Ethics and Tax Compliance

Abstract Purpose Tax compliance involves complying with the tax rules and regulation, which encompasses the filing, reporting and payment of tax. The two aspects of tax non-compliance are tax evasion and tax avoidance. While the ethicality of tax evasion as an illegal act of reducing tax is clear, the consensus regarding the morality of tax avoidance as a legal act of minimizing tax is mixed. This chapter will discuss the ethical perspective of tax (non)compliance. Design/methodology/approach We approach this topic by discussing the two important terms of tax non-compliance namely tax evasion and tax avoidance from the ethical point of view. The tax evasion and tax avoidance were critically evaluated to justify whether it is ethical or not. The tax non-compliance is also associated to the corporate governance which if do effectively help to protect the interest of larger stakeholder. Findings In a nutshell, tax non-compliance such as tax avoidance and tax evasion is unethical act and these acts of non-compliance go against the spirit of contemporary corporate governance which sought to protect the interest of the stakeholders. Research limitations/implications Tax non-compliance could enhance shareholders wealth (in terms of reduced tax); it affects the distribution of wealth (public benefits financed by tax revenues) among the society at large as another stakeholder affected by such act. Future research may be conduct to investigate this to the larger sample. Social implications Firms should avoid engaging in non-compliance activities such as engaging in tax evasion and aggressive tax avoidance as part of its social obligation to the society in line with the spirit espoused in the contemporary corporate governance. Originality/value This paper argues that tax non-compliance is unethical and highlights the importance of having efficient corporate governance for larger stakeholder’s interest.