Compliance Risk Management of Malaysian Sales and Services Tax 2.0: the Influence of Internal and External Risks

Abstract

Sales and Service Tax (SST) 2.0 was introduced in Malaysia on 1 September 2018. The implementation of SST 2.0 raised several issues from the taxpayers’ perspectives, such as certain transactions are subject to multiple tax exposures. This ‘tax cascade’ increases the prices of certain goods and services, hence increasing the possibility of businesses becoming tax non-compliance. Previous studies suggest that compliance can be improved by managing the associated internal and external risks. Hence, this paper aims to understand the internal and external risks in SST administration, and examine the relationship between internal and external risks involved with compliance risk management. Data was gathered through survey and analysed using descriptive and regression analyses. Results indicate that human resources and public opinion might pose some risk to tax administration, while others are well-managed by the tax authority. Furthermore, organisational work culture, human resources, professionalism, information technology, financial risk, legislation and economic condition have significant relationships with compliance risk management of SST 2.0. The findings provide meaningful insight for the tax authority in developing their risk management strategies in their effort to improve SST 2.0 compliance, and enhance their resilience to potential threats and challenges.