Fraud in Tax Evasion Decision: Effect on Financial Pressure, Tax Investigation and the Perceived Probability of Audit

Abstract

Purpose – This research aims to investigate the effects of financial pressure, the perceived probability of audit, and tax investigation on the decision to carry out tax evasion.

Design/methodology/approach – The Study is a quantitative research approach that uses online-based data collection methods (e_ questionnaire) combined with interviews with certain taxpayers to get their views on fraud in tax evasion decisions. The sample in this study was 98 individual taxpayers in Indonesia.

Findings – This research shows that financial pressures have a dominant effect on tax avoidance. This finding proves that financial pressure is one of the reasons for committing tax evasion fraud as stated in the fraud triangle theory. This research also shows that the perceived probability of audit and tax investigation does not affect reducing the tendency to tax evasion, this research indicates that tax investigation does not have a deterrent effect on taxpayers in committing tax evasion. Taxpayers understand that the government is spending considerable time and money to prove an alleged tax evasion case. Several tax policies in Indonesia such as the sunset policy, tax amnesty, and voluntary tax reporting can provide space for tax evaders to get certain tax collections and tax deductions when making tax payments.

Research limitations/implications – Although this research has explored taxpayers in Indonesia with several different occupational backgrounds, it is still necessary to test tax evasion on corporate taxpayers other than personal taxpayers.

Practical implications – This research critically analyzes the impact of psychological factors in tax non-compliance decisions through tax evasion fraud.

Social implications – The behavioral approach and consideration of psychological factors in every tax decision are expected to help realign and harmonize law enforcement practices in Indonesia to reduce the occurrence of tax evasion in Indonesia.

Originality/value – Examines the implementation of fraud triangle theory in tax evasion decisions. This research combines behavioral and psychological approaches to test the occurrence of tax evasion fraud in the perspective of taxpayers in Indonesia.