THE FACTORS INFLUENCING THE INTENTION TO USE THE INCOME TAX E-FILING SYSTEM IN MALAYSIA CLAUDIA SHERYN ANAK ANTHONY JIM

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1 i THE FACTORS INFLUENCING THE INTENTION TO USE THE INCOME TAX E-FILING SYSTEM IN MALAYSIA CLAUDIA SHERYN ANAK ANTHONY JIM A thesis submitted in fulfilment of the requirement for the award of the Degree of Technology Management (Production and Operation) with Honours Faculty of Technology and Business Management Universiti Tun Hussein Onn Malaysia JANUARY 2018

2 ii I hereby declare that the work in this thesis is my own except for quotations and summaries which have been duly acknowledged Student :... CLAUDIA SHERYN ANAK ANTHONY JIM Date :... Supervisor :... DR. NOR AZIATI BINTI ABDUL HAMID Date :...

3 iii This hard work is sincerely dedicated to my beloved ones, to my supervisor and to my friends.

4 iv ACKNOWLEDGEMENT First and foremost, I would like to thank the Almighty God for His blessings and for giving me the sufficient strength towards the completion of this thesis. This thesis wouldn t be successful as planned if it was not because of His mighty work. I would also like to express my deepest appreciation to my beloved family, especially my parents, who have constantly supporting and motivating me, and who actually have never stopped praying for my journey and my success. All the support they have provided me over the past few years was the greatest gift anyone has ever given to me. Next, I would like to convey my deepest gratitude to my supervisor, Dr. Nor Aziati Binti Abdul Hamid for her guidance and teachings along my journey of completing my final year project. I am completely indebted to her for this wonderful opportunity of being able to work together. Being under her supervision was indeed one of the best experiences I have ever had during my study in University of Tun Hussein Onn Malaysia (UTHM), and I will never forget it. Not to forget, to other lecturers that have assist me and have taught me throughout my years of being a student. Thank you very much for supplying me with enough knowledge and moral values that have helped so much in this completion of this study. Finally, I am also forever grateful to all my friends, for their helps, supports and advices. It would not be easy without all the generous helps they have offered. Thanks for always being there to comfort me and encourage me to not give up on things so easily. And to those I have not mentioned, I am thankful to everyone who has joined me in this journey.

5 v ABSTRACT In 2005, the Malaysia s Lembaga Hasil Dalam Negeri (LHDN) has introduced the e- filing system to streamline the tax filing process through the use of information and communication technology. Until today, the growth in number of the e-filing users is at an overwhelming level. Thus, it is vital to assess the e-filing system as it helps to give LHDN an insight to provide better service and to further increase the taxpayers acceptance towards the system. After a thorough literature study, it was revealed that there was a very lack number of studies that focus on the MTUN academicians and very less have adopted the IS Success Model to determine the factors that influence the taxpayers to use e-filing. Thus, this study has integrated Technology Acceptance Model and IS Success Model in order to identify the level of e-filing usage among MTUN academicians, to study the relationship among the variables, and also to determine the most dominant factor that influence the taxpayer s intention to use the system. This study also adopted the convenient sampling to obtain data through the distribution of survey among the MTUN academicians. The finding of this study has revealed that the level of e-filing system usage among MTUN academicians is overwhelming and continuously growing. Besides that, this study has developed eight hypotheses. Correlation analyses have revealed that all the hypotheses are significant and therefore, all of the hypotheses are accepted. It was also revealed that the users satisfaction is the most influential factor towards the intention to use e- filing. Since users satisfaction plays a major role in influencing the intention, it is hoped that LHDN could be benefited as this could be a valuable intuition to improve or upgrade their strategy to optimize the acceptance.

6 vi ABSTRAK Pada tahun 2005, Lembaga Hasil Dalam Negeri (LHDN) Malaysia telah memperkenalkan Sistem e-filing untuk menyelaraskan proses pemfailan cukai melalui penggunaan teknologi maklumat dan komunikasi. Sehingga hari ini, pertumbuhan bilangan pengguna e-filing berada pada tahap yang sangat menggalakkan. Oleh itu, adalah penting untuk menilai sistem e-filing kerana ia membantu memberikan LHDN wawasan untuk menyediakan perkhidmatan yang lebih baik dan meningkatkan lagi penggunaan sistem. Selepas melakukan kajian kesusasteraan yang teliti, ternyata terdapat sangat kurang kajian yang memberi tumpuan kepada ahli akademik MTUN dan sangat kurang telah menggunakan Model Kejayaan IS untuk menentukan faktor-faktor yang mempengaruhi pembayar cukai menggunakan e-filing. Oleh itu, kajian ini telah menyepadukan Technology Acceptance Model dan IS Success Model untuk mengenal pasti tahap penggunaan e- filing di kalangan ahli akademik MTUN, untuk mengkaji hubungan antara pembolehubah, dan juga untuk menentukan faktor yang paling dominan yang mempengaruhi niat pembayar cukai gunakan sistem ini. Kajian ini juga menggunakan Convenient Sampling untuk mendapatkan data melalui pengedaran kaji selidik di kalangan ahli akademik MTUN. Dapatan kajian ini menunjukkan bahawa tahap penggunaan sistem e-filing di kalangan ahli akademik MTUN amat menggalakkan dan terus berkembang. Selain itu, kajian ini telah membangunkan lapan hipotesis. Analisis korelasi telah mendedahkan bahawa semua hipotesis itu, semua hipotesis mempunyai hubungan yang penting. Maka, setiap hipotesis telah diterima. Kajian ini juga telah mendedahkan bahawa kepuasan pengguna adalah faktor yang paling berpengaruh terhadap niat untuk menggunakan e-filing. Oleh kerana kepuasan pengguna memainkan peranan penting dalam mempengaruhi niat, diharapkan LHDN dapat mendapat manfaat kerana ini dapat menjadi intuisi yang berharga untuk memperbaiki atau meningkatkan strategi mereka untuk mengoptimalkan penerimaan.

7 vii CONTENTS TITLE DECLARATION DEDICATION ACKNOWLEDGEMENT ABSTRACT ABSTRAK CONTENTS LIST OF TABLES LIST OF FIGURES LIST OF SYMBOL AND ABBREVIATIONS LIST OF APPENDICES i ii iii iv v vi vii x xi xii xiii CHAPTER 1 INTRODUCTION 1.1 Introduction Background of study Problem Statement Research questions Research objectives Scope Significance of the study Thesis outline Definition of terms Summary 10 CHAPTER 2 LITERATURE REVIEW 2.1 Introduction E-filing service and previous studies Theoretical and model approaches 13

8 viii Technology acceptance model Information system success model Frameworks used in related previous researches Attitude and intention to use Perceived ease of use and attitude Perceived usefulness and attitude Trust and attitude Users satisfaction and intention to use Service quality and users satisfaction System quality and users satisfaction Information quality and users satisfaction Summarisation of variables measured in past studies Conceptual framework and hypotheses Hypotheses formulation Summary 29 CHAPTER 3 METHODOLOGY 3.1 Introduction Research design Research process Data collection Survey method Instrument development Population sampling Sampling technique Sampling size Data analysis Descriptive analysis Correlation analysis Pilot test Reliability test Summary 37

9 ix CHAPTER 4 DATA ANALYSIS 4.1 Introduction Response rate Data cleaning Demographic information Gender Age Working place Qualification Academic position Academic disciplines Level of e-filing system usage among MTUN academicians Reliability test Normality test Hypotheses testing Correlation between PEOU and ATT Correlation between PU and ATT Correlation between TRUST and ATT Correlation between SERVQ and US Correlation between SYSQ and US Correlation between INFOQ and US Correlation between ATT and INT Correlation between US and INT Correlation analysis and most dominant factor Summary 60 CHAPTER 5 DISCUSSION AND CONCLUSION 5.1 Introduction Discussion and conclusion Limitation and recommendation for further research Implications of the findings Summary 66

10 x REFERENCES 67 APPENDIX 73

11 xi LIST OF TABLES 2.1 Summary of models/frameworks used in previous studies Summarisation of variables measured in past studies Data analysis Reliability test for pilot test Percentage level of e-filing system usage experience Frequency and percentage level of method to submit file return Reliability test result Normality test result Absolute value or r and its indication Correlation between PEOU and ATT Correlation between PU and ATT Correlation between TRUST and ATT Correlation between SERVQ and US Correlation between SYSQ and US Correlation between INFOQ and US Correlation between ATT and INT Correlation between US and INT Correlation result summarisation Summary of findings 66

12 xii LIST OF FIGURES 1.1 Malaysia income tax filing guide Registering for the first time List of features on the e-filing system Technology acceptance model The original IS success model The reformulated IS success model Conceptual framework Conceptual framework with formulated hypotheses Research process flow Gender of respondents Age of respondents Working place of respondents Qualification of respondents Academic position of respondents Academic disciplines of respondents Usage experience Level of e-filing method usage Trend of filing method Conceptual framework with correlation coefficient 59

13 xiii LIST OF SYMBOLS AND ABBREVIATIONS r - Rho ATT - Attitude ATM - Automated teller machine CAM - Cash deposit machine CDM - Cheque deposit machine e-filing - Electronic-filing INFOQ - Information Quality INT - Intention to use IS - Information System KUITTHO - Kolej Universiti Teknologi Tun Hussein Onn KUKTEM - Kolej Universiti Kejuteraan dan Teknologi Malaysia KUKUM - Kolej Universiti Kejuteraan Utara Malaysia KUTKM - Kolej Universiti Teknikal Kebangsaan Malaysia LHDN - Lembaga Hasil Dalam Negeri MTUN - Malaysian Technical University Network PEOU - Perceived Ease of Use PU - Perceived Usefulness SEC - Security SERVQ - Service Quality SYSQ - System Quality TAM - Technology Acceptance Model TUCN - Technical University Colleges Network UMP - Universiti Malaysia Pahang UNIMAP - Universiti Malaysia Perlis US - Users Satisfaction UTEM - Universiti Teknikal Malaysia Melaka UTHM - Universiti Tun Hussein Onn Malaysia

14 xiv LIST OF APPENDICES APPENDIX TITLE PAGE A Instrument development 67 B Layout of questionnaire 70 C Demographic information 77

15 1 CHAPTER 1 INTRODUCTION 1.1 Introduction In today s world, Internet Technology has been widely used in every day s business to increase effectiveness, efficiency and convenience to the citizens. The increasing number of Internet users has actually led the government around the world in utilizing the Internet as a new way of conducting their business, especially in dealing transactions. The Malaysian s Government has also been extending their services and has invested a substantial amount of capital by utilizing the Internet, which they had introduced a medium to administer the people, called the e-government. It facilitates the public with access to government information and services. According to Berdykhanova et al., (2010), e-government is defined as the use of primarily Internet-based information technology to enhance the accountability and performance of government activities. As the Internet access increases worldwide, so does the pressure for government to offer successful forms of e-service 24 hours a day, seven days a week (Wang & Lin, 2007) 1.2 Background of study Such technology can facilitate a broad range of services. The digital environment plays an important role to provide public service a fast, easy and with integrity information at a click (Lean et al., 2009). One of the online services that the Malaysian s Government has adopted is the online electronic tax processing system, called e-filing. In 2004, the Lembaga Hasil Dalam Negeri (LHDN) had spearheaded an initiative to implement a

16 2 system for filling and paying taxes that would promote electronic paperless transactions (Nasr, 2014). In a study performed by Ghazali, Mustapha, & Mozie (2014), they have stated that the e-filing is a service which allows the citizen to submit tax return electronically through the Internet. By then, it is believed that the system has received much attention and there has been an upward trend in the adoption of the system among taxpayers every year (Santhanamery & Ramayah, 2012). Besides that, Berdykhanova, Dehghantanha, & Hariraj (2010) also added that this online tax system is particularly favourable for the government because they avoid many of the mistakes taxpayers make in manual filings, and they help to prevent tax evasion by data matching. The Malaysia s e-filing system serves to help the taxpayers to submit their income tax return, and ever since its implementation, it is a popular method as it deemed to be simple to use and user-friendly (Intelligent Money, 2017). Although most Malaysians are required to pay tax, i.e., Goods and Services Tax, not all are chargeable to file for Income Tax. Those who are chargeable to file are those who earn annual employment income of RM and above, after EPF deduction (Inland Revenue Board, 2015). While those who earn below than that amount do not have file for Income Tax. Figure 1.1 simply shows how an e-filing process goes: Figure 1.1: Malaysia Income Tax Filing Guide (Intelligent Money, 2017)

17 3 Every Malaysian taxpayer who wishes to do transaction related to Income Tax can either adopt the manual (traditional) method or the Internet method (e-filing). For the manual method, taxpayers are required to pay their tax over the counter at any bank branches or LHDN counters, ATM or any CDM/CAM machine. As for the Internet method, they can either pay their Income Tax through e-filing system or via the Internet banking. For first-timers or those who have never filed their Income Tax, they are required to register at as shown in Figure 1.2. Figure 1.2: Registering for the first time (Intelligent Money, 2017) Once a taxpayer has logged on to the system, the taxpayer will be shown a list of features available on e-filing. To begin filing tax, taxpayer is required to click on e- Borang link under the e-filing menu as shown in Figure 1.3.

18 4 Figure 1.3: List of features on the e-filing system (Intelligent Money, 2017) Since governments describe these initiatives, several studies (e.g. C. W. Chen, 2010; J. V. Chen et al., 2015; Connolly & Bannister, 2010; Hamid et al., 2016; Hung, Chang, & Yu, 2006; Sahari & Abidin, 2012; Santhanamery & Ramayah, 2012, 2015; Susanto & Aljoza, 2015; Wang & Lin, 2007) have been made to investigate why people want, need or use these services or what factors that motivate people to adopt this service. There are many theories and models that are developed to validate the users acceptance to use online tax filing system in the previous studies. Among others, in this research, an integration two models was developed to investigate the citizens intention to use the electronic tax filing system provided by LHDN. The Technology Acceptance Model (TAM) was extended with constructs derived from Information System (IS) Success Model. This study has focused on the intention of MTUN (Malaysian Technical University Network) academicians to use the e-filing system. MTUN started with establishment of University Colleges in the early MTUN specialises in higher

19 5 technical and technology programmes which are practical-oriented. The four university colleges then were KUiTTHO, KUTKM, KUKTEM, and KUKUM. For mutual benefits, the TUCN (Technical University Colleges Network) of Malaysia was officially formed in March In February 2007, all four universities colleges underwent a rebranding initiative and henceforth emerged as full universities. The universities are UTHM, UTeM, UMP and UniMAP. Pursuant to this, TUCN is rebranded to MTUN. Subsequently, in 2015, MTUN is redefined as MTU which is in line with its aspiration towards a consortium (Malaysian Technical University Network, 2015). 1.3 Problem statement The implementation of e-government service has been immensely used by most countries around the globe due to its ability to administer the citizen s need in a more efficient way. Compared to other online services provided by the government, filling out the tax returns electronically is one of the most advanced and widespread services being used (Barati et al., 2014). E-filing services serve measurable benefits to both taxpayers and Lembaga Hasil Dalam Negeri (LHDN) in terms of convenience, time saving, accuracy, security, cost effectiveness, reduced processing time and increase productivity and efficiency (Santhanamery & Ramayah, 2015). With the tax e-filing system, taxpayers can file their income tax returns electronically from home. Over the past few years, LHDN has reported growth in the numbers of taxpayers via e-filing. After it was introduced in 2005, the LHDN has received much attention and an upward trend in the adoption of the e-filing system. According to a report by Bernama (2015), a total of 2.61 million of taxpayers have filed their tax return via e- filing in the year 2014, then in the same period in 2015, a total of 2.89 million are reported to have filed their tax return which showed an increase of 9.73 per cent of the usage of e-filing system. Even though the acceptance of the e-filing systems among taxpayers are encouraging and increasing, but the number of taxpayers via e-filing in Malaysia are still quite low (Ghazali et al., 2014) as compared to other countries such as Taiwan, China, United States and Singapore (UK Essays, 2013). This could be explained due to the factor that Malaysian citizens are still given the choice to file their

20 6 tax return manually or by filing it electronically (Nasr, 2014). Nasr (2014) also stated that uncertainty about the security and privacy of information transmitted online could be one of the reasons for low use of e-filing. It is crucial for LHDN to maintain and therefore to increase their effort so that Malaysia s e-government service could be as compatible to other developed countries. Therefore, it is critical to understand the factors that may influence the citizens intention to use e-filing system to file their tax return. While many studies (e.g. J. V. Chen et al., 2015; Gallant, Culnan, & McLoughlin, 2007; Othman, Yasin, & Samelan, 2012) are conducted to understand why the number of taxpayers is least than expectations, there are very limited numbers of study that are conducted to explain the upward trend in the adoption of the system among taxpayers, specifically those who are working for the Malaysian Government. Besides that, the previous studies also have shown that there were a very lack number of studies that focused on MTUN academicians. Due to that matter, the level of e-filing usage is not known. In addition to that, most of the previous studies in Malaysia have only focused on other taxpaying groups such as public school teachers (Hamid et al., 2016) or just unspecified individual taxpayers from certain states (Azimaton et al., 2016; Santhanamery & Ramayah, 2012). Furthermore, previous studies were conducted have measured online tax payment system from Technology Acceptance Framework and I.S. Success Model framework in separate views. The literature study also revealed that there was a very lack number of studies that focus on the technological factors (quality antecedents) and a lack of adoption of the IS Success Model in Malaysia. Therefore, to address this gap, this study has adopted a quantitative research design in which cross-sectional online survey method has been conducted among MTUN academicians. Descriptive analysis is used to describe the intention of the tax payers on the acceptance of the system and make to make a generalization about the sample population while the correlation analysis is used to help in identifying significant relationship between the variables statistically and also to help in drawing a conclusion about the most dominant factor that leads the taxpayers to use the e-filing. Due to that, an integration of Technology Acceptance Model (TAM) and Information System (IS) Success Model is adopted in this research to study the intention of the MTUN academicians to use e-filing. The extended framework has two levels of dependent

21 7 variables which consist of predictor constructs and salient beliefs. The predictor constructs (Attitude and Users Satisfaction) are the main constructs of the behaviour to use e-filing preceded by salient beliefs which linked to the predictor constructs. According to the latest information from a newspaper report (Bernama, 2017), LHDN has sets its target to receive 4.2 million taxpayers form through the e-filing system for the 2016 assessment year. Thus, the findings from this study could be very useful as to Malaysia s LHDN so that recommendations could be developed to either improve the system or utilize the information to find ways to attract more users to utilize e-filing. 1.4 Research questions The current research has aimed to answer the following questions: (i) What is the level of usage of e-filing system among MTUN academicians? (ii) What are the correlation between the behavioural antecedents towards attitude, the correlation of quality antecedents towards Users Satisfaction, and the correlation between predictor constructs (ATT and US) towards the intention to use the system? (iii) Which of the factors are the most dominant that influence the intention of MTUN academicians to use e-filing? 1.5 Research objectives The measurable objectives of this research being made are as follows; (i) To identify the level of e-filing system usage among MTUN academicians. (ii) To examine the correlation between the behavioural antecedents (PEOU, PU, TRUST) towards attitude, and correlation of quality antecedents (SYSQ, SERVQ, INFOQ) towards the intention to use the system by integrating TAM into IS Success Model. (iii) To determine the most dominant factors that influence the intention of MTUN academicians to use e-filing system

22 8 1.6 Scope of the study This study extended a research on Malaysia s government online tax filing system, e- filing by focusing on the factors that influence the intention of the taxpaying citizens to use this service. The population of this study consists of MTUN academicians that have at least filed their income tax using e-filing for three years. MTUN consists of four universities which are UTHM, UMP, UTeM, and UniMAP. A total of 200 academicians from the four universities were expected in this survey to obtain primary data. Somehow, after data collection, only a total of 120 respondents from various designations have involved in this study. The respondents involved were Professors, Senior Lecturers, Lecturers and, Tutors This study has combined two models; IS Success model and the Technology Acceptance Model (TAM) to form an integrated framework to investigate the factors that predict the intention to use e-filing. 1.7 Significance of the study This study offered several contributions to the LHDN and the taxpaying citizens. Firstly, this study is able to provide beneficial insights about e-filing to the groups that are being studied. Since this study aims to determine the most dominant factor that influence taxpayers to use e-filing, the findings could be very advantageous guide to LHDN to develop strategies from the observing areas so that the e-filing could be further improved. Secondly, if the e-filing system is improved according to the findings, it will consequently improve the level of usage of e-filing among the taxpayers. 1.8 Thesis outline This thesis has been organized into five chapters, which includes; Chapter 1 (Introduction): This chapter presented the introduction to the whole study being made. This chapter consists of background of study, the statements of problems,

23 9 the research questions and objectives, scope of the study, significance of the study, the outlines of the whole dissertation, as well as the definitions of the terms being used. Chapter 2 (Literature Review): This chapter presented the theories and models that were adopted in this study. It also presented the researcher s reviews on past related studies that were conducted previously and the variables that were measured. The last part of this chapter outlined the integrated framework and the hypotheses that were used. Chapter 3 (Methodology): Methodology presented the design of the whole research, which includes; the method of how data were collected, the method of choosing the sample, and the method of how data were analysed. Besides that, this chapter also demonstrated the results of the pilot study. Chapter 4 (Data Analysis): This chapter demonstrated the results and the interpretation of the whole study after the data were analysed. Chapter 5 (Discussion and Conclusion): This chapter presented the summary of the findings, conclusions, recommendations, and implication. 1.9 Definition of terms In this study, there were few terms that were used. The highlighted terms includes; Perceived Ease of Use The degree to which a person believes that using a system would be free of effort (Davis, 1989). Perceived Usefulness The degree to which a person believes that using a particular system would enhance his or her job performance (Davis, 1989).

24 10 Trust The willingness of a party to be vulnerable to the actions of another party based on the expectations and the other party will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party (Mayer et al., 2016). Service Quality The degree to which the service is delivered to best address customer needs in terms of the support of the entity managing the system (DeLone & McLean, 2002). System Quality The degree in which the functionalities of the system can best address customer needs, with as much ease and as minimal problems encountered as possible (DeLone & McLean, 2002). Information Quality The extent to which the information provided best fits customer needs, based on measures on how accurate, relevant, timely and complete the information is to address such needs (DeLone & McLean, 2002). Attitude An attitude is a disposition to respond favourably or unfavourably to an object, person, institution or event (Ajzen, 2005). Users Satisfaction A measure of recipient response to the use of the output of an information system (DeLone & McLean, 2002). Intention to use Intention captures the motivational factors that drive a person to perform behaviour (Ajzen, 1991).

25 Summary E-filing system is a medium that is widely used by many income tax payers to file their tax and it is a topic that has been extensively studied by previous researchers. Somehow, the literature study has found out that the previous studies, especially in Malaysia, were lacking in certain things. Firstly, it was learned that the intention of MTUN academicians to use e-filing as well as their level of e-filing usage were yet to be discovered in previous studies in Malaysia. Besides that, literature study has also revealed that IS Success Model was not commonly adopted among Malaysian researchers when it comes to studying the acceptance of the e-filing system. Due to this factor, the understanding of the effect of quality antecedents of the system towards the satisfaction of the taxpayers is still in vague. Even if the IS Success Model was ever been adopted by previous studies, only a small number of researchers have integrated it with TAM. Therefore, to address the gaps, this study has aimed to meet three objectives. Firstly, this study aimed to identify the level of e-filing usage among MTUN academicians. Besides that, this study also has adopted 6 independent variables, and 3 dependant variables. Therefore, by integrating IS Success Model and TAM, the second objective was to examine the correlation of these variables. Meanwhile, the final objective aimed to determine the most dominant factor amongst the dependant variables that influence the intention to use the e-filing system. In meeting all these objectives, this study has employed the MTUN academicians that have at least filed their income tax once to be the respondents. These findings were hoped to be beneficial towards LHDN by providing them ideas to enhance their strategy in tackling issues and providing better service towards the service. Taxpaying citizens also will be benefited along as the service will be improved.