailed) .000 . .000 .000 .375
N 250 250 250 250 250
Satisfaction 8 Correlation Coefficient -.438** .723** 1.000 -.329** .054
Sig.(1-tailed) .000 .000 . .000 .198
N 250 250 250 250 250
Culture 9 Correlation Coefficient .208** -.301** -.329** 1.000 .480**
Sig.(1-tailed) .000 .000 .000 . .000
N 250 250 250 250 250
Culture 10 Correlation Coefficient .126* .020 .054 .480** 1.000
Sig.(1-tailed) .023 .375 .198 .000 .
N 250 250 250 250 250
**.Correlation is significant at the 0.01 level (1-tailed)
*.Correlation is significant at the 0.05 level (1-tailed)

184
5.5.7 Summary of Results for Informal Organisation and People

The overall result shows that RMC-WPKL was dominated by the hierarchical culture. In such
a culture, individual conformity and compliance are achieved through the enforcement of
formally stated rules and procedures (Zammuto and Krakower, 1991). The culture involves
authoritarian management style with high degree of control, little communication and top-
down management, and centralised decision-making (Parker and Bradley, 2000). The
hierarchical culture corresponds with the finding for the strategic planning process at RMC-
WPKL (refer to Section 5.3.7). The investigation of the strategic planning process revealed
that lower level employees were not involved in the process but were directed by the
management to report their activities related to the strategic plan without understanding the
rationale or importance of doing so. The employees perceived the activities of preparing such
reports as extra workload that had no direct relation to their routine tasks. In this case, the
hierarchical culture within the department did not help to communicate to the employees at all
levels on the importance of understanding and participating in the efforts to achieve the
strategic plan of the department.

The results from the survey on the organisational culture at RMC-WPKL also show that there
was a lack of group culture in the department. Group culture involves an internal focus in
which training and development of human resources are utilised to achieve cohesion and
employee morale (refer to Section 3.4.2). The lack of group culture correlates with the finding
from the interview concerning the strategic planning process at RMC-WPKL (refer to Section
5.3.7). The interview revealed the unwillingness of the employees to attend job-related
training and courses organised by RMC-WPKL. This issue can be reduced if the group
culture is strong within the department. When this is the case, managers seek to encourage
and mentor employees and goals are achieved through consensus building rather than control.
Group culture can promote employees’ morale, hence motivating them towards performing
their task in an efficient manner.

Hierarchical culture, a dominant culture at RMC-WPKL, rewards employees’ performance

based on rank. The system of rewarding performance based on rank shows association with
the finding on the source of job dissatisfaction among the tax employees. The employees were

185
dissatisfied with RMC-WPKL’s concern for their welfare and the system for recognising and
rewarding performance. The correlation test performed in this study shows that tax
employees’ work stress was positively correlated with the hierarchical culture at RMC-
WPKL. This concerned the stress of not knowing for certain how they will be evaluated for a
raise or promotion. The correlation test also revealed that tax employees’ job satisfaction was
negatively correlated with the hierarchical culture. Studies in various industries and countries
show that bureaucratic/hierarchical culture had a negative impact on job satisfaction (Brewer,
1993; Brewer, 1994; Brewer and Clippard, 2002; Kratrina, 1990; Krausz et al., 1995; Lok and
Crawford, 2001; London and Larsen, 1999; Rashid et al., 2003; Silverthorne, 2004; Trice and
Beyer, 1993; Wallach, 1983). Lee and Chang (2008) found that, generally, an organisation
needs a group-oriented culture to promote employee job satisfaction. In addition, hierarchical
culture does not promote innovative leaders with visions that maintain a focus on the external
environment (Zammuto and Krakower, 1991).

Several issues are highlighted based on the overall results on the perceptions of tax employees
regarding work stress, motivation, organisational commitment and job satisfaction at RMC-
WPKL. The assessment on the tax employees’ work stress revealed that the employees
received many assignments without the manpower to complete them within the deadlines.
The existence of stress was related to the issue of inadequate human resources, especially in
performing core operational tax administration functions such as auditing. Stress is seen as an
undesirable phenomenon which is brought about by inadequate coping with environmental
sources of stressors associated with a particular job (e.g. work overload, role
conflict/ambiguity, poor working conditions), which results in negative mental and physical
health consequences (Cooper and Payne, 1988). Chusmir and Franks (1988) argued that low
motivation and morale, decrease in performance, high turnover and sick-leave, accidents, low
quality products and services, poor internal communication and conflicts are related, directly
or indirectly, to stress and they have an effect on overall organisational efficiency and
effectiveness. Montgomery et al. (1996) see severe job stress as dysfunctional and decreasing
commitment and productivity; while Williams et al. (2001) found out that short-term
outcomes of job stress have both physiological and behavioural effects leading to poor job
performance. This, in turn, can affect the implementation of an organisation’s strategic goals
and objectives.

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For the attitude towards motivation, the overall result shows that the tax employees at RMC-
WPKL were generally motivated with their jobs and workplace based on the high percentage
of agreement towards the motivation items in the study. This shows a good sign as efforts to
improve the performance of employees centre on the ability to successfully motivate these
employees (Li, 2008). Li (2007) suggested that motivation would induce influence on an
individual’s attitude and behaviour, which could lead to better individual performance in
public organisations. In addition, research in the field of public administration in the US,
South Korea and other countries has proven that the public sector motivation has important
influence on government employee’s performance (see, for example, Perry and Wise, 1990;
Naff and Crum, 1999; Brewer and Selden, 1998; Choi, 2001).

Reflecting on organisational commitment, the result shows that the tax employees were
committed to their jobs and workplace based on the percentage of agreement towards the
organisational commitment items. Porter et al. (1974) conceptualised organisational
commitment as a single construct comprised of multiple attitudes on the part of an
organisation’s employees, such as loyalty to the organisation, willingness to exert effort on
behalf of the organisation, congruence of individual goals and values with those of the
organisation, and desire to maintain membership of the organisation. Research in the
industrial/organisational psychology and organisational behaviour literatures has identified
the existence of multiple and distinct dimensions of organisational commitment and
demonstrated that these dimensions have different relationships with important consequences,
such as turnover intentions (Meyer and Allen, 1984; Hackett et al., 1994; Dunham et al.,
1994; and Iverson and Buttigieg, 1999).

For the tax employees’ job satisfaction at RMC-WPKL, the employees indicated that they
were dissatisfied with the department’s concern for their welfare. They were also dissatisfied
with the department’s system for recognising and rewarding outstanding performance. Job
satisfaction has been identified as the most intensely studied variable in organisational
research (Rainey, 1991). Job satisfaction is a general attitude that employees have towards
their jobs, and is directly tied to individual needs including challenging work, equitable
rewards and a supportive work environment and colleagues (Ostroff, 1992). According to
Quarstein et al. (1992), overall satisfaction is a function of a combination of situational

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characteristics and situational occurrences. The situational characteristics commonly proposed
as key factors in job satisfaction are the work itself, pay, promotion, supervision and co-
workers (Smith et al., 1969). The results suggest that these types of incentives could be
considered to improve job satisfaction, as done in the international revenue bodies such as the
IRS. In its balanced measurement system, the IRS includes productivity through a quality
work environment to increase employee job satisfaction and hold agency employment stable
while the economy grows and service improves (IRS, 1999).

It was also discovered that the work stress of the tax employees was significantly correlated
with their perceived job satisfaction. The result of the correlation test in this study indicates
that work stress among the tax employees was negatively correlated with their job
satisfaction. Studies have shown that stress at work is a well known factor for low morale,
decrease in performance, high turnover and sick-leave, accidents, and low job satisfaction
(McHugh, 1993; Murphy, 1995; Schabracq and Cooper, 2000).

In summary, the findings for informal organisation and people at RMC-WPKL show that
organisational culture affected employees’ attitudes specifically in terms of work stress and
job satisfaction. In turn, this affected individual, operational and organisational performance.
It is therefore important for a tax administration to adopt an integrated approach to
performance management, so that it can align the different organisational levels towards
achieving its strategic goals.

5.6 Procedure (c): Diagnosing Congruence in the Transformation Process

The guidelines in Figure 12 (Chapter 3) show that the strategic level should be the first level
to be evaluated as this is the highest level in performance management. The performance of
this level can affect performance at the operational and individual levels. The investigation of
RMC-WPKL’s strategic planning process revealed several weaknesses: 1) a lack of
involvement from external stakeholders; 2) no reporting on a regular basis on the performance
measurements and achievement of the strategic plan to the external stakeholders; 3) a lack of
involvement from internal stakeholders; 4) no intensive evaluation and timely feedback on the
achievement of the strategic plan; 5) insufficient allocation of resources in the strategic

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planning process; and 6) employees’ salaries were not based on their contributions to
advancing the strategic plan (Section 5.3.8).

The first two weaknesses are related to the lack of application of an open system approach in
tax administration performance management. The limited involvement from the external
stakeholders (taxpayers) in the development of RMC-WPKL’s strategic plan and the lack of
reporting on the achievement of the plan to the external stakeholders demonstrated that the tax
administration did not adopt an open system approach to performance management. This is
because it did not acknowledge the importance of stakeholders in its external environment.
The finding from the case study raises the question as to whether an open system approach to
performance management is appropriate in the tax administration context of a developing
country. However, tax administrations in the developed countries regularly survey and
involve their external stakeholders to gauge their views and perceptions of service delivery
and the overall tax administration performance (Section 5.3.8). In addition, publishing reports
for external stakeholders is a normal practice for tax administrations in developed countries
(Section 5.3.8). This is because organisation goals embody the vision/mission, which are
expressions of its response to external stakeholders’ expectations and requirements (Section
3.4.2). These expectations and requirements represent external reporting that includes
outcomes of a tax administration. External reporting that promotes transparency,
accountability, efficiency, effectiveness, openness, preventing of corruption and excess
expenditure can promise good governance for public administration (Shimomura, 2003).
Consequently, it is concluded that it will be useful for tax administrations in developing
countries to also involve external stakeholders and provide external reporting.

The other four weaknesses in the strategic planning process at RMC-WPKL demonstrate the
importance of integrating performance management at the strategic, operational and
individual levels. The lack of involvement from the internal stakeholders (lower level
employees) in the strategic planning process affected performance at the operational and
individual levels. Restricted communication between the management and the employees in
the strategic planning process resulted in limited understanding of management expectations
at the operational level, as well as insufficient information regarding operational constraints in
implementing the strategic initiatives (Section 5.3.8). At the individual level, the employees

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were uncommitted to formally report on their activities related to or the achievement of the
strategic plan to the management of RMC-WPKL (Section 5.3.7). This shows a lack of
ownership among the employees towards the strategic plan of the department. The lack of
communication between management and employees was also connected to the hierarchical
culture which was dominant within the tax administration (Section 5.5.1). The culture
involves authoritarian management style with high degree of control, little communication
and top-down management, and centralised decision-making. The hierarchical culture did not
help to communicate to the employees at all levels the importance of understanding and
participating in the efforts to achieve the strategic plan of the department. Consequently, these
results affirm the value of the integrated approach to performance management incorporated
into the framework in relation to strategic planning of a tax administration.

The weakness in the strategic planning process of RMC-WPKL was also evident in the
absence of intensive evaluation and timely feedback on the achievement of its strategic plan.
Feedback is very important in strategic planning as well as the performance management
cycle as it can reflect whether a tax administration is performing in accordance with the plan.
As people receive feedback on their performance, they appreciate the discrepancy between
what they are doing and what they are expected to do and take corrective action to overcome
it (Section 2.2.2). In this regard, the lack of timely evaluation on the achievement of RMC-
WPKL’s strategic plan can affect performance at the operational and individual levels.

The problem in the strategic planning process at RMC-WPKL was also related to the lack of
proper planning with regards to the department’s capabilities (human and capital resources) to
achieve its strategic plan (Section 5.4.9). RMC-WPKL should carefully consider the
capabilities of achieving its strategic plan in its strategic planning process, hence preparing
and submitting the annual budget that strongly supports its strategic goals and objectives to
the Ministry of Finance. In this case, performance management plays a crucial role by
allowing managers to track whether or not the right capabilities are in place to perform the
task at the operational level. The insufficient resources resulted in the inefficiency of RMC-
WPKL in performing its task (Section 5.4). This problem also affected performance at the
individual level as the tax employees were stressed because they received many assignments
without the manpower to complete them within the deadline (Section 5.5.2). In this case, the

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integrated approach to performance management has indicated that the capabilities at the
operational and individual levels are not always appropriate to achieve the strategic goals and
objectives of a tax administration.

The final issue in the strategic planning process is that employees’ salaries were not based on
their contributions to advancing the strategic plan. This is associated with the hierarchical
culture at RMC-WPKL, which rewards employees’ performance based on rank. The system
of rewarding performance based on rank shows association with the source of job
dissatisfaction among the tax employees. The employees were dissatisfied with the
department’s concern for their welfare and the system for recognising and rewarding
performance (Section 5.5.5). The correlation test performed in this study shows that tax
employees’ job dissatisfaction and work stress were significantly correlated with the
hierarchical culture (Section 5.5.6). Due to the dominance of the hierarchical culture, it was
also found that there was a lack of group culture at the department. Group culture involves an
internal focus in which training and development of human resources are utilised to achieve
cohesion and employee morale (Section 3.4.2). The lack of group culture correlates with the
unwillingness of the employees to attend job-related trainings and courses organised by
RMC-WPKL (Section 5.3.7). Group culture can promote employees’ morale, hence
motivating them to perform their task in an efficient manner.

Overall, the above findings show the importance of applying an integrated and open system
approach to tax administration performance management. The integrated approach to
performance management can help to identify issues as well as highlight specific areas that
can be addressed to support performance improvement. The guidelines for performance
management developed in this study are practical for diagnosing the areas of incongruence
among the components at the different organisational levels by showing how the components
are interrelated, interdependent and affect each other.

The findings from the diagnosis can be used to better integrate activities at the strategic,
operational and individual levels that will support the improvement of a tax administration’s
overall efficiency. This is because the diagnosis can reflect the reasons that the strategic plan
is not fully accomplished by identifying the aspects of the strategic level (strategic planning

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process and culture), operational level (task), and individual level (employees) that are
possibly contributing to underperformance of a tax administration. In this case, corrective
action can be taken where performance is falling short of targets. Then the performance
management cycle can start again with a new strategic plan being drawn up to include new
policies that can improve the tax administration’s performance.

5.7 Summary

This chapter has presented the results and summary of the findings from the case study based
on the guidelines for tax administration performance management developed in Chapter 3.
Three data collection methods involving documentary study, face-to-face interview, and
questionnaire survey on tax employees and taxpayers were employed in the case study. Data
obtained through these methods were used to evaluate the components in the tax
administration transformation process, i.e. the formal organisation, informal organisation, task
and people. However, in order to fully address the research aim of this study as stated in
Chapter 1, it is paramount to pool the results presented in this chapter together and address the
research questions in this study. Hence, the subsequent chapter discusses the findings from
the different procedures of the guidelines in this chapter; highlights the contributions of the
framework and guidelines developed in Chapter 3; and answers the research questions of this
thesis.

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Chapter 6 DISCUSSION

6.1 Introduction

As stated in Section 1.2 in Chapter 1, the aim of this study was to develop a framework that
expands the transformation process in an integrated and open system approach to tax
administration performance management which can be applied in practice. This aim was
stated as the research questions in Chapter 1. The framework was developed in Chapter 3,
together with a set of accompanying guidelines on how to apply the framework. The
guidelines were applied through the case study on the Royal Malaysian Customs in Chapter 5.

The enactment of the framework, through the use of the guidelines, has provided a strong
indication that the guidelines can be used to support a performance management process in
tax administration in a developing country. The purpose of this chapter is to discuss the
contribution of the framework and guidelines in applying an integrated and open system
approach to tax administration performance management and answer the research questions in
this study. The specific issues with the literature, identified in Chapter 2, are discussed with
specific reference to how the framework and the guidelines have addressed them. The issues
raised in Section 2.7 are: 1) integrated approach to performance management; 2) open system
approach to performance management; and 3) ‘black box’ approach to performance
management. Section 6.2 discusses an integrated and open system performance management
framework. Section 6.3 and its subsections discuss the application of an integrated and open
system performance management using the guidelines. Section 6.4 provides the
improvements to the framework and guidelines in this study. Finally, Section 6.5 presents the
summary of the chapter.

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6.2 An Integrated and Open System Performance Management Framework

Research Question 1: How can an integrated and open system approach to performance
management be undertaken to improve tax administration performance in developing
countries?

The real goal/objective of any performance management system is in three parts: to correct
poor performance, to sustain good performance, and to improve performance. All
performance management systems should be designed to generate information and data
exchange so that the individuals involved can properly dissect performance, discuss it,
understand it, and improve it. The overall objective of performance management is to develop
and improve the performance of individuals and teams and therefore organisations. It aims to
develop the capacity of people to meet and exceed expectations and to achieve their full
potential to the benefit of themselves and the organisation. Performance management
provides the basis for self-development but importantly it is also about ensuring that the
support and guidance people need to develop and improve is readily available.

Performance management in an organisational context has been divided into three levels:
individual, operational and strategic levels (Section 2.3). For the individual level, the essence
of performance management is the development of individuals with competence and
commitment, working towards the achievement of shared meaningful objectives within an
organisation that supports and encourages their achievement. In this case, performance
management is about directing and supporting employees to work as efficiently and
effectively as possible in line with the needs of the organisation (Section 2.3.1). For
operational level, performance management looks at the processes of how inputs such as
people, materials and machines are transformed into outputs. The operations function is not
an isolated part of an organization; as with many other functions, it must be linked to business
strategy. To manage performance at the operational level, an organisation must ensure that
processes are installed in an orderly manner, and that those processes work efficiently and
effectively, and that the process goals and measures are driven by the organisation’s and
stakeholders’ requirements (Section 2.3.2). At the strategic level, performance management
deals with the achievement of organisational objectives. A strategic approach to managing

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organisational performance means taking a broad and long-term view of where the
organisation is going and managing performance in ways to ensure that this strategic thrust is
maintained (Section 2.3.3).

Integrating performance management at the strategic, operational, and individual levels is

critical for an organisation as different organisational levels compete for the managers’
attention and organisational resources (Section 2.4). The general literature on performance
management proposed that strategic, operational, and individual levels of performance
management can be effectively integrated in a system-thinking view, where organisational
performance improvement is the key driver (Section 2.4). System-thinking promotes a holistic
approach to managing organisational performance and is the basis of the input-process-
output-outcome model of managing performance. The review of the performance
management models in the literature revealed that the existing models are either based on the
integrated view or the system-based view to performance management. The integrated models
propose how to integrate the strategic, operational and individual levels and measure them
accordingly (Section 2.4.1). However, the models do not demonstrate how the different levels
interact in an open system view, where an organisation needs to consider both the internal and
external environment in which it exists. On the other hand, the system-based models do not
display how the three levels of performance management are integrated, as the models
adopted the ‘black box’ approach towards the transformation process (Section 2.4.2).
Consequently, there is a need to combine the integrated view and the open system view to
form a holistic approach to performance management that can be adopted in practice.

Thus, the need to integrate performance management at the individual, operational, and
strategic levels is addressed through the ‘integrated – open system’ performance management
framework for tax administration developed in this study (refer to Figure 10 in Chapter 3).
The framework illustrates how the components in the tax administration transformation
process are integrated at the strategic level (formal and informal organisations), operational
level (task), and individual level (people) by showing the arrows that connect these
components. The framework also demonstrates how the vision/goals, external stakeholders,
plan, and evaluation of plan are integrated at the strategic level; and performance
measurements and performance standards are integrated at the operational level. The system

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view is also adopted as the framework connects the input, transformation process, output,
outcome and other internal and external components. Each component in the framework has
its own purpose but at the same time is dependent on the other components. The integrated
approach, linking together all levels of performance management, facilitates the
understanding and usage of a performance management system. The integrated view to
performance management can assist individuals and organisations to better understand and
align the different three levels and create a complete, holistic picture of performance that
outlines the relationship between individual and organisational performance.

To apply the framework in a tax administration, this study has developed a set of guidelines
with detailed procedures for the purpose. This is because the components in the framework
are at high levels and it will be difficult for one to clearly gauge what encompasses these
components. There is a need to specify the detailed elements in the formal organisation,
informal organisation, task and people. Detailing the elements in the transformation process
can help to clarify how they should be evaluated, and where to get the related sources to
assess them. This is useful to examine a tax administration’s current state, identify areas of
underperformance, and find ways to solve its problems.

The guidelines were applied on Royal Malaysian Customs through a case study in Chapter 5.
The expansion of the transformation process as shown in the framework and detailed out in
the guidelines provided a means for a tax administration to adopt an integrated and open
system approach to performance management as discussed in the following section.

6.3 Application of an Integrated and Open System Performance Management

Research Question 2: How can an integrated and open system approach to performance
management be applied in tax administration practice?

The ‘integrated – open system’ performance management framework developed in this study
(Figure 10 in Chapter 3) provided a way to expand the transformation process of a tax
administration and overcome the ‘black box’ problem in performance management by
employing the principle of the congruence model. This has conceptually unfolded the ‘black

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box’ in the tax administration transformation process. The guidelines in Figure 12 in Chapter
3 have built on this, providing detail on how to identify and analyse the elements in the
transformation process. The elements in the formal organisation are the processes involved in
developing and implementing an organisation’s vision/goals and strategic plan. The
evaluation of the formal organisation focused on the strategic planning process and how it
relates to a tax administration’s vision/goals, the involvement of the internal and external
stakeholders, the strategic management practices and allocation of resources, the performance
management activities, and the performance measurement activities. The element in the
informal organisation encompasses the organisational culture which could be in the form of
hierarchical culture, rational culture, group culture and developmental culture. The elements
of task are the system, processes, and inputs involved in producing outputs and outcomes of a
tax administration. The elements of people are the tax employees’ level of work stress,
motivation, commitment and satisfaction in performing their tax administration task. The case
study on RMC-WPKL in Chapter 5 was able to demonstrate the contribution of the guidelines
in providing a way to apply an integrated and open system approach to tax administration
performance management and to overcome the ‘black box’ problem as discussed in the
following sections.

6.3.1 Integrated Approach to Performance Management

Integrating different organisational levels

The integrated approach focuses on performance management for goal achievement, use of
performance management for integration and alignment, and a combination of system and
process approach to performance. However, the review of existing performance management
practice discloses that there is a lack of integration among the individual, operational and
strategic levels of performance management specifically for public organisations (Section
2.5). This is because strategic performance management efforts are led by the executive team,
operational performance by group managers, and individual performance management by the
human resource department, mostly with limited interaction between them. Management does
not see performance management as an integrated discipline used at various organisational
levels, but as a subcomponent of strategic, operational and human resource management

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respectively. The lack of integration between the different levels of performance management
in practice is particularly apparent for public organisations. Notwithstanding a quarter of a
century of performance management within the public sector, there are still major problems,
and the expected improvements in performance, accountability, transparency, quality of
service and value for money have not yet materialised (Section 2.5). The performance
management systems might successfully be developed at the organisational level, but were
unsuccessfully implemented at the operational and individual levels due to lack of appropriate
support at these levels. Nevertheless, in today’s environment where everything evolves and
changes so quickly, integrating strategy formulation with managing its implementation is
critical. In order to enhance the process of strategy formulation and implementation,
performance management at the strategic level (strategy formulation) should be integrated
with performance management at the operational and individual levels (execution of the
strategy). Integrated performance management should help organisations to improve,
consolidate or change their strategic position (Section 2.3.3).

The lack of integration among the different organisational levels is also apparent in the case
of RMC-WPKL. Section 5.6 demonstrates how the weaknesses at the strategic level affect
performance at the operational and individual levels. For example, it was discovered that
there was an absence of intensive evaluation and timely feedback on the achievement of
RMC-WPKL’s strategic goals and objectives at the strategic level. Feedback is very
important in strategic planning as well as the performance management cycle, as it can reflect
whether a tax administration is performing in accordance with the plan. As people receive
feedback on their performance, they appreciate the discrepancy between what they are doing
and what they are expected to do and take corrective action to overcome it (Section 2.2.2). In
this regard, the lack of timely evaluation on the achievement of RMC-WPKL’s strategic plan
can affect performance at the operational and individual levels. However, due to the absence
of an integrated approach to performance management, only the end result can be measured at
the operational and individual levels. The cause of underperformance, which originated from
the strategic level, could not be tracked and acknowledged due to limited integration among
the different organisational levels. The guidelines in this study were able to link the issue of
underperformance to the three levels of performance management through the diagnosis on
the congruence among these different levels (Section 5.6).

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The guidelines in this study do not isolate one component in the transformation process, but
embrace the core of each element in the components, connecting them in a reciprocal way to
performance management. The congruence principle incorporated in the guidelines shows that
an organisation is made up of four internal components (formal organisation, informal
organisation, task, and people) that interact with each other (Section 2.6.2). The focus on the
critical aspect of the transformation process containing the above four components is
highlighted in this study as an approach that can help to improve tax administration
performance management. The interaction of these components in the transformation process
represents the important activities that took place in a tax administration. The process can be
viewed as the centre of a tax administration function. These components exist in states of
relative balance, consistency, or ‘fit’ with each other. The different parts of an organisation
can fit well together and function effectively, or fit poorly and lead to problems, dysfunctions,
or performance below potential.

The guidelines allow for the development of a holistic and realistic ‘picture’ of tax
administration functions that are contributing to underperformance, and, most significantly,
show that these areas are interrelated. For example, the lack of involvement from the internal
stakeholders (lower level employees) in the strategic planning process affected performance at
the operational and individual levels (Section 5.6). Restricted communication between the
management and the employees in the strategic planning process resulted in limited
understanding of management expectations at the operational level, as well as insufficient
information regarding operational constraints in implementing the strategic initiatives
(Section 5.3.8). At the individual level, the employees were uncommitted to formally report
on their activities related to the achievement of the strategic plan to the management of RMC-
WPKL (Section 5.3.7). This shows a lack of ownership among the employees towards the
strategic plan of the department.

The interrelation of the components in the guidelines indicates the complex system of a tax
administration and the immense challenge of managing its performance. The problem goes
beyond simply acknowledging complexity, but that complexity must be first understood in the
context of tax administration performance management, and then embraced. Only by doing so
can the tax administration be clear on the next step that should be taken to improve its

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performance. The guidelines in this study provided a means for identifying ways to improve
tax administration performance management based on the connections and interdependence of
the contributing factors.

6.3.2 Open System Approach to Performance Management

External stakeholders

There are two broad interpretations of a system approach in performance management, which
are the ‘open’ and ‘closed’ systems (Section 2.4). Open systems theory states that a complete
system approach is undertaken when an organisation is treated as an open system that
transforms inputs into outputs within the environment (internal and external) upon which it is
dependent. The premise of the open system theory is opposite to the traditional organisational
theories, which viewed organisations as ‘closed’ systems which are independent of the
external environment in which they exist. The premise of the ‘closed’ system is relatively
conventional for modern organisations.

The concept of open system proposes that a public organisation should acknowledge the
existence of external stakeholders in its environment. This is essential as various stakeholders
are expecting public organisations to perform their tasks well and achieve the purpose of their
existence. Stakeholders are groups or individuals who can significantly affect or are
significantly affected by an organisation’s activities (Section 3.4.2). A stakeholder perspective
focuses on the organisation’s success by measuring the satisfaction among the stakeholders
and sees stakeholder management as both an ends and a means. A stakeholder focus for
organisational strategic planning activities aims to maximise stakeholder support for
organisational initiatives. Stakeholders can initially be identified and categorised into
regulators, customers, employees, the local community, pressure groups, government and
other organisations. Stakeholders’ involvement enables managers to ensure that the strategic
and operational direction of an organisation addresses stakeholder perceptions.

The importance of external stakeholders to a tax administration is also emphasised. Tax

administration operates in an extremely complex environment, with an array of external

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factors, forces and circumstances constantly affecting the performance of the tax
administration. External stakeholders’ requirements and expectations define the environment
and general constraints that a tax administration must recognise in its operations (Section
3.4.2). Organisation goals embody the vision or mission, which are expressions of its
response to external stakeholder expectations and requirements. Outcomes reflect the impact
of outputs on external stakeholders’ expectations. These expectations represent external
reporting that includes benefits and outcomes of a tax administration. Inadequate delivery of
benefits can lead to withdrawal of stakeholder contributions and subsequent failure of the tax
administration. This is particularly important in tax administration where the government
(through its Ministry of Finance) is a major stakeholder who can be expected to intervene if
the tax administration does not pay sufficient attention to the needs of groups it wishes to
target. In addition to the government, external stakeholders of a tax administration also
comprise the taxpayers who are affected by the tax administration objectives.

The guidelines in this study adopted an open system approach to performance management by
including the aspect of external stakeholders in a tax administration’s strategic planning
process. However, it was discovered that there was limited involvement from the external
stakeholders, specifically the taxpayers, in the development of RMC-WPKL’s strategic plan;
and a lack of reporting on the achievement of the plan to the external stakeholders. This
demonstrates that RMC-WPKL did not adopt an open system approach to performance
management (Section 5.6). On the other hand, tax administrations in the developed countries
regularly survey and involve their external stakeholders to gauge their views and perceptions
of service delivery and the overall tax administration performance, and publish reports for
external stakeholders (Section 5.3.8). In this case, it will be useful for RMC-WPKL to also
involve external stakeholders and provide external reporting to increase transparency,
accountability, openness, prevention of corruption and excess expenditure, which can promise
good governance for a tax administration.

International benchmarks

Another aspect of an open system approach in this study involves using international
benchmarks to measure the performance of tax administration tasks. This is because

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benchmarks are forms of best practice standards. It can be standard at the process level, and,
in this case, it would be the processes of the best practice organisations in the external
environment of a tax administration (Section 3.4.2). It is about comparison, and comparison is
a driver of performance. Benchmarks allow employees to find out for themselves how they
are performing compared to others and can give them ideas that they can implement to
improve performance. Benchmarking is the performance measurement tool which compares
costs, staffing, productivity, quality, service, value added, technology and organisational
structure; identifies areas that offer the greatest opportunities for efficiency and effectiveness
improvement; helps sell the need for change internally; and provides access to the best
practices of world-class performers. Studies have been using benchmarking to assess the
performance of a tax administration of a country in comparison with international standards
(Section 3.4.2). This study used international benchmarks for the purpose of performance
management of a tax administration. This is because the greatest performance gains from
process benchmarking are likely to come from comparisons with external parties.

The finding in this study shows that 14 out of 48 items at RMC-WPKL were below the
international benchmarks (Section 5.4). Specifically, the aspects of tax administration which
were less efficient as compared to the international benchmarks are: the number of auditors as
compared to tax administrators, the availability of tax payment via the internet or electronic
filing, the percentage of stop-filers as compared to the registered and active taxpayers, the
share of fines collected, the administrative cost as percent of total tax revenue, the taxpayer
registry, the audit selection, the number of taxpayers per tax administrators, the number of
staff performing core operational functions, the percentage of tax administrators with
university degrees, the ratio of average tax administrators’ salary to average GDP per capita,
the existence of a large variety of laws, the professionalism of the tax employees, and the
service quality to the taxpayers.

However, some comparison data in the benchmarks, specifically comparisons of ratios, must
take into account several elements such as differences in tax rates and overall legislated tax
burden of a country, variations in the range and nature of taxes collected, differences in the
underlying cost structures of the revenue bodies resulting from unusual institutional

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arrangements (e.g. multiple bodies involved in revenue administration), the conduct of non-
tax functions, and lack of commonly accepted measurement methodology (OECD, 2009).
The objectives that are benchmarked must be congruent with the real strategic objectives of
the tax administration. International benchmarking comparisons must take into account at
least the key relevant aspects of the different environments (income level and distribution,
growth rate, inflation rate and degree of ‘informality’) within which the activities being
compared take place (Vazquez-Caro and Bird, 2011). It must also be acknowledged that, even
by including a range of potential international benchmarks, and finding those benchmarks that
are most representative of the tax administration under review, this will not necessarily ensure
that the tax administration is appropriately compared. Nonetheless, most of the comparison
data used in this study with regards to best practice processes have an inspirational character
that can be used particularly by tax administration in developing countries as a target for
performance, specifying a level of desired outcome or setting broader goals.

Hasseldine (2007) suggested that there are a number of fundamental characteristics that can
be associated with leading tax administrations in both operational areas and
organisational/management tasks. Tax administrations in developing countries could learn
from the characteristics of exemplars of best practice as follows: 1) a professional approach to
internal management issues, i.e. human resource and strategic planning; 2) attention to cost
efficiency and effectiveness; 3) responsive engagement with all stakeholders; 4) successful
introduction of technology applications; 5) understanding what drives taxpayer behaviour; 6)
sophisticated risk profiling and informed responses to taxpayer behaviour, including the areas
of enforcement and service provision; and 7) transparency of governance and detailed
performance reporting (Hasseldine, 2007, p. 28). These characteristics of exemplars of
international best practice should be adopted by the Royal Malaysian Customs to improve its
performance. The international benchmarks can be applied straight away or serve as the
objectives to improve performance in the future. Benchmarks also allow a tax administration
to establish goals and specific targets for tax collection process improvement and
modernisation.

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6.3.3 ‘Black Box’ Approach to Performance Management

Measuring and diagnosing performance

Some organisations are always thought of as ‘black boxes’: inputs flow into the organisation,
activities take place, and outputs/outcomes are produced as a result of these activities. The
idea of adopting the ‘black box’ approach towards complex processes that interact with each
other across multiple functions to achieve specified goals is common (Section 2.4.2). A key
reason for adopting the ‘black box’ approach is that it removes the complexity associated with
the internal workings of each particular component in a system by focusing directly on the
inputs, outputs/outcomes and assumptions needed to connect each function with other
functions to which they are related. While developing the system specification, the details of
what is inside the ‘black box’ are deemed unimportant, as it is assumed that the specified
activities represented by the ‘black box’ can meet its objectives. The problem with the ‘black
box’ approach is that it masks the differences within organisations and their business units.

The ‘black box’ approach only focuses on performance measurements, i.e. comparing the
outputs/outcomes against inputs to determine performance. The process involved in
converting inputs into outputs/outcomes is ignored. The emphasis on measuring performance
has been the reason for extensive studies on performance measurements (Section 2.2.2). The
general purpose of performance measurement is to gain insight into a number of relevant
aspects of a production process or policy process, in order to develop a better ability to
control these processes. The prominence of performance measurement is also apparent in the
literature on tax administration performance. There have been extensive studies on tax
administration performance measurements as opposed to performance management (Section
2.1). However, the focus on performance measurement, with the emphasis on collecting,
measuring and reporting data, produces little insights, learning or improvement for a tax
administration. The limited application of performance management will not be able to assist
a tax administration to improve its performance.

Many existing measurement frameworks and methodologies appear to stop at measuring

organisational performance (Section 3.4.2). Once the strategies have been identified and the

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right performance measures established it is assumed that everything will be fine. Yet studies
suggest that some 90 percent of managers fail to implement and deliver their organisation’s
strategies (Neely et al., 2007). A key reason for strategic failure is that an organisation’s
processes are not aligned with its strategies, and, even if its processes are aligned, then the
capabilities required for operating these processes are not (Section 3.4.2). This shows that
measurement alone is insufficient. It does not allow managers to track whether or not the right
processes and capabilities are in place, to communicate which processes and capabilities
matter, and to encourage people within the organisation to maintain or proactively nurture
these processes and capabilities as appropriate. Processes do not function independently. Even
the most brilliantly designed process needs people with certain skills; some policies and
procedures regarding the way things are done; some physical infrastructure for it to happen;
and, more likely, some technology to enhance it.

To be able to track whether or not the right processes and capabilities are in place for a tax
administration, there is a need to take a step beyond measuring performance, which is using
the measurement data to diagnose performance for performance management purposes.
Diagnosis entails understanding a system’s current functioning. More specifically,
organisational diagnosis is described as consisting of investigations that draw on concepts,
models and methods from the behavioural sciences (Section 2.6.1). Such investigations are
generally aimed at examining an organisation’s current state, at finding ways to solve
problems, or at enhancing organisational effectiveness. It also involves the process of
collecting pertinent information about current operations, analysing the data obtained, and
drawing conclusions regarding potential change and improvement.

The guidelines in this study involve diagnosing the result from performance measurement for
performance management purposes. The guidelines were able to diagnose the lack of
appropriate processes and capabilities at RMC-WPKL. For example, it was discovered that
RMC-WPKL could not fully implement its strategic goals and objectives, i.e. to collect
customs duties and taxes accurately and correctly and to manage the department resources
efficiently and effectively due to weaknesses in the tax collection process and limited
capabilities in terms of capital and human resources (Section 5.4.9). The problems were also
related to the lack of proper planning at the strategic level with regards to the department’s

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capabilities to achieve its strategic plan. RMC-WPKL should carefully consider the
capabilities of achieving its strategic plan in its strategic planning process, hence preparing
and submitting the annual budget that strongly supports its strategic goals and objectives to
the Royal Malaysian Customs head office and consequently to the Ministry of Finance (refer
to Section 5.3.4 for the process of preparing the strategic plan and budget for the Royal
Malaysian Customs). In this case, diagnosis plays a crucial role by allowing managers to track
whether or not the right capabilities are in place to perform the task at the operational level.
The problems also affected performance at the individual level as the tax employees were
stressed because they received many assignments without the manpower to complete them
within the deadline (Section 5.5.2). The diagnosis performed under the guidelines in this
study can indicate whether the capabilities at the operational and individual levels are
appropriate to achieve the strategic goals and objectives of a tax administration by focusing
on its transformation process and connecting the different organisational levels in the process.

However, while the diagnosis indicates that proper planning at the strategic level of RMC-
WPKL is important, it must be acknowledged that proper planning alone does not guarantee
the achievement of the department’s strategic goals and objectives. Most important are
strategic practices that shape tax administration and that are themselves shaped both by those
who design administrative structures (legislatures and top executives) and by those who
execute them (Vazquez-Caro and Bird, 2011). The broad rules of tax game are set by legal
mandates in the form of specific substantive laws as well as by procedural law and
administrative law in general. Management interprets these rules and creates institutional,
technological and operational ways to achieve its goals and objectives. It should be noted that,
underlying any operational practice in principle, there is presumably either some element in
the legal mandate or an identifiable responses to specific environmental conditions. If the
results observed in any particular operational area are unsatisfactory, the root cause may be
either the absence of appropriate laws and regulations or an appropriate managerial approach
addressing the specific issue. It is obviously important to know which of these problems exist.

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Considering both institutional and behavioural factors

The limited integration of the different organisational levels in performance management

practice fails to adequately address the institutional and behavioural factors that can affect the
operational and individual performance, hence affecting organisational performance (Section
2.5). In the tax administration context, it was also reflected that the immediate challenge
facing a tax administration is to combine performance management at the different levels so
that operational and strategic levels are not separated, but support each other and have impact
on how people act at a behavioural level (Section 2.4). The existing system-based
performance management models adopted the ‘black box’ approach towards the
transformation process of an organisation. The ‘black box’ approach ignores the institutional
and behavioural factors that interact with each other in the transformation process and affect
organisational performance (Section 2.5).

Institutional and behavioural factors are also important in the system approach to performance
management. A system-based performance management should include three interrelated
variables: processes (behaviours), outputs (results), and outcomes (impact) (Section 2.5). In
this regard, performance means both behaviours and results because behaviours emanate from
the performer. Conceivably, behaviours, results and impact are inseparable and
interdependent variables. They are all important in performance management schemes.
However, performance management practice in many public organisations shows a lack of
consideration specifically for behavioural factors such as organisational culture and
employees’ attitudes (Section 2.5). Effective use of performance management systems in
public organisations requires the process of altering people’s actions, reactions, and
interactions to move the organisation’s existing state to some future desired state of
performance. Some of the difficulties involved in undertaking such initiatives are attributed to
deeper, more critical sources, such as the pervasive culture of the organisation, which does
not support the maximum utilisation of the performance management system. In addition to
culture, behavioural factors can be in the form of personal elements related to the employees
of an organisation. Studies have found that a lack of employee involvement is also the reason
for ineffective implementation of performance management systems in public organisations
(Section 2.5).

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Organisational diagnosis can assist in evaluating organisational behaviour as it is based upon
behavioural science theory (Section 2.6.1). The use of organisational diagnosis techniques in
this study was able to highlight the lack of appropriate organisational culture and employee
involvement in performance management at RMC-WPKL. The lack of involvement from the
lower level employees in the strategic planning process restricted the communication between
management and employees, hence resulting in limited understanding of management
expectations at the operational and individual levels (Section 5.6). The lack of communication
between management and employees was also connected to the hierarchical culture which
was dominant within the tax administration (Section 5.5.1). The culture involves authoritarian
management style with high degree of control, little communication and top-down
management, and centralised decision-making. The hierarchical culture did not help to
communicate to the employees at all levels the importance of understanding and participating
in efforts to achieve the strategic plan of the department. In addition, the finding of this study
shows that tax employees’ job dissatisfaction and work stress were significantly correlated
with the hierarchical culture (Section 5.5.6). Due to the dominance of the hierarchical culture,
it was also found that there was a lack of group culture at the department. Group culture
involves an internal focus in which training and development of human resources are utilised
to achieve cohesion and employee morale (Section 3.4.2). The lack of group culture correlates
with the unwillingness of the employees to attend job-related training and courses organised
by RMC-WPKL (Section 5.3.7). The guidelines in this study were able to show that it is
important to consider the behavioural aspect of a tax administration in achieving its strategic
plan.

6.4 Improvements to the Framework and Guidelines

The key aim of this study was to develop an integrated and open system framework for tax
administration performance management. The development of the original framework
presented in Figure 10 in Chapter 3 was informed by the literature in closely related fields.
The arrows in the performance management framework show the relationships among the
components in the framework. However, an exception to this arrangement is uncovered in this
study concerning the ‘external stakeholder’ component. It was found that there was no
external reporting on a regular basis made to the external stakeholders regarding the

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performance measurements and the achievement of the strategic plan of the tax
administration. The practice of preparing annual performance and accountability reports is
almost universal in the developed countries (Section 5.3.8). The same scenario is not
applicable to RMC-WPKL because the annual report and other performance-related reports
are only internally circulated and are not available for public scrutiny.

Nonetheless, such reports are important for public information, specifically in an open system
approach to performance management, as the reports can enhance the accountability of a tax
administration. The Chartered Institute of Public Finance and Accountancy (CIPFA) (CIPFA,
1995) stated that the concept of stewardship in the public service is closely related to the
concept of accountability. The institute believes that performance reports and accountability
reports are the key ways in which accountability is communicated, and that public service
organisations have an opportunity to use such published information as the main vehicle for
demonstrating their accountability. This view is also supported by Mulgan (2003) and Curtin
and Dekker (2005).

An open system approach to performance management that acknowledges the importance of

external stakeholders can be more explicitly addressed by amending the framework and the
guidelines in this study. As such, the performance management framework in this study is
revised, as illustrated in Figure 14. The dotted circle in the framework in Figure 14 shows the
area where the framework is revised. It shows that the arrow reflecting the relationship
between the ‘evaluation of plan’ and the ‘external stakeholders’ should be reciprocal instead
of one-sided as in the original framework in Figure 10 in Chapter 3. This is to support the
need for the achievement of the tax administration’s strategic plan to be communicated to the
external stakeholders through published annual performance reports and accountability
reports.

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 Figure 14: Revised ‘Intergrated – Open System’ Performance Management Framework for Tax Administration

Vision/Goals

Plan

Performance Standards

Transformation Process
Informal Formal Strategic
Organisation Organisation Level

Input Task Operational Output Outcome

Level

People Individual
Level

Performance Measurement

Evaluation of Plan

External Stakeholders

Source: Author

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Consequently, the original set of guidelines for performance management in Figure 12 in
Chapter 3 is also revised. This is to reflect that a tax administration is encouraged to not only
consider the internal components in the transformation process, but also how these
components affect the external stakeholders. A revised set of guidelines incorporating this
addition as procedure (d) is presented in Figure 15 (see bold type). Procedure (d) proposes
that it is important for a tax administration to communicate the relevant information on its
performance to the public by using proper channels.

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 Figure 15: Revised Guidelines for Applying the Performance Management Framework

Procedures

a). Investigate the formal organisational arrangements of a tax administration to observe whether a strategic plan has been established. This will
typically involve identification of the relevant documents and key people involved in the strategic planning process. Focus on the strategic
planning process - who are involved in the process, the history of strategic planning in the tax administration, and the use of a strategic planning
systems (short-term plan, mid-term plan, or long-term plan). Find out whether there is a specific model used for the strategic planning systems.

b). Measure the performance of a tax administration by evaluating the strategic planning process and the achievement of the strategic plan,
measuring the task performance, and evaluating the informal organisation and people.

Component Element Evaluation Source of Data

Formal x Strategic plan x Evaluate the strategic planning process of a x Strategic plan
organisation x Vision/Goals tax administration and how it relates to documentation
x Evaluation of plan vision/goals, involvement of the internal and x People involved in the
x Stakeholders external stakeholders, strategic management strategic planning
practices, allocation of resources, process
performance management activities, and
performance measurement activities
x Evaluate the outcomes of the strategic plan
in terms of its implementation and
achievement
Strategic Level

Institutional Factors
x Diagnose the connection among the strategic
planning process, evaluation of strategic plan
and stakeholders’ involvement to find out
how they affect the implementation and
achievement of the strategic goals in the
strategic plan

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 Procedures

Component Element Evaluation Source of Data

Task x Systems/Processes x Evaluate the systems and processes involved x Documents which
x Input in performing the task contain the data and
x Output x Measure performance in terms of inputs, statistics on the task
x Outcome outputs and outcomes x People who possess the
x Performance measurements x Compare performance with performance relevant information
x Performance standards standards x Performance standards
x Diagnose the connection among the inputs, from the strategic plan
processes and outputs/outcomes related to documentation and from
task execution to find out whether the the international
Operational Level

Institutional Factors
appropriate tax collection processes and benchmarks
capabilities are in place to achieve the
strategic goals and objectives in the strategic
plan

Informal Organisational culture: x Investigate the type of culture that exists in a Employees of the tax
organisation x Hierarchical culture tax administration administration
x Rational culture x Find out whether there is a balance among
x Group culture the four types of culture
x Developmental culture x Identify the dominant culture
x Diagnose the connection between the
dominant culture and the other types of
culture
Strategic Level

Behavioural Factors
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 Procedures

People Employees’ attitudes: x Investigate employees’ level of work stress, Employees of the tax
x Stress motivation, commitment and satisfaction in administration
x Motivation performing tax administration task
x Commitment x Diagnose the correlation among employees’
x Satisfaction stress, motivation, commitment and
satisfaction to find out the possible effect on
Individual Level

employee performance

Behavioural Factors
c). Diagnose the correlation among the elements in the formal organisation, informal organisation, task and people holistically to provide feedback
on whether these elements are in congruence with each other to achieve the strategic plan.

d). Communicate relevant information on tax administration performance to the public. This can be done through the use of proper
channels to report the achievement of a tax administration’s strategic plan to the public to increase integrity and public confidence, and
encourage taxpayers’ voluntary compliance.

Source: Author

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It is significant to revise the relationship between the ‘evaluation of plan’ and the ‘external
stakeholders’ to improve the framework and the application of the guidelines in this study.
Although somewhat minor, the change encourages a tax administration to be aware of, and to
continually consider, ways to increase integrity and public confidence, hence encouraging
voluntary compliance by the taxpayers. In turn, this will improve the effectiveness of a tax
administration.

6.5 Summary

The revised framework and guidelines in this study have been shown to address the key
problem areas associated with tax administration performance management. It was
demonstrated that both conceptually and in practice the framework in general, and the
guidelines in particular, have overcome issues in the current literature on performance
management. The framework has integrated the three levels of performance management in
an open system view of a tax administration; and the guidelines have provided the detail on
how to apply the framework and overcome the ‘black box’ approach in the tax administration
transformation process. This holistic approach embraces the complexity and nature of people
and organisations, rather than ignoring them. The practical value of the contribution that the
framework and the guidelines make to tax administration performance management has also
been illustrated, using the example of the Royal Malaysian Customs. The next final chapter
discusses the conclusion of this study.

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Chapter 7 CONCLUSION

7.1 Introduction

Performance management of a tax administration is not optimal until the transformation

process is improved to ensure that performance is successfully managed in an integrated and
open system approach. This includes knowing how to assess performance, being aware of the
internal environment that can affect tax administration performance – that is, the formal
organisation, informal organisation, task, and people within a tax administration; and
continually relating and adapting or changing this internal environment to improve tax
administration performance, while also taking into account the external environment. These
assertions are drawn from the literature review, from the framework and guidelines developed
in this study, and from the case study conducted based on the guidelines.

In this chapter, Section 7.2 describes the overall findings of this study. Section 7.3 discusses
the implications of this study, which include the implications on the tax administration
practices at the Royal Malaysian Customs (Section 7.3.1) and the general application of the
tax administration performance management framework (Section 7.3.2). Section 7.4 provides
the limitations of the research and potential future research. Finally, Section 7.5 presents the
conclusion of the chapter.

7.2 Overall Finding of the Study

Chapter 1 discusses the important role of a tax administration in collecting tax revenue.
Section 1.1 discusses the weaknesses in the tax collection process in developing countries
which cover poor management practices, taxpayer registration, enforcement, operating
procedure, taxpayer education, employee training, information technology, and performance
evaluation and control. It was also stated that 37 developing countries were in the category of
low tax collection level. Poor tax collection in developing countries has limited the capacity
of their governments to raise revenues for developmental purposes. These issues indicate the
need to improve the efficiency of tax administrations in developing countries.

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An approach that can be used to improve tax administration efficiency is performance
management. In Chapter 2 it was determined that tax administration performance
management needs to be undertaken through a holistic approach. A holistic approach provides
an integration of performance management at the individual, operational and strategic levels.
It provides contextual basis for performance management in an open system view of a tax
administration; and for the tax administration to look inward and be aware of all its internal
components and how they relate to each other and to the external environment. The aim of
this study was to develop a framework that expands the aspect of the transformation process
in an integrated and open system approach to tax administration performance management
which can be adopted in practice. The framework is presented in Figure 14 (Chapter 6); and
the guidelines on how to apply the framework are presented in Figure 15 (Chapter 6). The
guidelines were then applied on the Royal Malaysian Customs in Chapter 5.

The guidelines developed in this study were used to guide an effective investigation of a tax
administration transformation process and highlighted areas for improvement and ways to
improve its performance management. The guidelines also provided a means to evaluate both
institutional and behavioural aspects of a tax administration. However, the guidelines do not
offer a ‘cookbook’-like approach to improving tax administration performance management
in developing countries. Every scenario of a tax administration will require a different set of
strategies to improve performance. The time-frame to achieve the strategic goals and
objectives in a tax administration’s strategic plan should also be considered. This is because
some goals and objectives can be achieved in a short-term plan (one-year period), while
others can only be achieved in a mid-term plan (three-year period) or a long-term plan (five-
year period). In addition, the guidelines are only effective if the people at the different
organisational levels cooperate with each other to undertake the integrated approach to
performance management and work together to understand both the institutional and
behavioural factors that can affect performance. Rather than a prescriptive set of steps or a
definitive checklist, Chapter 5 highlights specific aspects of the guidelines that contribute to
identify ways to improve performance management at the Royal Malaysian Customs, and, in
doing so, identify measures that can be taken by other tax administrations in developing
countries to improve their performance management.

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A significant finding from this study is that the guidelines for performance management
provided a reliable approach for integrating the different levels of performance management.
They demonstrated that the components in the transformation process of a tax administration
are interrelated, and contributed to the overall performance of a tax administration. For
example, the lack of proper planning at the strategic level at RMC-WPKL resulted in the
problems of achieving some of the strategic goals and objectives in its strategic plan, tasks
being performed in less efficient manner, and the existence of work stress and job
dissatisfaction among the tax employees. The findings from the case study supported the
claim that the guidelines in particular, and the framework in general, can provide valuable
information on the interaction of the different organisational levels, hence indicating a way
for a tax administration to integrate and improve the different performance management
levels. The guidelines are reliable mechanisms for the developing countries to evaluate the
current state of their tax administrations and plan for the development of resources, tasks and
procedures, services, people, outputs and outcomes to improve tax administration efficiency.

The case study also demonstrates that consideration for both institutional and behavioural
factors of a tax administration are important in its performance management. The tax
employees at RMC-WPKL disclosed that one of their sources of stress came from the
uncertainty on the evaluation for a raise or promotion. This situation is significantly correlated
with their perceived job dissatisfaction, which indicated that they are dissatisfied with the
department’s concern for employees’ welfare and the system for recognising and rewarding
performance. It was also revealed that the tax employees’ work stress and job dissatisfaction
concerning performance evaluation and rewards significantly correlated with the department’s
hierarchical culture. In addition, the failure of RMC-WPKL to include lower level employees
in the strategic planning process contributed to the employees’ stress and dissatisfaction
regarding the department’s system and process for evaluating their performance. These
behavioural aspects should be given proper attention by tax administrations in the developing
countries in order to improve their performance. Integrating the analysis of these behavioural
factors that affect individual performance with the strategic and operational planning and
processes can play a significant role in achieving better tax administration performance.

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7.3 Implications of the Study

This study and its results have various implications, which relate to the tax administration
practices at RMC-WPKL, and the general application of the performance management
framework. These implications are outlined below.

7.3.1 Tax Administration Practices at the Royal Malaysian Customs

The results of this study provided insight into the tax administration practices of RMC-
WPKL. There appeared to be a number of aspects in the formal organisation, informal
organisation, task, and people that may affect the efficiency of the department. Some of these
aspects are within the control of the department and the government at large. In this context,
and based on the analysis of results from the case study in Chapter 5, the following four
measures are suggested:

1) Formal Organisation

In reviewing the formal organisation at RMC-WPKL, it is apparent from the outcome of the
case study that there are three main weaknesses in the existing practice of strategic planning
which could be improved by the department. First there was a lack of involvement from both
the internal and external stakeholders in the development of the strategic plan at RMC-
WPKL. It is recommended that steps to involve the lower level employees in the strategic
planning process should be undertaken by management of RMC-WPKL. This may be done
by:
x introducing quality circle meetings;
x providing regular information to staff;
x establishing team work;
x encouraging staff to contribute ideas in the decision making process; and
x keeping the staff fully informed of the department’s strategic goals and objectives.

Regarding the external stakeholders, the Royal Malaysian Customs at the Head Office has
been organising the ‘Consultative Panel Meeting’ each year with the private sector and

219
taxpayer representatives; where the meeting gives the opportunity for all parties to air
grievances, share views, seek clarification and make suggestions to resolve issues involving
the parties. However, consultations with these external stakeholders did not involve the
discussion on the department’s strategic plan. It is therefore suggested that future
‘Consultative Panel Meetings’ should include discussion on the development of the strategic
plan of the Royal Malaysian Customs as well as considering the views of the external
stakeholders on the strategic goals and objectives of the department.

Second, there was no external reporting on a regular basis made to the external stakeholders
on the achievement of the strategic plan of RMC-WPKL. The department also did not report
performance measures associated with the strategic plan to the public on a regular basis. It is
therefore suggested that RMC-WPKL follow the practices of the revenue authorities in
developed countries in disseminating the relevant information to the external stakeholders.

Third, there is no timely feedback or evaluation on the achievement of the strategic plan based
on the goals and objectives that have been established by RMC-WPKL. The department also
did not compare its performance against other jurisdictions or against international
benchmarks to determine the effectiveness of its strategic initiatives. Evaluation includes
collecting information around the performance measures to conclude the extent of
performance. Benchmarking the outputs of a tax administration against a set of specific
indicators can be one form of evaluation. Evaluation on the achievement of RMC-WPKL’s
strategic goals and objectives is important in ensuring successful implementation of its
performance management system.

2) Task

The findings from this study show the weaknesses of RMC-WPKL in three main aspects, i.e.
the lack of manpower, capital resources and information technology infrastructure. In terms of
manpower, the department lacks auditors and staff performing other core functions, lacks staff
with university degrees, and lacks professionalism among staff performing certain technical
tasks due to lack of specialisation as there have been frequent staff changes among

220
departments. The shortage of manpower also affected the enforcement activities where the
number of stop-filers was high and the share of fines collected was low.

Regarding the capital resources, the administrative cost of RMC-WPKL is low in comparison
with the international benchmarks. This appears to have contributed to the tax authority’s
inability to fully implement the tax legislation. In this context, the low level of the tax
administrative cost suggested that the tax authority was not equipped with the necessary
resources (human and material).

RMC-WPKL also experienced some issues concerning the information technology

infrastructure. At the department, the payment of taxes via the internet is unavailable for the
time being. The Royal Malaysian Customs is even considered left behind by its counterpart
(the Inland Revenue Board of Malaysia which handles direct taxes) in this regard. This is
because the Inland Revenue Board of Malaysia has implemented the electronic filing for its
taxpayers since 2006. The weakness in the information system is also apparent through the
taxpayer registry; where the taxpayer information in the registry was estimated to be only 80
percent up-to-date. Another flaw with RMC-WPKL is that it does not have automated audit
selection systems or statistically determined parameters for tax audit purposes. The audit
selection was manually done without the use of any statistical software.

It is therefore suggested that the strategies to mitigate the limitation in the tax administration
boil down to the importance of availing sufficient resources and equipping the tax
administration with sufficient number of skilled personnel and physical resources. It would be
worthwhile for the government to consider the possibility of recruiting and retaining sufficient
number of qualified tax administrators, and auditors in particular. This can be achieved
mainly through making revenue authorities autonomous in terms of setting better employee
benefit schemes as compared to that of civil servants. The Inland Revenue Board of Malaysia,
for example, became a semi-autonomous revenue authority in 1996 and it has performed
better in many aspects as compared to the Royal Malaysian Customs. Giving autonomy to the
tax authority needs to be accompanied by access to sufficient resources. In order that the tax
authorities would be able to recruit and retain sufficient and qualified personnel, they can also

221
be equipped with the necessary physical facilities. The availability of sufficient resources is,
therefore, instrumental in strengthening the indirect tax administration in the country.

The result of this study shows a moderate level of taxpayers’ satisfaction towards the quality
of services delivered by RMC-WPKL. Based on the results of the taxpayers’ survey, the
group of taxpayers with the least satisfaction towards interaction quality with RMC-WPKL
was the taxpayers with partnership businesses, involved in the services or hotel sectors,
paying service taxes, small in size with annual turnover below RM250,000 and have been
paying indirect taxes for a period of less than three years. It is suggested that RMC-WPKL
should seek to improve taxpayers satisfaction with the basic services provided to them. This
may be done by regularly surveying taxpayer satisfaction with the services provided and
asking for recommendations for improvement. With regards to the quality of services
delivered, the taxpayers revealed their dissatisfaction with the quality of interaction with the
tax employees as well as the waiting time at RMC-WPKL. In this regard, it is recommended
that the department focuses on the improvement efforts in three areas: taxpayer-friendly
processes; employee dedication to taxpayer services; and organising taxpayer dialogue from
time to time. RMC-WPKL must be excellent in all the three areas to achieve excellent
taxpayer service. In addition, RMC-WPKL should seek to follow the customer charters that it
has established as closely as possible to protect its public image and integrity.

3) Organisational Culture

The findings show that the tax administration culture at RMC-WPKL did not contribute to
employees’ needs or facilitate task performance. The general perceptions on stress and job
dissatisfaction concerning employee work evaluation, employee welfare and performance
rewards are correlated with the hierarchical culture which is dominant in the department.
Studies have shown that bureaucratic/hierarchical culture has a negative impact on job
satisfaction. It is therefore suggested that the management of RMC-WPKL should adopt the
human relations model for the department’s organisational culture. The model involves a
flexible/internal focus in which training and the broader development of human resources are
utilised to achieve cohesion and employee morale. This model of organisational culture has
also been referred to as ‘group culture’ because it is associated with trust and participation

222
through teamwork. Managers in organisations of this type tend to encourage and mentor
employees where goals are achieved through consensus building rather than control. Group
culture is a development team’s way of working together, including their shared habits,
traditions, and beliefs. A positive group culture should promote organisational ownership,
group cooperation, peer learning, common working hours, and mutual respect. When
managers focus on developing and supporting a positive group culture, the team is typically
more self-regulating, creative, effective, and satisfied.

The management of RMC-WPKL needs to align the tax administration culture with the
department’s strategic goals. Some of the actions that could be taken are to:
x develop a specific action plan that can leverage the good things in the current culture and
correct the unaligned areas;
x brainstorm improvements in the department’s formal policies and daily practices;
x develop models of the desired actions and behaviours;
x communicate the new culture to all employees; and
x communicate the new culture and its actions to the public.

Only an organisational culture that is aligned with the organisation’s goals, one that helps to
anticipate and adapt to change, will help the tax administration to achieve superior
performance over the long run.

4) People

It was discovered that some tax employees’ needs were not met by the work and the tax
administration arrangements. The results reveal the existence of stress where the tax
employees perceived that they received many assignments without the manpower to complete
them within the deadlines. They were also uncertain on how they will be evaluated for a raise
or promotion. The survey on job satisfaction found that the tax employees were dissatisfied
with the department’s concern for its employees’ welfare and the system for recognising and
rewarding performance. The following are suggestions to maximise employee performance
while minimising employee stress and job dissatisfaction. First, the management of RMC-
WPKL should give employees as much control over their jobs as possible. Control is a factor

223
in whether people feel stress or invigorated when facing a challenge. The more control people
have over their work, the greater their job satisfaction, the higher their work quality, and the
lower their stress level. Giving employees control includes giving them the power to make
job-related decisions, the flexibility to organise their work in the way they find optimal, and
the authority to make improvements on how their job is done. Making this work requires
providing employees with the training, coaching, and information they need to make
intelligent decisions.

Second, the management should communicate clearly and often about everything important to
the employees at all levels. A source of employee stress is not knowing; for example not
knowing about changes taking place in the organisation, not knowing their supervisor’s job
and performance expectations, and not knowing if they are doing a good job. Communicating
clearly in these areas not only reduces employee stress, it also helps them do a far better job.

Third, the management should communicate to the employees about what makes the
organisation great, how the organisation brings value to the public, and how the employees
make that possible. People want to feel part of something great and they want to feel that they
are making a significant contribution to that greatness. When they feel this way, they not only
become energised by challenges, they are also more able to endure difficulties without
becoming burnt out. The management can put this principle into action by making sure the
department delivers a high quality service, by communication to the employees about the
value the department provides to the public, and explaining how the employees doing high
quality work makes it all possible.

Fourth, the top management at RMC-WPKL should make sure managers know how to bring
out the best in people. Managers play a huge role in employee morale, performance, and
stress level. Managers who know how to provide guidance, support, and encouragement
minimise employee stress. Managers with poor management skills, or with personal
problems, not only cannot help employees deal with stressful times, they themselves are a
tremendous source of stress. The time and financial resources the department invests in
selecting and training managers will pay huge dividends in reducing employee stress and
increasing employee productivity.

224
Fifth, the management should encourage employees to communicate freely and support one
another. Having a workplace where co-workers can communicate without worrying about
getting into trouble is especially important in high pressure jobs. Encouraging connections
among co-workers also reduces stress, because having social support reduces the negative
effects of stressful situations.

Sixth, the management should help employees design their jobs to be as rewarding as
possible. Although not all jobs are equally rewarding and fulfilling, much can be done to
make even the least desirable ones more enjoyable. The more opportunity employees have to
make decisions, use their mind, and take responsibility, the more fulfilled they will be. To
make this work, employees need to be involved in the job enrichment process. If changes are
made without their input, this will most likely backfire. If employees have worked for years in
an environment where they were told what to do, it might take time for them to learn how to
take a more responsible and active approach to their jobs.

Finally, the management should make sure that employees have the resources and training to
do their jobs well. When people feel inadequate and ill-equipped to handle a challenge, they
get stressed out. If employees do not have the tools, technology, time, or training to do their
jobs well, they are going to be stressed and will not be able to work at their true potential.
Investing in these areas pays huge dividends both in terms of reduced stress-related costs, and
in increased productivity.

7.3.2 General Application of the Performance Management Framework

The limitation of a single case study approach is the difficulty in drawing generalisations from
the case study findings. Case studies are generally considered a poor basis for generalisation
because:
The real business of case study is particularisation, not generalisation. We take a
particular case and come to know it well, not primarily as to how it is different from
others but what it is, what it does. There is emphasis on uniqueness, and that implies
knowledge of others that the case is different from, but the first emphasis is in
understanding the case itself (Stake, 1995, p. 8).

225
The limitation regarding generalisability is particularly prominent with respect to single case
studies; where multiple case studies are considered immensely more generalisable than single
case studies (Yin, 2003, p. 53). In the first place, a single case selected for this study was
driven by the researcher’s desire for depth in the study. Second, it is explained by scarcity of
time and other available resources to the researcher. This limitation, however, can be
substantially reduced in circumstances where the single case study is deemed a ‘critical case’.
According to Gerring (2007), an appropriate use of a single case study is when it represents
the ‘critical case’ in testing a theory. That is the case with respect to the selection of the Royal
Malaysian Customs as the case study. The Royal Malaysian Customs can represent a ‘critical
case’ in testing the applicability of the guidelines for performance management in this study.
This is because the utilisation of performance management systems in tax administrations in
developing countries is limited. It is therefore critical to apply the guidelines for performance
management developed in this study on the Royal Malaysian Customs to test whether the
guidelines can assist in improving performance management of a tax administration in a
developing country.

The Royal Malaysian Customs is also considered to be a good representative of other

developing countries in terms of tax administration performance. Malaysia was classified as
one of the 37 developing countries within the category of low tax collection level (Le et al.,
2008). Tax collection level is an indicator of tax administration efficiency. The low tax
collection performance was attributable to the weaknesses in management practices of the tax
administrations. Studies have shown that the developing countries experienced common
problems which relate to the inefficiency of their tax administrations (Section 1.1).
Similarities in terms of inefficient tax administration can be drawn between the Royal
Malaysian Customs and other tax administrations in the developing countries based on
previous studies. The performance management framework in this study therefore is also
applicable to other tax administrations in developing countries to find ways to improve their
performance management.

226
7.4 Research Limitations and Potential Future Research

Besides the limitation of the case study approach employed in this study as discussed in the
above section, this study has two other limitations which have to be acknowledged. First, the
limitation of this study is that the results that were reported were based on a snapshot of time
using cross-sectional study. Without doubt, multi-agency longitudinal case studies provide the
opportunity to achieve depth in a study. Such case studies allow the researcher to apply the
performance management framework across multiple organisational contexts and across
several time periods. However, given the time constraints of this research, a cross-sectional
methodology rather than a longitudinal method was adopted. The use of the cross-sectional
data may pose some limitations on the generalisability of the research. The limitation of the
cross-sectional study is reflected in the investigation on the tax employees’ work stress,
motivation, organisational commitment and job satisfaction. Since individuals were not
followed over time, it was not possible to describe a sequence of changes in psychological
aspects that subjects might experience throughout their tenure with the tax administration.
The limitation also applied to the case of the taxpayers’ perception towards the quality of
services that they received from the tax administration. It was also not possible to capture the
changes that occurred in the taxpayers’ perceptions throughout their series of interactions with
the tax administration. To examine the effect of changes in the perceptions of tax employees
and taxpayers, it is suggested that a longitudinal study should be carried out in future
research.

Second, the limitation of this study is that the sample survey used a 5-point Likert scale in
which the tax employees and the taxpayers were asked to indicate their perceptions towards
the tax administration. The use of Likert scale, as pointed out by Brown (1990), may result in
the possibility of patterned responses – a tendency for respondents to respond automatically to
questions without paying careful attention to what the question asks. This problem arises from
the interpretations different people put on numbers within the scale. Even though the survey
attempts to define these numbers, it is not practical to check whether all respondents interpret
the score definitions equally. In addition, quantitative technique used in the survey on tax
employees and taxpayers has its own limitation, especially in translating people’s feelings

227
into numbers. Future research should use the triangulation method by combining different
methodologies to study the same phenomenon.

7.5 Conclusion

There is no doubt that dealing with tax administration issues, especially in developing
countries, remains a challenge for tax administrators and researchers because of the apparent
problems in respect of such issues such as limited resources, design and administrative flaws
and lack of political will to overcome the problems. It is believed that, by approaching the
problem systematically and identifying the areas that deserve attention, the tax authorities, the
policy makers and the researchers will understand the organisational problems that hinder the
potential performance of tax administrations in developing countries.

Throughout this thesis, this study has shown why, and how, performance management is an
imperative for tax administration in the developing countries to improve their performance.
This study has also affirmed the importance of a tax administration to align the components in
the transformation process to improve its performance management. This focus was
accomplished by using the framework for tax administration performance management. This
framework (Figure 14 in Chapter 6) employed an integrated and open system approach to
performance management; and it drives a relational, integrated understanding of formal
organisation, informal organisation, task, and people within a tax administration. The
framework satisfies the aim of this study, providing a means for tax administrations in the
developing countries to continuously improve their performance management. This has been
illustrated by the application of the framework (through its guidelines) to a tax administration
in a developing country, using the Royal Malaysian Customs as a case study. The efforts
towards performance improvement could be initiated from within a tax administration
through the performance management framework.

In conclusion, this thesis started with the research aim and research questions that have all
been achieved, with limitations and constraints inevitable within any doctoral work
recognised and pointed out. At a minimum the researcher would hope that the findings
displayed by this study could be of benefit for tax administration performance management in

228
developing countries. That is, the performance management framework can be used, firstly to
improve practices associated with performance management and, secondly, to improve the
efficiency of these tax administrations. To this end, it is believed that this thesis has made a
significant contribution to the body of knowledge, especially in the area of tax administration
performance management.

229
REFERENCES

Statutes and Statutory Regulations

Customs Act 1967

Excise (Bottling and Movement of Intoxicating Liquor Regulations 1977
Excise (Control of Toddy and Toddy Shop) Regulations 1977
Excise (Drawback) Order 1981
Excise (Exemption from License) Order 1984
Excise (Licensing Board) Regulations 1977
Excise (Sales by Retail of Intoxicating Liquor by Chemist) Order 1977
Excise (Sales of Intoxicating Liquor) Regulations 1977
Excise Act 1976
Excise Duties (Exemption) Order 1977
Excise Regulations 1977
Sales Tax Act 1972
Service Tax Act 1975

Reports

Royal Malaysian Customs Annual Report (1991 – 2001)

Royal Malaysian Customs Annual Report (2005)
Royal Malaysian Customs Annual Report (2006)
Royal Malaysian Customs Annual Report (2007)
Australian Taxation Office (ATO) Annual Report 2006-07 (http://www.ato.gov.au)
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Quality Report 2009, Royal Malaysian Customs Wilayah Persekutuan Kuala Lumpur
Strategic Action Plan for Royal Malaysian Customs Wilayah Persekutuan Kuala Lumpur
(2009)

230
Websites

Royal Malaysian Customs (http://www.customs.gov.my)

Association of Southeast Asian Nations (http://www.aseansec.org)

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APPENDICES

Appendix 1: Summary of Tax Administration Performance Measurement Studies

Countries Authors Performance Criteria Performance Measures
/ Indicators

Japan Ishi (1993) Efficiency and Cost-revenue ratio and

productivity employee productivity
ratio
Malaysia Mustafa (1996) Efficiency and Cost-revenue ratio and
productivity employee productivity
ratio
Malaysia Tayib (1998) Efficiency and Cost-revenue ratio and
productivity employee productivity
ratio; tax employee
organisational
commitment and high-
commitment work
system
Spain Gonzalez and Miles Efficiency of tax office Input: ratio of tax
(2000) inspectors to tax
personnel
Outputs: number of
actions performed to
total taxpayer, and ratio
of debt to gross added
value
Belgium Moesen and Persoon Efficiency of tax office Input: number of tax
(2002) personnel. Output:
number of audits returns
Africa and Taliercio (2004) Efficiency and Input: personnel
Latin effectiveness management and
America collection costs
Output and outcome:
tax/GDP ratio, taxpayer
registration, compliance,
taxpayer services
Slovenia Klun (2004) Efficiency and Simplicity, costs,
effectiveness voluntary compliance
(taxpayer attitude, rights
and service quality), tax
audit, labour
productivity
Portugal Barros (2005) Efficiency of tax office Inputs: cost of labour
and cost of capital
Outputs: tax collected,

284
 clear-up rates of
contested cases for tax
demands
Various Aizenman and Jinjarak Tax collection efficiency VAT revenue /
Countries (2005) consumption, and annual
VAT revenue / GDP
Chile Serra (2005) Tax revenue collection Customer satisfaction,
tax revenue collection,
compliance rate,
enforcement
Zambia von Soest (2006) Revenue raising Information collection
capability and processing, merit
orientation,
administrative
accountability, and
revenue performance
Jamaica Tennant and Tennant Efficiency of revenue Tax/GDP ratio, cost of
(2007) collections administration,
administrative
procedures, technical
staff, auxiliary input
Thailand James et al. (2007) Tax collection Productivity, good
performance practice, tax employee
attitudes and perceptions
of collection process

285
Appendix 2: Summary of Reviewed Performance Management Models/Frameworks
Authors Attributes of Model/Framework
x Anthony (1965) x strategic planning, management control,
operational control

x Altman (1979) x data, analysis, action

x Keegan et al. (1989) x cost/non-cost, external/internal

x Cross and Lynch (1989) x external/internal cascading measures

around market, production

x Azzone et al. (1991) x cost, quality, innovation, time

x Beischel and Smith (1991) x measures linking critical success factors

(quality, customer service, resource
management, cost, flexibility) to process
drivers

x Fitzgerald et al. (1991) x results and determinants

x Kaplan and Norton (1992) x scorecard of financial, customer, internal,

learning and growth

x Smith (1997) x value and non-value adding, drivers

x Bititci et al. (1997) x corporate, business units, business

processes, activities

x Otley (1999) x objectives, strategies, performance

targets, incentives, information flows

x Kennerly and Neely (2000) x performance prism: stakeholder

satisfaction, strategies, processes,
capabilities, stakeholder contributions

x Public Services Productivity Panel (2000) x bold aspiration, coherent set of

performance measures and demanding
targets, clear accountability at an
appropriate level, rigorous performance
review and meaningful re-enforcement

x Kloot and Martin (2000) x performance management in local

government focusing on financial,
customers, internal business processes,
innovation and learning

286
x Australian Public Service Management x integrates corporate planning and
Advisory Committee (APS) (2001) governance, legislative and regulatory
framework, outcomes and outputs
structure, business planning, and
performance review and feedback

x Rouse and Putterill (2003) x basic process core elements, planning,

organisational context, interface between
organisation and stakeholders

x Radnor and McGuire (2004) x organisational diamond model for

performance management in the public
sector focusing on strategy, process,
people and system

x Bouckaert and Halligan (2007) x relationship between political

environment, public administration
framework and managing performance

x Mackie (2008) x reviews the Scottish Government

National Performance Framework, the
United States Government Accountability
Office (GAO), the Canada Management
Accountability Framework (MAF), and
the Commonwealth of Virginia Model for
performance management

x The US National Performance x principles, practices, stakeholders,

Management Advisory Commission capacity for learning and improvement,
(2009) and accountability

x Sole (2009) x performance management model for

public organisations which distinguishes
three different organisational levels,
namely strategic level, operational level,
and team and individual level

x Brudan (2010) x performance management for learning

and goal achievement, performance
education, use of performance
management office for integration and
alignment, and combination of command
and control approach to performance

287
Appendix 3: Summary of Reviewed Diagnostic Models
Model Variables Variable External Major
Interdependency Environment Premise(s)
Force Field Driving forces, Driving and Either force Disequilibrium
Analysis (1951) restraining forces restraining forces may be due to occurs during
occur environmental change;
simultaneously drives or equilibrium is
restraints re-established
Leavitt’s Model Task, structure, The four Not represented Change in the
(1965) technological variables are in the model variables is
and human interdependent (a undertaken to
variables change in one affect the task
affects the others) variable
(products and
services)
Likert System Motivation, The levels of Not directly Four different
Analysis (1967) communication, variables are represented in types of
interaction, measured the model management
decision-making, independently on systems are
goal setting, a survey identified based
control, on seven
performance variables
Weisbord’s Purposes, The The The larger the
Six-Box Model structure, interconnections environment gap between the
(1976) relationships, between the has an influence formal and
leadership, boxes, or through informal systems
rewards, and variables, are not organisation within each
helpful explicit inputs and variable, the less
mechanisms outputs; the fit effective the
between the organisation
organisation
and
environment is
considered also
Congruence Inputs: Organisations are The external Assumes: open
Model for environment, dynamic; environment systems theory,
Organisation resources, interactions occur provides formal and
Analysis (1977) history, strategy. at the individual, feedback related informal
Throughputs: group, and to the inputs systems, the fit
task, individual, systems levels and outputs or congruence
formal across the between the
organisational internal internal
arrangements, (throughput) variables
informal variables
organisation.
Outputs:
individual,

288
 group, and
system
McKinsey 7S Style, staff, Variables are Not directly Variables must
Framework system, strategy, interdependent; represented in all change to
(1981-82) structure, skills, the illustration is the model, become
and shared termed the although other congruent as a
values managerial non-crucial system
molecule variables exist
Tichy’s TPC Inputs: All variables are The All variables are
Framework environment- interrelated, environment is analysed from a
(1983) history, although some included technical,
resources. relationships are through political, and
Throughputs: stronger and organisation cultural
mission/strategy, some are weaker inputs and perspective (the
tasks, prescribed (reciprocal) outputs and the strategic rope
networks, feedback loop metaphor)
people,
organisation
processes,
emergent
networks.
Outputs:
performance,
impact on people
High- Time frame, The levels of Not directly Four different
Performance focus, planning, variables are represented in levels of
Programming change mode, measured the model organisation
(1984) management, independently on performance are
structure, a survey identified based
perspective, on the eleven
motivation, variables
development,
communication,
leadership
Diagnosing Input: resources, Main lines of Minimal Assumes: open
Individual and human influence and boundaries systems theory;
Group resources. feedback loops; between the emphasis on
Behaviour Throughputs at all relationships organisation three levels of
(1987) the organisation, are directional and external performance,
group, and with the environment including
individual levels. exception of one organisational
Outputs: group reciprocal performance and
performance, relationship QWL outcomes
individual between two
performance, variables
QWL outcomes
The Burke- External All variables are The external Assumes: open
Litwin Causal environment, interrelated in environment is systems theory;

289
Model (1992) mission and reciprocal the input to the distinguishes
strategy, relationships system with between culture
leadership, individual and and climate;
organisational organisational transformational
culture, performance and transactional
structure, variable dynamics; and
management representing the specifies the
practices, output nature and
systems, work direction of
unit climate, task influence of
requirements and organisational
individual skills, variables
motivation,
individual needs
and values, and
individual and
organisational
performance
Source: Falletta (2005, p. 22-25).

290
Appendix 4: Ethics Approval

291
Appendix 5: Statement and Consent for Tax Official Interview

UNIVERSITI UTARA MALAYSIA

THE UNIVERSITY OF NEW SOUTH WALES

STRATEGIC PLANNING SYSTEM, PERFORMANCE MANAGEMENT SYSTEM AND

PERFORMANCE MEASUREMENT OF THE ROYAL MALAYSIAN CUSTOMS

You are invited to participate in a study on the strategic planning system, performance management
system and performance measurement of the indirect tax administration in Malaysia. This study is
conducted to learn about the implementation of the strategic plans in relation to stakeholders’
involvement, strategic planning elements, strategic management practices, allocation of resources,
performance management, and measurement process at the Royal Malaysian Customs.
Participation in this face-to-face interview is voluntary and you will remain anonymous. If
you decide to participate, you only need to take part in an interview session to answer 15 questions
involving issues related to strategic planning system, performance management system and
performance measurement. It has been estimated that it will take you about one and a half hour for the
interview session.
Any information that is obtained in connection with this study and that can be identified with
you will remain confidential and will be disclosed only with your permission. If you give me your
permission by participating in this interview, I plan to publish the results of my study in academic
journals. In any publication, information will be provided in such a way that you cannot be identified.
Complaints may be directed to the Ethics Secretariat, The University of New South Wales,
SYDNEY 2052 AUSTRALIA (phone 02-9385 4234, fax 02-9385 6648, email
[email protected]). Any complaint you make will be investigated promptly and you will be
informed about the outcome.
Your decision whether or not to participate will not prejudice your future relations with the
University of New South Wales. Your cooperation in this interview indicates that, having read the
information provided above, you have decided to participate.
If you have any questions, please feel free to ask me. If you have any additional questions
later, Professor Neil Warren (email [email protected]) and Associate Professor Binh Tran-Nam
(email [email protected]) will be happy to answer them.

Yours sincerely,

Muzainah Mansor
Senior Lecturer / PhD Student UNSW
Accounting Building, UUM College of Business
Universiti Utara Malaysia
06010 Sintok, Kedah.
Tel: 04-9283766, Fax: 04-9285762, Email: [email protected]

292
Appendix 6: Case Study Protocol

Data Collection:

Covers four main areas:

1. PROCESS: What is the strategic planning system, performance management system and
performance measurement system adopted by the Royal Malaysian Customs?

2. PROCESS: How does the Royal Malaysian Customs implement the strategic plans and
relate them to:
x stakeholders’ involvement;
x strategic planning elements;
x strategic management practices;
x allocation of resources;
x performance management; and
x performance measurement.

3. OUTPUT: What is the estimated percentage of accomplishment for the strategic goals
and objectives of the Royal Malaysian Customs?

4. OUTCOME: To what extent were the tax officials involved in the strategic planning
system satisfied with the implementation and achievement of the strategic goals and
objectives?

Pre-interview Checklist:

x Confirm that the interviewees are involved in the strategic planning as well as
performance management and measurement system of the Royal Malaysian Customs
x Attend to information sheet and consent form
x Assign interviewee number

293
Appendix 7: Tax Official Demographic Background for Interview

Personal Details: Department/Division

Please indicate which department or
Gender division you work in:
Male............................. 1 Corporate Planning...................... 1
Female……...................... 2 Enforcement...….……................ 2
Compliance Administration......... 3
Customs.............................……. 4
Race Internal Taxes................………. 5
Malay……..................... 1 Technical Services....................... 6
Chinese…....................... 2 Management & HR..................... 7
Indian……....................... 3 Prevention .................................. 8
Other, specify: ________ 4 Other, specify: ____________ 9

Age Occupation
20-30….................…....... 1 Managerial, Executive................ 1
31-40….................…....... 2 Technical………….…................ 2
41-50….................…....... 3 Administrative, Clerical…….…. 3
Above 50…...................... 4 Other, specify: ______________ 4

Marital Status How long have you worked for the

Single……............…....... 1 Customs Department
Married............................ 2 Less than 1 year…...................... 1
Divorced………............. 3 1 - 2............................................. 2
Other, specify: ________ 4 3 - 5............................................. 3
6 -10............................................ 4
More than 10 years…………….…………. 5
Level of Education Completed
(Please tick the highest qualification obtained)
LCE/SRP …......……..... 1
MCE/SPM............……… 2
HSC/STPM..........…….... 3
Diploma …….......…....... 4
Bachelor Degree...…………. 5
Master Degree…..........…… 6
Ph.D. ...............…............ 7
Other, specify: ________ 8

Employment Status
Permanent…….................... 1
Temporary………............... 2
Contract……………............ 3
Part-time……………….……........... 4

294
Appendix 8: Tax Official Interview Questionnaire

QUESTIONS:

1. The use of strategic planning system

No formal strategic planning system

Have a formal strategic planning system
Use one strategic plan
Use multiple strategic plans

Interviewee

Observation

Physical evidence

2. What is the type of performance management system used by the Royal Malaysian
Customs?

Interviewee

Observation

Physical evidence

3. What type of performance measurement system used by the Royal Malaysian

Customs?

Interviewee

Observation

Physical evidence

4. What type of budgeting system used by the Royal Malaysian Customs?

Interviewee

Observation

295
 Physical evidence

5. Number of years implemented the strategic planning system

Less than 3 years

3 to 5 years
More than 5 years

6. The status of strategic planning system

First plan under way

One plan completed
Completed two or more strategic plans

Interviewee

Observation

Physical evidence

7. The stakeholder involvement in strategic planning

The Ministry of Finance has been involved in the development of the

strategic plan
The Director General of the Royal Malaysian Customs has been involved
in the development of the strategic plan
The Deputy Director Generals have been involved in the development of
the strategic plan
The Directors at the Head Quarter have been involved in the development
of the strategic plan
The Directors at the state level have been involved in the development of
the strategic plan
The Head Departments at the state level have been involved in the
development of the strategic plan
The Senior Managers at the state level have been involved in the
development of the strategic plan
Citizens and other external stakeholder have been involved in the
development of the strategic plan
Lower level employees have been involved in the development of the
strategic plan
Internal reporting to the internal stakeholders is made on a regular basis

296
 External reporting to the external stakeholders is made on a regular basis
The strategic plans have been communicated to all employees

Interviewee

Observation

Physical evidence

8. Strategic planning elements

Review of Royal Malaysian Customs mission

Identification of stakeholders’ needs and concerns
Clarification of organisational mandates
Evaluation of internal strengths and weaknesses
Assessment of external threats and opportunities
Development of a vision for the future
Development of goals and objectives
Development of a strategic agenda
Feasibility assessment of proposed strategies
Development of action plans

Interviewee

Observation

Physical evidence

9. Strategic management practices

No strategic management
Strategic planning completed or underway
Strategic plan document produced
Budget tied to strategic priorities
Resource allocation to support the accomplishment of strategies
Performance measures used to track strategic goals and objectives
Changes in control and evaluation processes to provide feedback on the
implementation of strategic plans

297
 Interviewee

Observation

Physical evidence

10. Allocation of resources

The annual budget prepared strongly supports the goals, objectives, and
priorities established in the strategic plan
The Customs Department considers strategic goals and objectives when
reviewing the annual budget
The capital budget sharply reflects the goals, objectives, and priorities
established in the strategic plan
New money in the budget is targeted to achieving the strategic goals and
objectives
The strategic plan has a strong influence on the budget requests submitted
by department heads
Performance data tied to strategic goals and objectives play an important
role in determining resource allocations

Interviewee

Observation

Physical evidence

11. Performance management

Individual department heads are responsible for implementing specific

initiatives and projects that are part of the strategic plan
Objectives established for department heads come from the overall
strategic plan
Annual evaluations of department heads are based largely on their
accomplishment of strategic goals and objectives
Annual salary adjustments are based on contributions to advancing the
strategic plan
The Royal Malaysian Customs holds the chief administrator responsible
for implementing the strategic plan
The evaluation of the chief administrator is based on accomplishment of
the strategic goals and objectives
The chief administrator tries to keep the Royal Malaysian Customs
focused on the strategic goals and objectives

298
 Interviewee

Observation

Physical evidence

12. Measurement Processes

The department uses performance measures to track the implementation of

projects or other activities under the strategic plan
The department uses performance measures to track the accomplishment
of goals and objectives contained in the strategic plan
The department uses performance measures to track outcome conditions
targeted by the strategic plan
The department reports performance measures associated with the
strategic plan to the related ministry on a regular basis
The department targets programs for more intensive evaluation based on
the goals and objectives of the strategic plan
The department reports performance measures associated with the
strategic plan to the public on a regular basis
The department benchmarks performance measures against other
jurisdictions to gauge the effectiveness of strategic initiatives
The department tracks performance data over time to determine whether
performance in strategic results areas has improved over previous levels

Interviewee

Observation

Physical evidence

13. What is the estimated percentage of accomplishment for the strategic goals and
objectives of the Royal Malaysian Customs?

Less than 20%

20% to 40%
41% to 60%
61% to 80%
81% to 100%

299
 Interviewee

Observation

Physical evidence

14. Are you satisfied with the implementation of the strategic goals and objectives?

Very satisfied
Satisfied
Not sure
Dissatisfied

Interviewee

Observation

Physical evidence

15. Are you satisfied with the achievement of the strategic goals and objectives?

Very satisfied
Satisfied
Not sure
Dissatisfied

Interviewee

Observation

Physical evidence

300
Interviewee 1 (Leader of the Strategic Planning Unit for RMC-WPKL)

QUESTIONS:

1. The use of strategic planning system

No formal strategic planning system

√ Have a formal strategic planning system
√ Use one strategic plan
Use multiple strategic plans

Interviewee

The Customs Head Quarter prepared one module for the strategic plan for the year 2009
for the whole Department of the Royal Malaysian Customs. Then the module was
distributed to each Customs Department at the state level for further action. The Royal
Malaysian Customs Wilayah Persekutuan Kuala Lumpur (RMC-WPKL) then prepared a
module entitled “Action Plan: Strategic Planning for the Royal Malaysian Customs
Wilayah Persekutuan Kuala Lumpur” to carry out the strategic plan. Seven strategies
were developed for the year 2009:
Strategy 1: Collect customs duties and taxes accurately and correctly.
Strategy 2: Implement the actions to ensure the safety of the global trading and give
balance facilitation in order not to impede the legal trading flows.
Strategy 3: Prevent smuggling, trading fraud and violation of law.
Strategy 4: Increase compliance of the law through voluntary and informed
compliance by the customers and through programmed auditing system.
Strategy 5: Ensure Customs ruling, classification and evaluation of goods are
confidently viewed as well as manage revenue accounting and drafting
systems efficiently.
Strategy 6: Increase competitiveness of industrial and trading sectors of the country
through incentives and facilitations granted in line with the foundation of
the industrial, trading and tourism sectors of the country.
Strategy 7: Manage the department resources efficiently and effectively.

RMC-WPKL has its own strategic planning unit. The strategic planning unit consists of
ten members. A leader is in charge of the overall implementation of the strategic plan.
The other nine members are the representatives from each department/units at the RMC-
WPKL. Every month the strategic planning unit has to submit a report on the
progress/achievement of the strategic plan for each individual department to the
Customs Head Quarter. In the report, the progress/achievement of the strategic plan is
reported in the scale of 1 to 8 being 1 (early stage of plan) and 8 (completed plan). A 5-
year strategic plan for 2009 onwards is yet to be developed by the Customs Head
Quarter.
Observation

The researcher managed to observe the meeting of the strategic planning unit on 11
November 2009. The meeting was to discuss and prepare the report on the achievement

301
 of the RMC-WPKL for that particular month to be submitted to the Customs Head
Quarter. However, details of the meeting are considered confidential and the results are
not accessible to the public. Therefore, the researcher was not allowed access to the
detail items of the meeting.

Physical evidence

A book on the action plan for the strategic planning produced by RMC-WPKL entitled
“Action Plan: Strategic Planning for the Royal Malaysian Customs Wilayah Persekutuan
Kuala Lumpur 2009”.

2. What is the type of performance management system used by the Royal Malaysian
Customs?

Interviewee

The Customs Department uses a model called “Customs Transformation Model”.

The model includes items as follows:
x Vision
x Mission
x Strategies – 7 strategies
x Focus – Human Resource, System, Output (or ISO in Malay – Insan, Sistem,
Output)
x Organisational Culture – Togetherness, Respect, Understanding, Spiritual
and Totality (TRUST).

Physical evidence

Refer to “Action Plan: Strategic Planning for the Royal Malaysian Customs Wilayah
Persekutuan Kuala Lumpur 2009” (page 3) for the model.

3. What type of performance measurement system used by the Royal Malaysian

Customs?

Interviewee

The Customs Department uses two main performance measurement systems:

1. Based on achievement of the Strategic Plan
2. Based on the Key Performance Index (KPI).

302
 The nine KPIs are as follows:
x Revenue collection
x Client’s charter
x Reduce arrears and accounts receivables
x Complete investigation papers for confiscation cases
x Implement elimination of confiscated goods
x Forecasted administration expenses and forecasted developmental expenses
x Increase the number of licensee for internal taxes
x Increase compliance for the taxpayers
x Achievement of staff training requirement where each staff is required to
attend at least seven days of training for a year

4. What type of budgeting system used by the Royal Malaysian Customs?

Interviewee

Use budget allocated by the government to the Customs Department at each state
level. Each Customs Department at the state level will apply for the budget from the
government through its finance department based on its needs according to the
Strategic Plan. The finance department will forward the application to the Customs
Head Quarter for further action.

5. Number of years implemented the strategic planning system

Less than 3 years

3 to 5 years
√ More than 5 years

6. The status of strategic planning system

√ First plan under way

√ One plan completed
Completed two or more strategic plans

Interviewee

Before the year 2009, a five-year plan called ICTR (Integrity, Core Business,
Technology, Rakyat) was developed and completed with an achievement of more

303
 than 90%. For the current year 2009, a one-year plan called ISO (Insan, Sistem,
Output) was developed and was 85% completed as at November 2009 when this
interview was conducted. As for the next five-year plan after 2009, the strategic plan
is yet to be developed.

7. The stakeholder involvement in strategic planning

√ 1.The Ministry of Finance has been involved in the development of the strategic
plan
√ 2.The Director General of the Royal Malaysian Customs has been involved in the
development of the strategic plan
√ 3. The Deputy Director Generals have been involved in the development of the
strategic plan
√ 4.The Directors at the Head Quarter have been involved in the development of
the strategic plan
√ 5.The Directors at the state level have been involved in the development of the
strategic plan
√ 6.The Head Departments at the state level have been involved in the development
of the strategic plan
√ 7.The Senior Managers at the state level have been involved in the development
of the strategic plan
× 8.Citizens and other external stakeholder have been involved in the development
of the strategic plan
× 9.Lower level employees have been involved in the development of the strategic
plan
√ 10.Internal reporting to the internal stakeholders is made on a regular basis
× 11.External reporting to the external stakeholders is made on a regular basis
√ 12.The strategic plans have been communicated to all employees

Interviewee

Step 1 – involves no. 1 to 5.

Step 2 – involves no. 5 to 6.
Step 3 – no. 6 to develop a detail action plan to carry out the tasks and to
communicate to no.7 and all other employees.
No.10 – the Head of the Departments inform employees at all levels about the
strategic plan and its achievement.
Problems in communication of strategic plan to employees – more on individual
attitude of the employee whether to take it seriously or not.

304
8. Strategic planning elements

√ Review of Royal Malaysian Customs mission

√ Identification of stakeholders’ needs and concerns
√ Clarification of organisational mandates
√ Evaluation of internal strengths and weaknesses
√ Assessment of external threats and opportunities
√ Development of a vision for the future
√ Development of goals and objectives
√ Development of a strategic agenda
√ Feasibility assessment of proposed strategies
√ Development of action plans

Interviewee

The Director General of the Customs Department together with the Deputy
Directors had a meeting to discuss all the above strategic planning elements before
including them in the strategic plan and action plan of the department.

9. Strategic management practices

√ Strategic management
√ Strategic planning completed or underway
√ Strategic plan document produced
√ Budget tied to strategic priorities
√ Resource allocation to support the accomplishment of strategies
√ Performance measures used to track strategic goals and objectives
× Changes in control and evaluation processes to provide feedback on the
implementation of strategic plans

Interviewee

There are still some items in the strategic plans which are underway or not
completed by the end of the year. These items usually involved big scale changes
in rules and regulations as well as a huge amount of money.

As for evaluation process, after the report was sent by RMC-WPKL to the
Customs Head Quarter on the implementation/achievement of the strategic plan at
the state level, there is no feedback or evaluation from the Head Quarter to
improve the results. The results is supposed to be monitored every six month,
however until November 2009 there is still no evaluation process being carried
out.

Physical evidence

305
 A book on the action plan for the strategic planning produced by RMC-WPKL
entitled “Action Plan: Strategic Planning for the Royal Malaysian Customs
Wilayah Persekutuan Kuala Lumpur 2009”.

10. Allocation of resources

√ The annual budget prepared strongly supports the goals, objectives, and priorities
established in the strategic plan
√ The Customs Department considers strategic goals and objectives when
reviewing the annual budget
√ The capital budget sharply reflects the goals, objectives, and priorities established
in the strategic plan
× New money in the budget is targeted to achieving the strategic goals and
objectives
√ The strategic plan has a strong influence on the budget requests submitted by
department heads
√ Performance data tied to strategic goals and objectives play an important role in
determining resource allocations

Interviewee

- As stated above

11. Performance management

√ Individual department heads are responsible for implementing specific initiatives

and projects that are part of the strategic plan
√ Objectives established for department heads come from the overall strategic plan
√ Annual evaluations of department heads are based largely on their
accomplishment of strategic goals and objectives
× Annual salary adjustments are based on contributions to advancing the strategic
plan
√ The Royal Malaysian Customs holds the chief administrator responsible for
implementing the strategic plan
√ The evaluation of the chief administrator is based on accomplishment of the
strategic goals and objectives
√ The chief administrator tries to keep the Royal Malaysian Customs focused on
the strategic goals and objectives

Interviewee

- As stated above

306
12. Measurement Processes

√ The department uses performance measures to track the implementation of

projects or other activities under the strategic plan
√ The department uses performance measures to track the accomplishment of goals
and objectives contained in the strategic plan
√ The department uses performance measures to track outcome conditions targeted
by the strategic plan *
√ The department reports performance measures associated with the strategic plan
to the related ministry on a regular basis
× The department targets programs for more intensive evaluation based on the
goals and objectives of the strategic plan
× The department reports performance measures associated with the strategic plan
to the public on a regular basis
× The department benchmarks performance measures against other jurisdictions to
gauge the effectiveness of strategic initiatives
√ The department tracks performance data over time to determine whether
performance in strategic results areas has improved over previous levels

Interviewee

- As stated above
* Outcome of the 7 strategies as well as taxpayer satisfaction survey has been
conducted by the Customs Department at the Head Quarter

13. What is the estimated percentage of accomplishment for the strategic goals and
objectives of the Royal Malaysian Customs for the year 2009?

Less than 20%

20% to 40%
41% to 60%
61% to 80%
√ 81% to 100% (85%)

Interviewee

Problems of accomplishment – mainly due to the head of the

departments/employees not submitting formal reports on activities that have been
conducted related to the strategic plan. They focus more on routine tasks and are
not fully committed to monitoring the tasks associated with the strategic plan.

307
 14. Are you satisfied with the implementation of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

15. Are you satisfied with the achievement of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

Interviewee 2 (Department: Companies Audit)

1. What is the estimated percentage of accomplishment for the strategic goals and
objectives of the Royal Malaysian Customs for the year 2009?

Less than 20%

20% to 40%
41% to 60%
61% to 80%
√ 81% to 100%

Interviewee

Target - each audit staff has to complete 36 audit reports for companies and collect
RM620,000 of taxes annually.

Problems of accomplishment:
Internal
- difficulties in getting feedback from staff on the implementation of the
strategic plan in the form of formal reports on which tasks have or have not
been executed.
- unsynchronised reports between tasks that were performed and reported to be
performed.
- low commitment from staff to report on the accomplishment of the strategic
plan.

External
- problems with taxpayers where taxpayers being given chances to appeal and
the process will delay tax collection.

308
 - non-compliance mostly involving service taxpayers especially professionals
(such as lawyers, accountants and architects) and security companies.

2. Are you satisfied with the implementation of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

3. Are you satisfied with the achievement of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

Interviewee 3 (Department: General Exemption)

1. What is the estimated percentage of accomplishment for the strategic goals and
objectives of the Royal Malaysian Customs for the year 2009?

Less than 20%

20% to 40%
41% to 60%
61% to 80%
√ 81% to 100%

Interviewee

Problems of accomplishment:
Internal
- did not achieve strategies involving other departments/units especially training
for staff under human resource development.
- lacked of specific training related to tasks for staff.
- lacked of staff to do monitoring tasks.
- difficulties in getting direct information or direct access to certain information
relating to tasks from the “Customs Information System”.

External
- problems with taxpayers in complying with submission of the required
documents to the Customs Department.
- usually involved non-compliance from small-size manufacturers.

309
 2. Are you satisfied with the implementation of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

3. Are you satisfied with the achievement of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

Interviewee 4 (Department: Preventive)

1. What is the estimated percentage of accomplishment for the strategic goals and
objectives of the Royal Malaysian Customs for the year 2009?

Less than 20%

20% to 40%
41% to 60%
61% to 80%
√ 81% to 100%

Interviewee

Problems of accomplishment:
Internal
- logistics problems for operational tasks.
- staff from the Preventive Department of CDWPKL are always called to
performed tasks for the Head Quarter whenever needed due to its proximity.
Therefore, some of the items under the strategic plan for the state level could
not be achieved due to these additional tasks for the Head Quarter.
- lack of staff – total post: 95, filled up: 76, vacant: 18

External
- problems with getting the necessary documents from the taxpayers which can
take more than one month for a single case.

310
 2. Are you satisfied with the implementation of the strategic goals and objectives?

√ Very satisfied
Satisfied
Not sure
Dissatisfied

3. Are you satisfied with the achievement of the strategic goals and objectives?

√ Very satisfied
Satisfied
Not sure
Dissatisfied

Interviewee 5 (Department: License Enforcement)

1. What is the estimated percentage of accomplishment for the strategic goals and
objectives of the Royal Malaysian Customs for the year 2009?

Less than 20%

20% to 40%
41% to 60%
61% to 80%
√ 81% to 100%

Interviewee

Problems of accomplishment:
Internal
x problems in determining the type of taxes for certain type of services due to
‘grey area’ in the Act
x some cases have to be sent to the Head Quarter for decision depending on a
case to case basis

External
x taxpayers have problems in determining who has to pay taxes when their work
involved other parties whether internal or external and the problems have to be
settled by the Customs Department
x taxpayers complaint of the information in the Customs website that needs to be
updated regularly

2. Are you satisfied with the implementation of the strategic goals and objectives?

Very satisfied

311
 √ Satisfied
Not sure
Dissatisfied

3. Are you satisfied with the achievement of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

Interviewee 6 (Department: Warehouse)

1. What is the estimated percentage of accomplishment for the strategic goals and
objectives of the Royal Malaysian Customs for the year 2009?

Less than 20%

20% to 40%
41% to 60%
61% to 80%
√ 81% to 100%

Interviewee

Problems of accomplishment:
Internal
x frequent staff changes which can create problems
x lack of participation in training/courses for staff developmental purposes

External
x taxpayers submitted incomplete documents
x taxpayers try to reduce taxes paid
x complaints from taxpayers that the process of releasing goods takes longer
time

2. Are you satisfied with the implementation of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

312
 3. Are you satisfied with the achievement of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

Interviewee 7 (Department: Information Technology)

1. What is the estimated percentage of accomplishment for the strategic goals and
objectives of the Royal Malaysian Customs for the year 2009?

Less than 20%

20% to 40%
41% to 60%
61% to 80%
√ 81% to 100%

Interviewee

Problems of accomplishment:
Internal
x insufficient budget allocation to implement special projects for the state level
for example to install wireless internet access for staff at the Customs quarters
x the ‘Customs Information System’ which is the main system used by the
Customs Department is controlled by the Head Quarter and there are no
changes or updates that could be done at the state level to improve the system
which is quite outdated
x lacked of staff with information technology knowledge and skill in the
department
x problems in acquiring any new computers/systems has to go through the Head
Quarter for approval
x some of the elements in the strategic goals and objectives from the Head
Quarter focuses on items that are considered as not necessary for the
Department of Information Technology

External
x not dealing with external party

2. Are you satisfied with the implementation of the strategic goals and objectives?

Very satisfied
√ Satisfied

313
 Not sure
Dissatisfied

3. Are you satisfied with the achievement of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

Interviewee 8 (Department: Audit for Post-Import)

1. What is the estimated percentage of accomplishment for the strategic goals and
objectives of the Royal Malaysian Customs for the year 2009?

Less than 20%

20% to 40%
41% to 60%
61% to 80%
√ 81% to 100%

Interviewee

Problems of accomplishment:
Internal
x staff lacking in experience in conducting audit due to frequent staff changes
among the departments within and outside the state level
x some staff are with the experience but without the appropriate educational
background while others are with the appropriate educational background but
without the necessary audit experience especially in the Customs operation
x the above problems can delay the audit process

External
x hard to get cooperation from the taxpayers during audit operation conducted by
the department

2. Are you satisfied with the implementation of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

314
 3. Are you satisfied with the achievement of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

Interviewee 9 (Department: Licensed Manufacturing Warehouse)

1. What is the estimated percentage of accomplishment for the strategic goals and
objectives of the Royal Malaysian Customs for the year 2009?

Less than 20%

20% to 40%
41% to 60%
61% to 80%
√ 81% to 100%

Interviewee

Problems of accomplishment:

External
x with the economic downturn, the number of active licensees have decreased
from 142 in 2007 to 125 in 2008
x the amount of sales tax collected for this department decreased from
RM18,054,372.68 in 2007 to RM1,446,659.28 in 2008.

2. Are you satisfied with the implementation of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

3. Are you satisfied with the achievement of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

315
Interviewee 10 (Department: Human Resource Training)

1. What is the estimated percentage of accomplishment for the strategic goals and
objectives of the Royal Malaysian Customs for the year 2009?

Less than 20%

20% to 40%
√ 41% to 60%
61% to 80%
81% to 100%

Interviewee

Target: 7 days of training/courses annually for each staff at the Customs

Department
Overall achievement: 85%
Achievement based on strategic plan: 60%

Problems of accomplishment:

Internal
- there are always ad-hoc training for staff required by the Head Quarter,
therefore the original strategic plan for training at the state level is hard to
achieve completely
- certain training required outside parties as trainers and this creates problem
when the trainers could not commit to the task at the last minute and no
replacement could be found, hence the strategic plan for the year could not be
achieved
- staff commitment for the training/courses organised by the department is low
where only about 60% of the targeted group of staff attended any
training/courses provided
- financial constraint is also the main problem to organise sufficient
trainings/courses for the staff

External
x not dealing with training for external party

2. Are you satisfied with the implementation of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

316
3. Are you satisfied with the achievement of the strategic goals and objectives?

Very satisfied
√ Satisfied
Not sure
Dissatisfied

317
Appendix 9: Statement and Consent for Tax Employee Survey

UNIVERSITI UTARA MALAYSIA

THE UNIVERSITY OF NEW SOUTH WALES

PERSEPSI PEKERJA JABATAN KASTAM DIRAJA MALAYSIA TERHADAP

PENTADBIRAN CUKAI TAK LANGSUNG DI MALAYSIA

Saya adalah pensyarah Universiti Utara Malaysia dan juga pelajar PhD di University of New
South Wales, Australia yang sedang menjalankan kajian tentang persepsi para pekerja di Jabatan
Kastam DiRaja Malaysia (KDRM) terhadap tekanan di tempat kerja, tahap motivasi, komitmen
terhadap organisasi, kepuasan kerja dan budaya organisasi di KDRM.
Penyertaan anda di dalam kaji selidik ini adalah secara sukarela dan identiti anda tidak akan
didedahkan. Jika anda bersetuju untuk mengambil bahagian, anda cuma dikehendaki menjawab
soalan-soalan di dalam soal selidik ini yang akan mengambil masa lebih kurang 20 minit sahaja.
Sebarang maklumat yang didapati daripada kajian ini yang boleh dikaitkan dengan anda akan
dirahsiakan. Jika anda bersetuju untuk mengambil bahagian dalam kajian ini dengan
melengkapkan soal selidik ini, penyelidik akan menerbitkan hasil kajian ini di dalam jurnal
akademik. Sebarang maklumat yang akan diterbitkan tidak akan mendedahkan anda secara
peribadi.
Jika anda mempunyai sebarang aduan tentang perlaksanaan kajian ini bolehlah disalurkan
kepada the Ethics Secretariat, The University of New South Wales, SYDNEY 2052 AUSTRALIA
(phone 02-9385 4234, fax 02-9385 6648, email [email protected]). Segala aduan anda akan
diselidiki dengan kadar segera dan anda akan dimaklumkan.
Keputusan anda untuk mengambil bahagian atau tidak di dalam kajian ini tidak akan
menjejaskan hubungan anda di masa akan datang dengan pihak University of New South Wales.
Jika anda mempunyai sebarang soalan tentang kajian ini, sila kemukakannya kepada pihak
penyelidik. Jika anda mempunyai soalan lanjut, sila hubungi Professor Neil Warren (email
[email protected]) atau Associate Professor Binh Tran-Nam (email b.tran-
[email protected]).

Yang benar,

Muzainah Mansor
Pensyarah Kanan / Pelajar PhD UNSW
Bangunan Perakaunan, UUM College of Business
Universiti Utara Malaysia
06010 Sintok, Kedah.
Tel: 04-9283766
Fax: 04-9285762
Email: [email protected]

318
Appendix 10: Tax Employee
Demographic Background

PART A: CUSTOMS EMPLOYEES’

BACKGROUND
Bahagian A: Latarbelakang Pekerja Jabatan Kastam
Please tick (/) the appropriate box.
Employment Status / Status Jawatan
Gender / Jantina Permanent / Tetap…................. 1
Male / Lelaki........................ 1 Temporary / Sementara……....... 2
Female / Perempuan……....... 2 Contract / Kontrak……….…..... 3
Part-time / Sambilan……………...... 4
Race / Bangsa
Malay / Melayu……............ 1
Chinese / Cina…................ 2 Department/Division / Jabatan/Bahagian
Indian / India……............... 3 Please indicate which department or
Other, specify / division you work in:
Nyatakan Jabatan/Bahagian di mana anda bertugas
Lain-lain, nyatakan: ________ 4 Customs / Kastam.……................ 1
Internal Taxes / Cukai Dalaman....... 2
Technical Services /
Age / Umur
Perkhidmatan Teknik………………………... 3
20-30….................…....... 1
Management / Pengurusan………. 4
31-40….................…....... 2
Prevention / Pencegahan…………. 5
41-50….................…....... 3
Other, specify /
Above / Lebih 50…............. 4
Lain-lain, nyatakan: ______________ 6

Marital Status / Status Perkahwinan

Single / Bujang………........ 1 Occupation / Jawatan
Married / Berkahwin.............. 2 Managerial / Pengurusan, ............... 1
Divorced / Bercerai……...... 3 Enforcement Officer / Penguasa... 2
Other, specify / Officer / Pegawai………….......... 3
Lain-lain, nyatakan: ________ 4 Technical / Teknikal………......... 4
Administrative, Clerical /
Pentadbiran, Perkeranian…………………….. 5
Level of Education Completed Other, specify /
Tahap Pendidikan Lain-lain, nyatakan: ______________ 6
(Please tick the highest qualification obtained)
LCE/SRP …......……..... 1
MCE/SPM............……… 2
How long have you worked for the
HSC/STPM..........…….... 3
Customs Department? / Berapa lama bekerja
Diploma …….......…....... 4 di Jabatan Kastam?
Bachelor Dg. / Sarjanamuda... 5 Less than 1 year / Kurang 1 tahun….... 1
Master Dg. / Sarjana…...…… 6 1 - 2............................................. 2
Ph.D.................…............ 7 3 - 5............................................. 3
Other, specify / 6 -10............................................ 4
Lain-lain, nyatakan: ________ 8 More than 10 years / Lebih 10 tahun…. 5

319
Appendix 11: Tax Employee Survey Questionnaire

PART B: QUESTIONNAIRE FOR CUSTOMS EMPLOYEES

Bahagian B: Soalan untuk Pekerja Jabatan Kastam

The following statements describe the feeling that you have toward your job and your organisation.
Please indicate the extent of your agreement with each statement by circling from 1 - 5, based on the
following scale.
Kenyataan berikut menerangkan perasaan anda terhadap kerjaya dan organisasi anda. Sila bulatkan nombor-nombor
berikut bagi menunjukkan sejauhmanakah anda bersetuju atau tidak bersetuju dengan kenyataan di bawah.

“1” = Strongly Disagree / Sangat Tidak Bersetuju

“2” = Disagree / Tidak Bersetuju
“3” = Neutral or Undecided / Berkecuali atau Tidak Tahu
“4” = Agree / Bersetuju
“5” = Strongly Agree / Sangat Bersetuju

Strongly Strongly
Disagree / Agree /
Sangat Tidak Sangat
Bersetuju Bersetuju
1. I do not have enough time to complete my work 1 2 3 4 5
Saya tidak mempunyai cukup masa untuk menyiapkan
kerja

2. There is a lack of policies and guidelines to help me 1 2 3 4 5

Polisi dan garispanduan adalah tidak mencukupi dalam
membantu menjalankan kerja saya

3. There are no clear, planned goals and objectives for 1 2 3 4 5

my job
Kerja saya tidak mempunyai matlamat dan objektif yang
jelas

4. I receive incompatible orders from two or more 1 2 3 4 5

colleagues
Saya menerima arahan yang bercanggah daripada
berlainan pihak dalam jabatan

5. I have to work under vague directives or orders 1 2 3 4 5

Saya terpaksa bekerja di bawah arahan dan peraturan
yang kabur

6. I receive many assignments without adequate 1 2 3 4 5

resources and materials to execute them
Saya menerima banyak tugasan tanpa mempunyai cukup
 sumber dan bahan untuk melaksanakannya

7. I feel that I work under incompatible policies and 1 2 3 4 5

guidelines
Saya bekerja di bawah polisi dan garispanduan yang tidak
sejajar

8. I receive assignments that are not within my training, 1 2 3 4 5

capability and job descriptions
Saya menerima tugasan yang tidak bersesuaian dengan
latihan, kemampuan dan bidang tugas saya

9. I receive many assignments without the manpower to 1 2 3 4 5

complete them within the deadlines
Saya menerima banyak tugasan tetapi mempunyai
kakitangan yang tidak mencukupi utk menyiapkannya

10. I do not feel certain how I will be evaluated for a 1 2 3 4 5

raise or promotion
Saya tidak pasti bagaimana prestasi saya akan dinilai
untuk kenaikan gaji atau pangkat

11. I am prepared to make enormous sacrifices for the 1 2 3 4 5

good of the Customs Department
Saya bersedia untuk berkorban demi kepentingan
masyarakat

12. I consider public service my civic duty 1 2 3 4 5

Saya menganggap perkhidmatan awam adalah satu
tanggungjawab sivik

13. I unselfishly contribute to my community 1 2 3 4 5

Saya tidak berkira untuk menyumbang bakti kepada
masyarakat

14. I would prefer seeing public officials do what is best 1 2 3 4 5

for the whole community even if it harmed my
interests
Saya lebih suka melihat penjawat awam melakukan yang
terbaik untuk masyarakat walaupun bertentangan dengan
kepentingan diri sendiri

321
15. Ethical behaviour of public officials is as important as 1 2 3 4 5
competence
Gelagat yang beretika bagi penjawat awam adalah sama
penting dengan kecekapan kerja mereka

16. Public officials who are involve in corruption are 1 2 3 4 5

unethical
Penjawat awam yang terlibat dengan penyelewengan
adalah tidak beretika

17. Serving the public is meaningful 1 2 3 4 5

Memberi perkhidmatan kepada orang awam adalah amat
bermakna

18. I wholeheartedly support most of the public programs 1 2 3 4 5

organised by the Customs Department
Saya menyokong dengan sepenuh hati kebanyakan
daripada program untuk orang awam yang dijalankan
oleh Jabatan Kastam

19. Working in the government department gives me a 1 2 3 4 5

sense of self-fulfillment
Bekerja dengan jabatan kerajaan memberikan kepuasan
kepada diri saya

20. The work I engaged in is meaningful to me 1 2 3 4 5

Kerja yang saya lakukan adalah bermakna kepada diri
saya

21. I am proud to tell others that I am part of the Customs 1 2 3 4 5

Department
Saya bangga memberitahu kepada orang bahawa saya
adalah sebahagian daripada Jabatan Kastam

22. I am extremely glad I chose the Customs Department 1 2 3 4 5

to work for over others when I was considering at the
time I joined
Saya sangat gembira memilih Jabatan Kastam berbanding
organisasi lain semasa memilih pekerjaan

23. For me this is the best organisation of all to work for 1 2 3 4 5

Organisasi ini adalah tempat terbaik untuk bekerja

322
24. The Customs Department really inspires the best in 1 2 3 4 5
me in respect of job performance
Jabatan Kastam memberi inspirasi terbaik dalam prestasi
kerja saya

25. I am willing to put in a great deal of effort beyond 1 2 3 4 5

that normally expected in order to ensure that the
Customs Department is successful
Saya rela bekerja lebih daripada sepatutnya bagi
membantu Jabatan Kastam terus berjaya

26. I would accept almost any type of job assignment in 1 2 3 4 5

order to keep working for the Customs Department
Saya akan menerima sebarang kerja asalkan dapat terus
bekerja dengan Jabatan Kastam

27. There is nothing much to be gained by sticking with 1 2 3 4 5

the Customs Department
Tidak ada apa yang akan diperolehi jika terus berada
dalam Jabatan Kastam

28. It would take a lot of changes in my present 1 2 3 4 5

circumstances to cause me to leave the Customs
Department
Saya tidak akan meninggalkan Jabatan Kastam kecuali
terdapat perubahan yang besar terhadap diri saya yang
menyebabkan saya berbuat demikian

29. Deciding to work for the Customs Department was a 1 2 3 4 5

mistake on my part
Keputusan untuk bekerja dengan Jabatan Kastam adalah
satu kesilapan yang telah saya lakukan

30. I always find it easy to agree with the Customs 1 2 3 4 5

Department’s policies on important matters relating
to its employees
Saya selalu bersetuju dengan polisi Jabatan Kastam
berkaitan dengan kepentingan pekerja

31. I am satisfied with my job 1 2 3 4 5

Saya berpuashati dengan pekerjaan saya

32. I am satisfied with my pay 1 2 3 4 5

Saya berpuashati dengan gaji saya

323
33. I am satisfied with my co-workers 1 2 3 4 5
Saya berpuashati dengan rakan sekerja saya

34. I am satisfied with the Customs Department’s system 1 2 3 4 5

for recognising and rewarding outstanding
performance
Saya berpuashati dengan sistem Jabatan Kastam dalam
mengenalpasti dan memberi ganjaran kepada mereka yang
berprestasi cemerlang

35. I am satisfied with the direction or advice I receive 1 2 3 4 5

from others in the Customs Department
Saya berpuashati dengan arahan atau nasihat yang
diterima daripada kakitangan lain di Jabatan Kastam

36. I am satisfied with my career progress in the Customs 1 2 3 4 5

Department up to this point
Buat masa ini saya berpuashati dengan kemajuan kerjaya
saya di Jabatan Kastam

37. I am satisfied with my opportunity ‘to make a 1 2 3 4 5

difference’ or to contribute to the overall success of
the Customs Department
Saya berpuashati dengan peluang untuk melakukan
perubahan atau memberikan sumbangan untuk kejayaan
Jabatan Kastam secara keseluruhan

38. I am satisfied with the Customs Department’s 1 2 3 4 5

concern for its employees’ welfare
Saya berpuashati dengan keprihatinan Jabatan Kastam
terhadap kebajikan pekerja

39. I am satisfied with the Customs Department’s overall 1 2 3 4 5

efficiency in operations
Saya berpuashati dengan kecekapan Jabatan Kastam
secara keseluruhan dalam operasi

40. I am satisfied with the overall quality of the Customs 1 2 3 4 5

Department’s services
Saya berpuashati dengan kualiti perkhidmatan Jabatan
Kastam secara keseluruhan

324
41. The Customs Department is very production oriented 1 2 3 4 5
Jabatan Kastam sangat mementingkan hasil kerja

42. A major concern in the Customs Department is with 1 2 3 4 5

getting the job done
Jabatan Kastam amat mementingkan penyelesaian tugasan

43. People in the Customs Department are very 1 2 3 4 5

personally involved
Kakitangan di Jabatan Kastam memberikan komitmen
peribadi dalam menjalankan tugas

44. The Customs Department is a very personal place 1 2 3 4 5

Jabatan Kastam adalah tempat yang mesra kakitangan

45. The Customs Department is like an extended family 1 2 3 4 5

Jabatan Kastam adalah seperti keluarga kedua saya

46. People in the Customs Department seem to share a lot 1 2 3 4 5

of themselves
Kakitangan Jabatan Kastam sedia bekerjasama antara
satu sama lain

47. The Customs Department is a very dynamic and 1 2 3 4 5

entrepreneurial place
Jabatan Kastam adalah tempat yang dinamik dan
bercirikan keusahawanan

48. People at the Customs Department are willing to 1 2 3 4 5

stand up and take risks
Pekerja di Jabatan Kastam sanggup menegakkan
pendirian dan mengambil risiko dalam tindakan

49. The Customs Department is a very formalised and 1 2 3 4 5

structured place
Jabatan Kastam adalah organisasi yang sangat formal dan
berstruktur

50. Bureaucratic procedures generally govern what 1 2 3 4 5

people do in the Customs Department
Pekerja di Jabatan Kastam bekerja mengikut tatacara
kerja yang berbirokrasi
This is the end of the questionnaire. Thank you for your participation in this survey.

325
 Coding Scheme for Demographic Variables of Tax Employee
Variable Categories and Codes
Gender Male (1); Female (2)

Race Malay (1); Chinese (2); Indian (3); Other (4)

Age 20-30 (1); 31-40 (2); 41-50 (3); Above 50 (4)

Marital Status Single (1); Married (2); Divorced (3); Other (4)

Level of Education a LCE/SRP (1); MCE/SPM (2); HSC/STPM (3); Diploma (4);
Bachelor Degree (5); Master Degree (6); PhD (7); Professional (8);
Other (9)

Employment Status Permanent (1); Temporary (2); Contract (3); Part-time (4)

Department / Division Customs (1); Internal Taxes (2); Technical Services (3);
Management (4); Prevention (5); Other (6)

Occupation Managerial (1); Enforcement Officer (2); Officer (3); Technical

(4); Administrative, Clerical (5); Other (6)

Length of Service Less that 1 year (1); 1-2 (2); 3-5 (3); 6-10 (4); More than 10 years
(5)
Note:
a. Equivalent qualifications in the United Kingdom:
Lower Certificate of Education (LCE): GCSE
Malaysian Certificate of Education (MCE): GCE (O Level)
Malaysian Higher School Certificate (HSC): GCE (A Level)

326
 Work Stress Items
Question Variable
No. No.
1 I do not have enough time to complete my work S1
2 There is a lack of policies and guidelines to help me S2
3 There are no clear, planned goals and objectives for my job S3
4 I receive incompatible requests from two or more colleagues S4
5 I have to work under vague directives or orders S5
6 I receive many assignments without adequate resources and materials S6
to execute them
7 I feel that I work under incompatible policies and guidelines S7
8 I receive assignments that are not within my training, capability and S8
job descriptions
9 I receive many assignments without the manpower to complete them S9
within the deadlines
10 I do not feel certain how I will be evaluated for a raise or promotion S10

Motivation Items
Question Variable
No. No.
11 I am prepared to make enormous sacrifices for the good of the M1
Customs Department
12 I consider public service my civic duty M2
13 I unselfishly contribute to my community M3
14 I would prefer seeing public officials do what is best for the whole M4
community even if it harmed my interests
15 Ethical behaviour of public officials is as important as competence M5
16 Public officials who are involve in corruption are unethical M6
17 Serving the public is meaningful M7
18 I wholeheartedly support most of the public programs organised by M8
the Customs Department
19 Working in the government department gives me a sense of self- M9
fulfilment
20 The work I engaged in is meaningful to me M10

327
 Organisational Commitment Items
Question Variable
No. No.
21 I am proud to tell others that I am part of the Customs Department C1
22 I am extremely glad I chose the Customs Department to work for C2
over others when I was considering at the time I joined
23 For me this is the best organisation of all to work for C3
24 The Customs Department really inspires the best in me in respect C4
of job performance
25 I am willing to put in a great deal of effort beyond that normally C5
expected in order to ensure that the Customs Department is
successful
26 I would accept almost any type of job assignment in order to keep C6
working for the Customs Department
27 There is nothing much to be gained by sticking with the Customs C7
Department
28 It would take a lot of changes in my present circumstances to C8
cause me to leave the Customs Department
29 Deciding to work for the Customs Department was a mistake on C9
my part
30 I always find it easy to agree with the Customs Department’s C10
policies on important matters relating to its employees

Job Satisfaction Items

Question Variable
No. No.
31 I am satisfied with my job JS1
32 I am satisfied with my pay JS2
33 I am satisfied with my co-workers JS3
34 I am satisfied with the Customs Department’s system for recognising JS4
and rewarding outstanding performance
35 I am satisfied with the direction or advice I receive from others in the JS5
Customs Department
36 I am satisfied with my career progress in the Customs Department up JS6
to this point
37 I am satisfied with my opportunity ‘to make a difference’ or to JS7
contribute to the overall success of the Customs Department
38 I am satisfied with the Customs Department’s concern for its JS8
employees’ welfare
39 I am satisfied with the Customs Department’s overall efficiency in JS9
operations
40 I am satisfied with the overall quality of the Customs Department’s JS10
services

328
 Organisational Culture Items
Question Variable
No. No.
Rational Culture
41 The Customs Department is very production oriented OC1
42 A major concern in the Customs Department is with getting the job OC2
done
43 People in the Customs Department are very personally involved OC3
Group Culture
44 The Customs Department is a very personal place OC4
45 The Customs Department is like an extended family OC5
46 People in the Customs Department seem to share a lot of themselves OC6
Developmental Culture
47 The Customs Department is a very dynamic and entrepreneurial place OC7
48 People at the Customs Department are willing to stand up and take risks OC8
Hierarchical Culture
49 The Customs Department is a very formalised and structured place OC9
50 Bureaucratic procedures generally govern what people do in the OC10
Customs Department

329
Appendix 12: Statement and Consent for Taxpayer Survey

UNIVERSITI UTARA MALAYSIA

THE UNIVERSITY OF NEW SOUTH WALES

PERSEPSI PEMBAYAR CUKAI TAK LANGSUNG TERHADAP KUALITI

PERKHIDMATAN JABATAN KASTAM DIRAJA MALAYSIA

Saya adalah pensyarah Universiti Utara Malaysia dan juga pelajar PhD di University of New South
Wales, Australia yang sedang menjalankan kajian tentang persepsi para pembayar cukai tak langsung
di Malaysia terhadap kualiti perkhidmatan yang diberikan semasa berurusan dengan para pekerja di
Jabatan Kastam DiRaja Malaysia (KDRM).

Penyertaan anda di dalam kaji selidik ini adalah secara sukarela dan identiti anda tidak akan
didedahkan. Jika anda bersetuju untuk mengambil bahagian, anda cuma dikehendaki menjawab
soalan-soalan di dalam soal selidik ini yang akan mengambil masa lebih kurang 15 minit sahaja.

Sebarang maklumat yang didapati daripada kajian ini yang boleh dikaitkan dengan anda akan
dirahsiakan. Jika anda bersetuju untuk mengambil bahagian dalam kajian ini dengan melengkapkan
soal selidik ini, penyelidik akan menerbitkan hasil kajian ini di dalam jurnal akademik. Sebarang
maklumat yang akan diterbitkan tidak akan mendedahkan anda secara peribadi.

Sila pulangkan borang soal selidik yang telah dilengkapkan kepada penyelidik dengan menggunakan
sampul surat bersetem yang telah disertakan bersama.

Jika anda mempunyai sebarang aduan tentang perlaksanaan kajian ini bolehlah disalurkan kepada the
Ethics Secretariat, The University of New South Wales, SYDNEY 2052 AUSTRALIA (phone 02-
9385 4234, fax 02-9385 6648, email [email protected]). Segala aduan anda akan diselidiki
dengan kadar segera dan anda akan dimaklumkan.

Jika anda mempunyai sebarang soalan tentang kajian ini, sila kemukakannya kepada pihak penyelidik
seperti nama dan alamat di bawah. Jika anda mempunyai soalan lanjut, sila hubungi Professor Neil
Warren (email [email protected]) atau Associate Professor Binh Tran-Nam (email b.tran-
[email protected]).

Yang benar,

Muzainah Mansor
Pensyarah Kanan / Pelajar PhD UNSW
Bangunan Perakaunan, UUM College of Business
Universiti Utara Malaysia
06010 Sintok, Kedah.
Tel: 04-9283766
Fax: 04-9285762
Email: [email protected]

330
Appendix 13: Taxpayer Demographic Background
PART A: TAXPAYER BACKGROUND
Bahagian A: Latarbelakang Pembayar Cukai
Please tick (/) the appropriate box.
Sila tanda (/) di dalam kotak yang berkenaan

Status of Business / Status Perniagaan:

Bursa Malaysia main board / Papan utama Bursa Malaysia 1
Bursa Malaysia second board / Papan kedua Bursa Malaysia 2
Not Listed / Tidak disenaraikan di Bursa Malaysia 3

Legal Form of Business / Jenis Perniagaan:

Public limited / Bhd 1
Private limited / Sdn Bhd 2
Partnership / Perkongsian 3
Sole proprietor / Perniagaan tunggal 4

Type of Industry / Jenis Industri:

Consumer product / Barangan pengguna 1
Industrial product / Barangan industri 2
Construction / Pembinaan 3
Services / Perkhidmatan 4
Infrastructure / Infrastruktur 5
Hotel / Hotel 6
Technology / Teknologi 7
Customs Agent / Agen Kastam 8
Other, please specify / Lain-lain, sila nyatakan: ____________ 9

Annual Turnover (RM) / Pendapatan Tahunan (RM):

Below / Kurang 250,000 1
250,000 – 500,000 2
500,001 – 750,000 3
750,001 – 1,000,000 4
Above / Lebih 1,000,000, Please specify / Sila nyatakan:_________________ 5

Number of Employees / Bilangan Pekerja:

Less than / Kurang dari 10 1
10 – 50 2
51 – 100 3
More than / Lebih dari 100 4

Type of Tax Paid / Jenis Cukai Dibayar:

Sales tax only / Cukai jualan sahaja 1
Services tax only / Cukai perkhidmatan sahaja 2
Excise duty only / Duti eksais sahaja 3
More than one type / Lebih daripada satu jenis cukai 4

331
 Period of Being an Indirect Taxpayer / Tempoh Menjadi Pembayar Cukai Tak Langsung:
Less than 3 years / Kurang daripada 3 tahun 1
3 – 5 years / 3 – 5 tahun 2
More than 5 years / Lebih daripada 5 tahun 3

Appendix 14: Taxpayer Survey Questionnaire

PART B: QUALITY OF SERVICES

Bahagian B: Kualiti Perkhidmatan

Please choose a number from the scale below to show how much you agree or disagree with each
statement and circle the appropriate number.

Sila pilih nombor daripada skala di bawah bagi menunjukkan sejauhmanakah anda bersetuju atau tidak dengan setiap
kenyataan berikut. Bulatkan nombor-nombor yang bersesuaian..

“1” = Strongly Disagree / Sangat Tidak Bersetuju

“2” = Disagree /Tidak Bersetuju
“3” = Neutral or Undecided /Berkecuali atau Tidak Tahu
“4” = Agree /Bersetuju
“5” = Strongly Agree /Sangat Bersetuju

Strongly Disagree Strongly

/ Sangat Tidak Agree /
Bersetuju Sangat
Bersetuju
1. Overall, I’d say that the quality of my 1 2 3 4 5
interactions with the Customs Department
employees is excellent
Secara keseluruhan, saya berpendapat kualiti interaksi
saya dengan pekerja Jabatan Kastam adalah amat baik

2. You can count on the Customs Department 1 2 3 4 5

employees being friendly
Anda dapat pastikan bahawa pekerja Jabatan Kastam
adalah mesra

3. The Customs Department employees attitudes 1 2 3 4 5

demonstrate their willingness to help me
Sikap pekerja Jabatan Kastam menunjukkan kesediaan
mereka untuk menolong saya

4. The Customs Department employees attitudes 1 2 3 4 5

show me that they understand my needs

332
 Sikap pekerja Jabatan Kastam menunjukkan mereka
memahami keperluan saya

5. I can count on the Customs Department 1 2 3 4 5

employees taking actions to address my needs
Saya dapat pastikan pekerja Jabatan Kastam mengambil
langkah sepatutnya untuk menangani keperluan saya

6. The Customs Department employees respond 1 2 3 4 5

quickly to my needs
Pekerja Jabatan Kastam memberikan respon yang cepat
kepada keperluan saya

7. The behavior of the Customs Department 1 2 3 4 5

employees indicates to me that they understand
my needs
Gelagat pekerja Jabatan Kastam menggambarkan yang
mereka memahami keperluan saya

8. You can count on the Customs Department 1 2 3 4 5

employees knowing their jobs
Anda dapat pastikan pekerja Jabatan Kastam
berpengetahuan dalam kerja mereka

9. The Customs Department employees are able 1 2 3 4 5

to answer my questions quickly
Pekerja Jabatan Kastam dapat menjawab persoalan
saya dengan cepat

10. The Customs Department employees 1 2 3 4 5

understand that I rely on their knowledge to
meet my needs
Pekerja Jabatan Kastam memahami yang saya
bergantung kepada pengetahuan mereka untuk
memenuhi keperluan saya

11. I feel good about their services to the taxpayers 1 2 3 4 5

Saya rasa gembira dengan perkhidmatan yang mereka
sediakan untuk pembayar cukai

12. Waiting time at the Customs Department is not 1 2 3 4 5

too long
Masa menunggu di Jabatan Kastam adalah tidak terlalu
lama

333
13. The Customs Department tries to keep my 1 2 3 4 5
waiting time to a minimum
Pekerja Jabatan Kastam cuba mengurangkan masa
menunggu saya

14. The Customs Department understands that 1 2 3 4 5

waiting time is important to me
Pekerja Jabatan Kastam memahami bahawa masa
menunggu adalah penting bagi saya

15. I am consistently pleased with the services they 1 2 3 4 5

provide
Saya sentiasa puashati dengan perkhidmatan yang
diberikan oleh Jabatan Kastam

16. I like them because they provide the services 1 2 3 4 5

that I want
Saya suka pekerja Jabatan Kastam kerana mereka
memberikan perkhidmatan yang saya kehendaki

17. The Customs Department knows the kind of 1 2 3 4 5

services the taxpayers are looking for
Jabatan Kastam tahu jenis perkhidmatan yang
diperlukan oleh pembayar cukai

18. When I leave, I usually feel that I had a good 1 2 3 4 5

experience
Setiap kali berurusan dengan Jabatan Kastam, biasanya
saya mendapat pengalaman yang baik

19. I believe they try to give me a good experience 1 2 3 4 5

Saya percaya Jabatan Kastam cuba memberikan
pengalaman yang baik apabila berurusan dengan
mereka

20. I believe the Customs Department knows the 1 2 3 4 5

type of experience the taxpayers want
Saya percaya Jabatan Kastam tahu pengalaman
bagaimana yang dikehendaki oleh pembayar cukai
apabila berurusan dengan mereka
This is the end of the questionnaire. Thank you for your participation in this survey.

334
 Coding Scheme for Demographic Variables of Indirect Taxpayers
Variable Categories and Codes
Status of business Bursa Malaysia main board (1); Bursa Malaysia second board (2);
Not listed (3)
Type of business Public limited/Bhd (1); Private limited/Sdn Bhd (2); Partnership
(3); Sole Proprietor (4)
Type of industry Consumer product (1); Industrial product (2); Construction (3);
Services (4); Infrastructure (5); Hotels (6); Technology (7);
Customs Agent (8); Other (9)
Annual turnover Below RM250,000 (1); RM250,000 – RM500,000 (2);
RM500,001 – RM750,000 (3); RM750,001 – RM1,000,000 (4);
Above RM1,000,000 (5)
Number of employees Less than 10 (1); 10 – 50 (2); 51 – 100 (3); More than 100 (4)
Type of tax paid Sales tax only (1); Services tax only (2); Excise duty only (3);
More than one type (4)
Period of being an Less than 3 years (1); 3 - 5 years (2); More than 5 years (3)
indirect taxpayer

335
 Service Quality Items
Question Variable
No. No.
Interaction quality
1 Overall, I’d say that the quality of my interactions with the Customs IQ
Department employees is excellent
Attitude
2 You can count on the Customs Department employees being friendly A1
3 The Customs Department employees’ attitudes demonstrate their A2
willingness to help me
4 The Customs Department employees’ attitudes show me that they A3
understand my needs
Behaviour
5 I can count on the Customs Department employees taking actions to B1
address my needs
6 The Customs Department employees respond quickly to my needs B2
7 The behaviour of the Customs Department employees indicates to me B3
that they understand my needs
Expertise
8 You can count on the Customs Department employees knowing their E1
jobs
9 The Customs Department employees are able to answer my questions E2
quickly
10 The Customs Department employees understand that I rely on their E3
knowledge to meet my needs
Outcome Quality
11 I feel good about what their services to the taxpayers OQ
Waiting time
12 Waiting time at the Customs Department is not too long WT1
13 The Customs Department tries to keep my waiting time to a WT2
minimum
14 The Customs Department understands that waiting time is important WT3
to me
Tangibles
15 I am consistently pleased with the services they provide T1
16 I like them because they have the services that I want T2
17 The Customs Department knows the kind of services the taxpayers T3
are looking for
Valence
18 When I leave, I usually feel that I had a good experience V1
19 I believe they try to give me a good experience V2
20 I believe the Customs Department knows the type of experience the V3
taxpayers want

336
Appendix 15: Questions for Tax Administration Tasks

QUESTION FOR ROYAL MALAYSIAN CUSTOMS WILAYAH PERSEKUTUAN KUALA LUMPUR

Enforcement

Indicators Applicability Notes

Registered taxpayers per tax administrator Y No. of registered taxpayers: Internal taxes : 20,543

No. of tax administrators: 697

Ratio: 20,543/697 = 1:29

Auditors as percent of tax administrators Y No. of auditors: 50

No. of tax administrators: 697

Ratio: 50/697 = 7.20%

Registered taxpayers per tax auditor Y No. of registered taxpayers: Internal taxes : 20,543

No. of auditors: 50

Ratio: 20,543/50 = 1:411

Does a comprehensive audit plan exist? If yes, Y Yes – developed by Head Quarter => State => Department => Unit
who develop the plan?

Percent of taxpayers subject to annual audit Y No. of registered taxpayers: 20,543

No. of audited taxpayers: 284

337
 Ratio: 284/20,543 = 1.38%

Type of audit generally used Y 1) Normal audit

2) Special audit – based on necessity especially when there is an
issue raised
3) Operational audit – based on the instruction by the Head
Quarter

Selection criteria: Y Random – look at tax payment flows to see if there is any sudden
a) Random change in tax payment trend.
b) Risk analysis Risk analysis – based on certain niche, selectivity, category or industry
c) Others of taxpayers. After conducting the audit, the taxpayers could
be grouped under the category of low risk, moderate risk or
high risk. Therefore follow-up audit will be conducted i.e.
more frequent for high risk taxpayers as compared to
moderate or low risk taxpayers.

Are taxpayers audited for all taxes at the same Y There are two types of audit:
time or are separate audits conducted for each 1. Program audit: if the taxpayer pays more than one type of
major tax? taxes, all type of taxes will be audited at the same time.
2. Ad-hoc audit: audit for separate type of taxes according to the
need of the task.

Unified domestic and import audits N Combines audit of companies for sales tax, services tax, excise duty,
and taxes on imports?
For normal cases, domestic and import audits are separated. However,
if there is any issue found during one audit task which concerns the
other, information about the issue will be forwarded.

Separation of taxpayers by size or nature Y Size category: Yes – according to the size of the company

338
 Compliance category: Yes – according to risk analysis

Nature type: Yes – according to type of industry

What are the enforcement powers of the tax Y

administration?
d) Lien on property Lien on property – yes
e) Seizure and sale of business property Seizure and sale of business property – yes
f) Seizure and sale of private property Seizure and sale of private property - yes

Is the taxpayer notified in advance of the Y Yes

intention of the tax administration to take g) A RTD (round table discussion) with taxpayer is conducted.
enforcement action? h) Issue reminder letter to taxpayer
i) Discuss with taxpayer on payment term (lump sum or
instalment)
j) Issue letter again to taxpayer (Department for Account
Receivables to follow up)
k) Final action – go to court for civil litigation and/or criminal
prosecution

339
 Payments and Collections

Items Applicability Notes

Banking system payments Y Electronic Fund Transfer (EFT) for all type of taxes

Percent of large taxpayers paying via N No payment via internet is applicable yet
internet

‘Stop filers’ as percent of active filers Y No. of stop filers: 2,424

No. of active filers: 18,119

Ratio: 2,424/18,119 = 13.38%

Average time to detect a stop-filer Y The ‘Customs Information System’ will automatically detect a stop-filer
and generate a reminder letter when the account payment is due from the
taxpayer.

Number of stop-filers detected per year: Y Registered taxpayers: 20,543; Stop-filers: 2,424
- As a percentage of registered
taxpayers 2,424/20,543 = 11.80%
- As a percentage of active 2,424/18,119 = 13.38%
taxpayers

What procedures are followed to detect Y Manual check according to the reminder letter generated by the ‘Customs
stop-filers? Information System’ when the account payment is due from the taxpayer.

Late payments as percent of total tax Y Late payments: RM143,617,169.81 (Account Receivables 2008)
receipts
Total tax receipts: RM9,327,435,899.65 (2008)

340
 Ratio: RM143,617,169.81/ RM9,327,435,899.65 = 1.54%

Administrative cost as % of total receipts Y Administrative costs: RM24,340,000 (2008)

Total tax receipts: RM9,327,435,899.65 (2008)

Ratio: RM24,340,000/ RM9,327,435,899.65 = 0.26%

Share of adjustments and fines collected N Percent of adjustments collected: Data not available

Percent of fines collected:

Taxes and penalties receivable = RM18,111,383.65
Taxes and penalties received = RM12,840,072.39
Ratio: RM12,840,072.39/ RM18,111,383.65 = 70.90%

Recovery of tax arrears Total amount Amount recovered last fiscal Ratio
year

Total amount of arrears (2008) RM143,617,169.81 RM46,421,301.62 RM46,421,301.62/ RM143,617,169.81

= 32.32%

Institutions that establishes revenue Y Ministry: Ministry of Finance

targets

341
 Automated Systems

Items Applicability Notes

Which tax administration functions have
been computerised?
- Taxpayer registration Yes

- Data processing and matching Yes

- Monitoring of stop-filers Yes

- Electronic filing of tax returns Not applicable

- Risk analysis for audit selection Yes – the relevant officer will manually select the case for audit according
to the risk analysis and enter the information into the Customs Information
System
- Data exchange with other
government departments Yes and on request

- Taxpayer service functions

Information is available through the Customs Department Website
For big companies – communicate online

Use of automated systems for daily use Y Yes – Customs Information System

Interconnectivity between HQ and local Y Yes – through centralised server at the HQ and the regional computer
tax office centres

Data and Backup systems for all uses Y Yes for state as well as Head Quarter

Operating taxpayer current account Y Automated payments or receipts system? Yes

342
 Up-to-date taxpayer registration system?
Estimated percentage of updated data in the system by the relevant officer:
80%

Careful monitoring of taxpayers liability?

Yes – the relevant officer will manually classify the liability into different
types or classes based on the information available from the Customs
Information System

Clean and operating taxpayer registry N Active taxpayers and correct addresses updated regularly?
Only when any changes about the taxpayer is informed by the taxpayer
itself through related forms provided by the Customs Department

Automated audit case selection N Statistically determined parameters?

Manual selection and no use of statistical software

Tax declaration entry with automatic error N First tax declaration entry is checked and corrected
correction The following entry is manually checked and only audited after 3 years

Use of external data Y Type of external data: taxpayer address, identification number etc

Data from: SSM, JPJ, Bank Negara etc

Online/ Manual: Online and manual

Use of exogenous information Y Yes

(filers/vehicles/real estate)

Use of third party databases Y Yes

Data crossing among taxes Y Crossing information among different types of taxes? Yes

343
Late or stop filers system Y/N Customs Information System – generate reminder letter automatically
when account is due and not paid

Planning and Coordination

Items Applicability Notes

Planning, monitoring and evaluation Y Corporate planning department?
systems for tax organisation Yes, from the Head Quarter to the state level

Coordinated of data flows among tax Y Yes

administration, ministries and other
agencies in government

344
 Human Resources

Items Applicability Ratio Notes

Total Number of staff 697

Number of managers 207

Percentage of staff in core (197+171)/697 = 52.80% Internal taxes: 197

operational functions Customs: 171
Preventive: 80
Technical services: 122
Administration: 127
Number of taxpayers per tax 104:1 20,543/197
inspector

Percentage of collection and Collection: 197/697 = 28.26% Collection staff: 197

enforcement staff Enforcement: 240/697 = 34.43% Enforcement staff: 240

Percentage of staff Taxpayer service and Taxpayer service: 35

specialising in taxpayer information work: Information work: 4
service and information 39/697 = 5.60%
work

Staffing of large taxpayer Not applicable

unit

Percent of employees with Ratio: 207/697 = 29.70% No. of employees: 697

university or college
degrees No. of employees with university degrees: 207

345
Ratio between director and Ratio: 3.2:1 Average director salaries: RM7,145
auditor salaries
Average auditor salaries: RM2,253

Ratio between average tax Ratio: 0.15:1 Average tax administrator’s salary: RM1,082
administrator’s salary and (lowest RM689, highest RM1,475)
average GDP per capita
Average GDP per capita: RM6,956

Existence of administrative Yes

career plan

Existence of formal Yes: Pension/EPF

retirement plan

Specialised training for Yes – through AKMAL – the Academy for the Royal
employees: Malaysian Customs
4. Auditors
5. Assessment staff
6. Collection staff
7. Managers

346
 Sanctions and Penalties

Items Applicability Notes

Tax administration code Customs Act 1967
Sales Tax Act 1972
Service Tax Act 1975
Excise Act 1976

Existence of tax fraud felony Yes

Application of tax fraud felony sanctions Yes

Average of 5 civil case per year

Appeals tribunal Yes – the Head Quarter handles all appeal cases

What kind of penalties and late payment interest rates are available to sanction non-compliance? Are penalties enforced in practice?
Yes.
8. Payment due every 28th of March for Jan/Feb. If payment is not received by 29th of March, a 10% penalty will be imposed.
9. After a month, another 10% penalty will be imposed.
10. The penalty will increase until maximum of 50%.
11. After 50% penalty, the account becomes account receivable
12. Then 3 reminder letters will be issued with the interval of 14 days apart
13. If payment is still due the Account Receivable Unit will forward the case to the Legal Unit
14. Then a 14 day notice will be issued to the taxpayer to make payment
15. The taxpayer will be sued
l) For a case amounting lower than RM30,000, execution of seizure and sale of business property as well as private property if needed
16. For a case amounting more than RM30,000, file for bankruptcy for individual taxpayer and winding up of business for companies
17. After that another summon will be issued to order for committal which could result in imprisonment

347
 Legal minimum amount or Legal maximum amount Total amount collected Total number of cases per
duration or duration per year year
Interest N/A N/A N/A N/A
Fines N/A N/A N/A In 2008:
83 cases amounting
RM69,350
Close of business N/A N/A N/A N/A
Publication of name of N/A N/A N/A N/A
tax evader
Imprisonment N/A N/A N/A N/A

348
 Organisation, Institutional Credibility and Public Confidence

Items Applicability Notes

Stability of top-level leadership Fixed appointment / Variable All top-level leaders appointments are by fixed
appointment

Professionalism of top-level staff Excellent / Good Good

Tax fraud unit in tax administration Y/N Not applicable. Only the Department of Preventive does
similar task

Unit for investigation of internal Y/N Yes – under the Disciplinary Committee
corruption

Internal regulation Y/N Yes

Diversity and quality taxpayer services Y/N Moderate

349
Appendix 16: Tables and Figures on Indirect Taxes Collection Performance in Malaysia

Indirect Taxes Contribution as Percentage of Federal Tax Revenue in Malaysia

(1960-2002)
Year Export Import Duties Excise Sales Other Total Indirect
Duties & Surtax Tax Tax Indirect Tax Tax
1960 29.2 40.0 0.9 - 6.4 78.4
1965 19.9 40.1 0.8 - 12.1 72.9
1970 14.0 27.9 12.5 - 10.6 65.0
1975 13.7 17.5 9.3 5.9 9.4 55.8
1979 20.4 15.9 10.1 5.7 5.5 59.1
1980 20.2 15.9 7.6 5.4 6.6 55.7
1981 16.5 16.1 7.5 5.2 5.5 52.7
1982 16.1 14.6 6.7 5.3 5.6 50.0
1983 11.6 15.9 8.4 7.8 4.0 51.7
1984 11.8 15.3 8.3 7.5 4.0 50.9
1985 10.0 14.9 8.3 7.4 7.8 48.4
1986 9.7 15.4 8.9 7.3 4.4 50.7
1987 10.2 15.8 11.4 8.5 4.0 49.9
1988 10.1 17.4 11.3 7.9 4.2 50.9
1991 8.3 16.2 11.1 9.8 3.3 48.7
1993 4.6 14.3 11.6 10.9 5.1 46.5
1995 2.0 13.5 12.7 11.7 5.6 45.5
1996 2.2 14.9 13.9 13.1 7.1 51.2
1997 2.2 15.0 14.6 14.5 7.6 53.7
1998 1.4 8.5 7.9 8.5 7.5 33.8
1999 1.5 10.4 10.4 10.0 7.7 40.0
2000 2.2 7.6 8.1 12.7 7.7 38.3
2001 1.4 5.2 6.7 12.0 6.3 31.6
2002 1.2 5.0 6.3 13.4 5.7 31.6
Source: Compiled from the Malaysian Economic Reports (1960 – 2002).

350
 Federal Government Revenue (2005-2007)

Source: Malaysian Economic Report 2006/2007

351
 Total Indirect Taxes Revenue as Compared to GDP (2000 – 2006)

Indirect Taxes Revenue as Compared to GDP

(2000-2006)

300,000

250,000

200,000
RM (Million)

150,000

100,000

50,000

0
2000 2001 2002 2003 2004 2005 2006

Year

Indirect taxes revenue GDP

Source: Malaysian Economic Reports (2000 – 2006)

352
 Customs Duties Collection According to the States in Malaysia (2005 and 2006)
2005 2006 % Changes
No State RM (Million) RM (Million) (+/-)
1. W.P. Kuala Lumpur 7,804.0 7,462.0 -4.4
2. Selangor 8,979.6 7,358.4 -18.1
3. Johor 1,506.8 1.378.2 -8.5
4. Sarawak 931.0 1,049.1 12.7
5. Melaka 611.5 1,022.8 67.3
6. Terengganu 1,111.8 1,137.6 2.3
7. Pulau Pinang 806.7 618.0 -23.4
8. Negeri Sembilan 690.2 592.9 -14.1
9. Perak 861.8 599.4 -30.4
10. W.P. Labuan 487.0 562.9 15.6
11. Pahang 289.9 291.9 0.7
12. Kedah 636.2 586.4 -7.8
13. Sabah 276.8 236.0 -14.7
14. Perlis 160.0 143.9 -10.1
15. Kelantan 42.1 28.3 -32.8
16. PCKP, Singapore 3.5 4.4 25.7
Total 25,198.9 23,072.2 -8.4
Source: Annual Report 2006, Royal Malaysian Customs

Local Excise Duty Collection According to the States in Malaysia (2005 and 2006)
Total Collection % Percentage of
No State (RM Million) (+/-) Contribution (%)
2005 2006 2005 2006
1. Kedah 227.92 189.99 -16.4 2.65 2.43
2. Pulau Pinang 251.71 110.50 -56.10 2.93 1.41
3. Perak 472.29 256.07 -45.78 5.50 3.27
4. W.P. Kuala Lumpur 3,048.67 3,015.75 -1.08 35.48 38.57
5. Selangor 3,593.31 2,927.76 -18.52 41.82 37.44
6. N. Sembilan 322.51 364.88 13.41 3.75 4.67
7. Melaka 287.28 698.87 143.27 3.34 8.94
8. Johor 197.48 76.75 -61.13 2.30 0.98
9. Pahang 89.53 118.53 32.40 1.04 1.52
10. Terengganu 9.80 1.97 -79.88 0.11 0.03
11. Kelantan 15.13 3.05 -79.82 0.18 0.04
12. Perlis 26.42 35.41 34.03 0.31 0.45
13. Sabah 19.03 6.22 -67.29 0.22 0.08
14. Sarawak 28.25 13.49 -52.25 0.33 0.17
Reconciliation amt. 4.00 - - 0.05 -
Total 8,593.31 7,819.25 -9.01 100.00 100.00
Source: Annual Report 2006, Royal Malaysian Customs

353
 Local Sales Tax Collection According to the States in Malaysia (2005 and 2006)
Total Collection (RM % Percentage of
No State Million) (+/-) Contribution (%)
2005 2006 2005 2006
1. Perlis 1.22 1.25 2.11 0.02 0.03
2. Kedah 281.87 252.44 -10.44 5.56 0.84
3. Pulau Pinang 163.84 134.71 -17.78 3.23 3.12
4. Perak 290.00 246.67 -14.90 5.72 5.71
5. W.P. Kuala Lumpur 1,652.00 1,363.67 -17.45 32.60 31.55
6. Selangor 1,708.70 1,344.16 -21.33 33.72 31.10
7. N. Sembilan 194.70 136.77 -29.75 3.84 3.16
8. Melaka 248.51 288.66 16.15 4.90 6.68
9. Johor 331.10 339.41 2.52 6.53 7.85
10. Pahang 122.06 107.81 -11.68 2.41 2.49
11. Terengganu 2.47 13.04 426.68 0.05 0.30
12. Kelantan 3.88 4.07 4.98 0.08 0.09
13. Sabah 19.17 24.05 25.45 0.38 0.56
14. Sarawak 47.37 65.90 39.13 0.93 1.52
Total 5,066.73 4,322.61 -14.69 100.00 100.00
Source: Annual Report 2006, Royal Malaysian Customs

Services Tax Collection According to the States in Malaysia (2005 and 2006)
Total Collection % Percentage of
No State (RM Million) (+/-) Contribution 2006
2005 2006 (%)
1. W.P. Kuala Lumpur 1,917.38 1,933.01 0.82 72.23
2. Selangor 243.84 293.38 20.31 10.96
3. Johor 79.20 81.33 2.69 3.04
4. Pulau Pinang 73.93 80.55 8.95 3.01
5. Sabah 64.41 71.99 11.77 2.69
6. Sarawak 56.90 58.10 2.11 2.17
7. Pahang 37.24 41.07 10.27 1.53
8. Perak 36.96 40.20 8.78 1.50
9. N. Sembilan 21.23 23.19 9.23 0.87
10. Melaka 19.08 20.89 9.49 0.78
11. Kedah 11.26 13.93 23.66 0.52
12. Terengganu 9.20 10.72 16.44 0.40
13. Kelantan 5.89 6.45 9.58 0.24
14. Perlis 0.87 1.30 50.14 0.05
Total 2,577.38 2,676.10 3.83 100.00
Source: Annual Report 2006, Royal Malaysian Customs

354
 Total Gap in Indirect Tax Revenue Detected and Collected (1995 – 2001)
Total Gap in Revenue Detected and Collected (1995 - 2001)
40
35
30
25
RM (Million)

20
15
10
5
0
1995 1996 1997 1998 1999 2000 2001
Years

Revenue Detected Revenue Collected

Source: Annual Report, Royal Malaysian Customs (1995 – 2001), as reported in Mansor et al. (2005, p.334).

Total Administrative Cost as Percentage of Total Indirect Tax Revenue (1991 – 2001)
Percentage of Cost/Revenue (1991 - 2001)

2.00
1.80
Percentage (%)

1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Years

Cost / Revenue

Source: Annual Report, Royal Malaysian Customs (1991 – 2001), as reported in Mansor et al. (2005, p.332).

355
 Total Indirect Tax Arrears as Percentage of Total Indirect Tax Revenue (1995 – 2001)
Percentage of Total Arrears / Total Revenue
(1995 - 2001)

2.00
1.80
1.60
Percentage (%)

1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
1995 1996 1997 1998 1999 2000 2001
Years

Arrears / Revenue

Source: Annual Report, Royal Malaysian Customs (1995 – 2001), as reported in Mansor et al. (2005, p.333)

356
Appendix 17: Demographic Data and Cross-Tab Data for Tax Employees

Gender
Valid Male 112 44.8 44.8 44.8
Female 138 55.2 55.2 100.0
Total 250 100.0 100.0

Race
Frequency Percent Valid Percent Cumulative
Percent
Valid Malay 206 82.4 82.4 82.4
Chinese 19 7.6 7.6 90.0
Indian 21 8.4 8.4 98.4
Other 4 1.6 1.6 100.0
Total 250 100.0 100.0

Age
Frequency Percent Valid Percent Cumulative
Percent
Valid 20-30 72 28.8 28.8 28.8
31-40 88 35.2 35.2 64.0
41-50 55 22.0 22.0 86.0
Above 50 35 14.0 14.0 100.0
Total 250 100.0 100.0

Marital Status
Frequency Percent Valid Percent Cumulative
Percent
Valid Single 56 22.4 22.4 22.4
Married 188 75.2 75.2 97.6
Divorced 2 0.8 0.8 98.4
Other 4 1.6 1.6 100.0
Total 250 100.0 100.0

357
 Level of Education
Frequency Percent Valid Percent Cumulative
Percent
Valid SRP 3 1.2 1.2 1.2
SPM 45 18.0 18.0 19.2
STPM 19 7.6 7.6 26.8
Diploma 39 15.6 15.6 42.4
Bachelor Degree 128 51.2 51.2 93.6
Master Degree 14 5.6 5.6 99.2
PhD 1 0.4 0.4 99.6
Other 1 0.4 0.4 100.0
Total 250 100.0 100.0

Employment Status
Frequency Percent Valid Percent Cumulative
Percent
Valid Permanent 247 98.8 98.8 98.8
Temporary 1 0.4 0.4 99.2
Contract 1 0.4 0.4 99.6
Part-time 1 0.4 0.4 100.0
Total 250 100.0 100.0

Department/Division
Frequency Percent Valid Percent Cumulative
Percent
Valid Customs 72 28.8 28.8 28.2
Internal Taxes 68 27.2 27.2 56.0
Technical Services 59 23.6 23.6 79.6
Management 27 10.8 10.8 90.4
Preventive 15 6.0 6.0 96.4
Other 9 3.6 3.6 100.0
Total 250 100.0 100.0

358
 Occupation
Frequency Percent Valid Cumulative
Percent Percent
Valid Managerial 23 9.2 9.2 9.2
Enforcement Officer 99 39.6 39.6 48.8
Officer 78 31.2 31.2 80.0
Technical 6 2.4 2.4 82.4
Administrative/Clerical 42 16.8 16.8 99.2
Other 2 0.8 0.8 100.0
Total 250 100.0 100.0

Term of Employment
Frequency Percent Valid Percent Cumulative
Percent
Valid Less than 1 year 5 2.0 2.0 2.0
1–2 43 17.2 17.2 19.2
3–5 49 19.6 19.6 38.8
6 – 10 31 12.4 12.4 51.2
More than 10 years 122 48.8 48.8 100.0
Total 250 100.0 100.0

Crosstab: Stress 9
Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Department / Customs 5 15 7 39 6 72
Division Internal Taxes 10 15 6 17 20 68
Technical Services 3 21 8 16 11 59
Management 8 14 2 1 2 27
Preventive 0 1 0 14 0 15
Other 1 0 2 2 4 9
Total 27 66 25 89 43 250

Crosstab: Stress 10
Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Department / Customs 6 20 24 17 5 72
Division Internal Taxes 3 13 7 26 19 68
Technical Services 1 18 11 19 10 59
Management 3 6 6 6 6 27
Preventive 0 4 11 0 0 15
Other 0 6 1 1 1 9
Total 13 67 60 69 41 250

359
 Crosstab: Stress 9
Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Occupation Managerial 2 6 5 7 3 23
Enforcement Officer 7 14 7 46 25 99
Officer 9 25 10 23 11 78
Technical 0 3 1 1 1 6
Administrative/Clerical 9 17 2 11 3 42
Other 0 1 0 1 0 2
Total 27 66 25 89 43 250

Crosstab: Stress 10
Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Occupation Managerial 2 7 4 8 2 23
Enforcement Officer 2 19 35 17 26 99
Officer 4 25 15 27 7 78
Technical 0 2 2 2 0 6
Administrative/Clerical 5 12 4 15 6 42
Other 0 2 0 0 0 2
Total 13 67 60 69 41 250

Crosstab: Stress 9
Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Term of Less than 1 yr 3 2 0 0 0 5
Employment 1–2 6 8 4 15 10 43
3–5 6 9 3 21 10 49
6 – 10 3 9 8 8 3 31
More than 10 yrs 9 38 10 45 20 122
Total 27 66 25 89 43 250

Crosstab: Stress 10
Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Term of Less than 1 yr 2 1 1 0 1 5
Employment 1–2 2 9 12 9 11 43
3–5 3 7 12 20 7 49
6 – 10 0 8 9 7 7 31
More than 10 yrs 6 42 26 33 15 122
Total 13 67 60 69 41 250

360
 Crosstab: Job Satisfaction 4
Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Department / Customs 3 25 27 14 3 72
Division Internal Taxes 19 7 24 14 4 68
Technical Services 13 23 5 12 6 59
Management 2 6 4 9 6 27
Preventive 1 0 13 1 0 15
Other 0 4 0 3 2 9
Total 38 65 73 53 21 250

Crosstab: Job Satisfaction 8

Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Department / Customs 2 19 19 25 7 72
Division Internal Taxes 13 14 16 19 6 68
Technical Services 2 28 6 21 2 59
Management 1 2 6 13 5 27
Preventive 0 1 8 6 0 15
Other 0 4 2 2 1 9
Total 18 68 57 86 21 250

Crosstab: Job Satisfaction 4

Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Occupation Managerial 3 4 8 4 4 23
Enforcement Officer 25 14 42 13 5 99
Officer 9 28 16 24 1 78
Technical 0 5 0 1 0 6
Administrative/Clerical 1 13 7 10 11 42
Other 0 1 0 1 0 2
Total 38 65 73 53 21 250

Crosstab: Job Satisfaction 8

Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Occupation Managerial 1 4 7 6 5 23
Enforcement Officer 13 22 29 30 5 99
Officer 3 23 15 34 3 78
Technical 0 5 0 1 0 6
Administrative/Clerical 1 14 6 13 8 42
Other 0 0 0 2 0 2
Total 18 68 57 86 21 250

361
 Crosstab: Job Satisfaction 4
Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Term of Less than 1 yr 0 0 0 2 3 5
Employment 1–2 9 4 17 11 2 43
3–5 9 16 15 6 3 49
6 – 10 4 6 12 8 1 31
More than 10 yrs 16 39 29 26 12 122
Total 38 65 73 53 21 250

Crosstab: Job Satisfaction 8

Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Term of Less than 1 yr 0 0 0 2 3 5
Employment 1–2 3 11 9 18 2 43
3–5 1 23 8 14 3 49
6 – 10 2 6 11 7 5 31
More than 10 yrs 12 28 29 45 8 122
Total 18 68 57 86 21 250

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Appendix 18: Demographic Data and Cross-Tab Data for Taxpayers

Status of Business
Frequency Percent Valid Percent Cumulative
Percent
Valid BM Main Board 0 0.0 0.0 0.0
BM Second Board 2 0.5 0.5 0.5
Not Listed 398 99.5 99.5 100.0
Total 400 100.0 100.0

Legal Form of Business

Frequency Percent Valid Percent Cumulative
Percent
Valid Public Limited 4 1.0 1.0 1.0
Private Limited 369 92.3 92.3 93.3
Partnership 19 4.8 4.8 98.0
Sole Proprietor 8 2.0 2.0 100.0
Total 400 100.0 100.0

Type of Industry
Frequency Percent Valid Percent Cumulative
Percent
Valid Consumer Product 81 20.3 20.3 20.3
Industrial Product 70 17.5 17.5 37.8
Construction 50 12.5 12.5 50.3
Services 161 40.3 40.3 90.5
Infrastructure 10 2.5 2.5 93.0
Hotel 2 0.5 0.5 93.5
Technology 25 6.3 6.3 99.8
Customs Agent 1 0.3 0.3 100.0
Total 400 100.0 100.0

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 Annual Turnover
Frequency Percent Valid Cumulative
Percent Percent
Valid Below RM250,000 71 17.8 17.8 17.8
RM250,000-RM500,000 128 32.0 32.0 49.8
RM500,001-RM750,000 113 28.3 28.3 78.0
RM750,001-RM1,000,000 76 19.0 19.0 97.0
Above RM1,000,000 12 3.0 3.0 100.0
Total 400 100.0 100.0

Number of Employees
Frequency Percent Valid Cumulative
Percent Percent
Valid Less than 10 23 5.8 5.8 5.8
10 – 50 195 48.8 48.8 54.5
51 – 100 128 32.0 32.0 86.5
More than 100 54 13.5 13.5 100.0
Total 400 100.0 100.0

Type of Tax Paid

Frequency Percent Valid Cumulative
Percent Percent
Valid Sales tax only 57 14.3 14.3 14.3
Services tax only 178 44.5 44.5 58.8
Excise duty only 2 0.5 0.5 59.3
More than one type of tax 163 40.8 40.8 100.0
Total 400 100.0 100.0

Period Being a Taxpayer

Frequency Percent Valid Cumulative
Percent Percent
Valid Less than 3 years 66 16.5 16.5 16.5
3-5 years 118 29.5 29.5 46.0
More than 5 years 216 54.0 54.0 100.0
Total 400 100.0 100.0

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 Crosstab: Interaction Quality
Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Legal form of Public limited 0 1 2 1 0 4
business Private limited 8 104 171 83 3 369
Partnership 0 7 10 2 0 19
Sole Proprietor 0 2 5 1 0 8
Total 8 114 188 87 3 400

Crosstab: Interaction Quality

Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Type of industry Consumer product 1 25 40 13 2 81
Industrial product 0 18 31 20 1 70
Construction 2 12 24 12 0 50
Services 4 51 74 32 0 161
Infrastructure 0 0 6 4 0 10
Hotel 0 1 1 0 0 2
Technology 1 7 11 6 0 25
Customs agent 0 0 1 0 0 1
Total 8 114 188 87 3 400

Crosstab: Interaction Quality

Strongly Disagree Neutral Agree Strongly Total
Disagree or Agree
Undecided
Annual Below RM250,000 3 26 28 14 0 71
Turnover RM250,000-RM500,000 5 41 54 28 0 128
RM500,001-RM750,000 0 30 63 19 1 113
RM750,001-RM1,000,000 0 16 38 22 0 76
Above RM1,000,000 0 1 5 4 2 12
Total 8 114 188 87 3 400

Crosstab: Interaction Quality

Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Type of tax Sales tax only 1 18 29 8 1 57
paid Services tax only 5 57 82 34 0 178
Excise duty only 0 0 2 0 0 2
More than one type 2 39 75 45 2 163
Total 8 114 188 87 3 400

Crosstab: Interaction Quality

Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Period being a Less than 3 years 3 30 23 10 0 66
taxpayer 3 – 5 years 2 37 54 24 1 118
More than 5 years 3 47 111 53 2 216
Total 8 114 188 87 3 400

365
 Crosstab: Waiting Time 1
Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Legal form of Public limited 0 1 1 2 0 4
business Private limited 17 89 175 83 5 369
Partnership 0 6 9 4 0 19
Sole Proprietor 0 1 5 2 0 8
Total 17 97 190 91 5 400

Crosstab: Waiting Time 1

Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Type of industry Consumer product 6 18 39 17 1 81
Industrial product 1 17 31 20 1 70
Construction 5 8 22 14 1 50
Services 4 46 78 31 2 161
Infrastructure 0 2 7 1 0 10
Hotel 0 0 2 0 0 2
Technology 1 6 10 8 0 25
Customs agent 0 0 1 0 0 1
Total 17 97 190 91 5 400

Crosstab: Waiting Time 1

Strongly Disagree Neutral Agree Strongly Total
Disagree or Agree
Undecided
Annual Below RM250,000 1 13 43 12 2 71
Turnover RM250,000-RM500,000 3 33 63 28 1 128
RM500,001-RM750,000 8 33 43 27 2 113
RM750,001-RM1,000,000 4 16 39 17 0 76
Above RM1,000,000 1 2 2 7 0 12
Total 17 97 190 91 5 400

Crosstab: Waiting Time 1

Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Type of tax Sales tax only 2 17 22 15 1 57
paid Services tax only 6 48 89 33 2 178
Excise duty only 0 0 2 0 0 2
More than one type 9 32 77 43 2 163
Total 17 97 190 91 5 400

366
 Crosstab: Waiting Time 1
Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Period being a Less than 3 years 4 17 30 12 3 66
taxpayer 3 – 5 years 5 31 57 25 0 118
More than 5 years 8 49 103 54 2 216
Total 17 97 190 91 5 400

Crosstab: Waiting Time 2

Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Legal form of Public limited 0 0 2 1 1 4
business Private limited 19 92 165 84 9 369
Partnership 1 4 11 3 0 19
Sole Proprietor 0 1 4 3 0 8
Total 20 97 182 91 10 400

Crosstab: Waiting Time 2

Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Type of industry Consumer product 6 16 35 23 1 81
Industrial product 2 17 27 21 3 70
Construction 2 10 25 11 2 50
Services 9 44 73 32 3 161
Infrastructure 0 2 7 1 0 10
Hotel 0 0 1 0 1 2
Technology 1 7 14 3 0 25
Customs agent 0 1 0 0 0 1
Total 20 97 182 91 10 400

Crosstab: Waiting Time 2

Strongly Disagree Neutral Agree Strongly Total
Disagree or Agree
Undecided
Annual Below RM250,000 3 16 31 20 1 71
Turnover RM250,000-RM500,000 9 27 64 27 1 128
RM500,001-RM750,000 5 26 59 21 2 113
RM750,001-RM1,000,000 3 23 26 20 4 76
Above RM1,000,000 0 5 2 3 2 12
Total 20 97 182 91 10 400

367
 Crosstab: Waiting Time 2
Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Type of tax Sales tax only 5 12 21 19 0 57
paid Services tax only 9 49 80 37 3 178
Excise duty only 0 1 1 0 0 2
More than one type 6 35 80 35 7 163
Total 20 97 182 91 10 400

Crosstab: Waiting Time 2

Strongly Disagree Neutral or Agree Strongly Total
Disagree Undecided Agree
Period being a Less than 3 years 7 22 21 14 2 66
taxpayer 3 – 5 years 4 25 58 30 1 118
More than 5 years 9 50 103 47 7 216
Total 20 97 182 91 10 400

368