An Evaluation of the effect of information technology usage on tax compliance in Sri Lanka

Abstract

Taxation is a common way of finding government revenue in any country in the world and it is usually collected from the public in various ways. Taxes are of two kinds, namely direct and indirect. Adam Smith, the famous economist, enunciated four principles of a tax, namely, equality, certainty, convenience and economy. Equality establishes the principles that everybody should pay tax to the State according to his ability. A tax should be certain. Time of payment, manner of payment, and the amount to be paid should be definite and known. Tax payers should be provided convenient method of payment and it should be time saving and less costly to both tax payer and tax authority./ In the modern world, there are uncountable numbers of monetary transactions. People have various types of sources of income than the past. So the maintenance of the above tax principles is very difficult by using manual systems. IT usage is obviously important in every area in taxation to enforce compliance and minimizing the number of defaulters./ Tax compliance is an important concept in taxation. Tax compliance drops because of many reasons affected to the efficiency of the revenue administration. IT usage of the tax authority and the taxpayers is one of the reasons that may increase the tax compliance by way of providing timely information, better communication facilities and easy payment methods etc to tax payers as well as to automated office facilities to there evenue staff./ This research examines the present situation of the IT usage in the Department of Inland Revenue and how IT is used in handling tax and related documents by the tax payers. The report contains hypothesis testing for the relationship between IT usage and tax compliance and concludes with recommendations to the future enhancements of IT applications in tax administration.