Beyond Enforcement: The Role of Taxpayer Education and Literacy in Promoting Voluntary Tax Compliance in Malaysia

Beyond Enforcement: The Role of Taxpayer Education and Literacy in Promoting Voluntary Tax Compliance in Malaysia

Noor Asrafez Jailuddin^*1, Jaya Kumar Shanmugam², Zulyanti Abd Karim³, Nur Syawaibah Aimi Ibrahim⁴

^1,2,3Faculty of Accountancy, Universiti Teknologi MARA, Cawangan Kedah

⁴Kaplan Financial Limited, United Kingdom

DOI: https://dx.doi.org/10.47772/IJRISS.2025.908000603

Received: 21 August 2025; Accepted: 26 August 2025; Published: 23 September 2025

ABSTRACT

Voluntary tax compliance is a fundamental to a sustainable revenue system. However, Malaysia continues to face challenges in reaching this goal as it depends heavily on enforcement strategies. This study addresses the limited effectiveness of existing taxpayer education programmes and the underexplored role of tax literacy in fostering voluntary compliance. This research aims to develop a conceptual framework that positions tax literacy as a mediating factor between taxpayer education and voluntary compliance behaviour in Malaysia. Through a narrative review methodology, the study synthesises findings from peer-reviewed literature sourced primarily from the Scopus database. A critical examination of key variables such as tax education quality, tax literacy levels, and taxpayer behaviour was also conducted using integrative thematic analysis. The findings reveal that, although tax knowledge significantly correlates with improved compliance, the effectiveness of current education programmes remains inconsistent. Tax literacy, which is defined as the ability to understand, interpret, and apply tax laws, emerges as a vital mechanism that enhances taxpayers’ confidence, ethical orientation, and ability to comply voluntarily. Moreover, institutional trust in tax authorities and the simplification of tax procedures appear to strengthen the overall educational interventions. The study’s conceptual framework, underpinned in the Theory of Planned Behaviour, illustrates the interaction of cognitive, affective, and behavioural components in influencing tax compliance behaviour. The study advocates for policymakers to shift from punitive models towards citizen-centric strategies that prioritise education, transparency, and trust-building. These findings offer theoretical and practical contributions, guiding future scholarly inquiry and informing policy reforms aimed at strengthening voluntary tax compliance in the Malaysian context.

Keyword: Taxpayer Education, Tax Literacy, Voluntary Tax Compliance

INTRODUCTION

The efficiency and sustainability of a nation’s revenue system rely heavily on taxpayers’ willingness to comply voluntarily. Tax compliance in Malaysia remains a persistent challenge, often addressed through enforcement measures such as audits and penalties. However, a growing body of research emphasises that fostering voluntary tax compliance through non-coercive approaches, especially taxpayer education and improved tax literacy, may yield more sustainable outcomes over the long term (Hamid et al., 2020; Abdullah & Sapiei, 2008). As Malaysia seeks to refine its tax system and broaden the tax base, it becomes increasingly critical to ensure the capability of the current educational initiatives to sufficiently build an informed and cooperative tax culture.

Prior studies have consistently linked tax knowledge with higher compliance rates. For instance, individuals with a greater understanding of tax regulations are generally more likely to meet their obligations voluntarily (Hamid et al., 2020; Palil & Mustapha, 2011). Nonetheless, some findings highlight that current local taxpayer education programmes are underperforming, with limited influence on actual taxpayer behaviour (Hassan et al., 2023). In terms of knowledge acquisition, trust in tax authorities and effective communication have also emerged as influential factors, particularly among younger and self-employed taxpayers (Ali & Ahmad, 2014; Sanusi et al., 2021). Tax literacy, which goes beyond basic knowledge to include comprehension of rights, obligations, and procedures, is increasingly recognised as a key mediating factor that shapes voluntary compliance behaviour.

Despite growing awareness of these factors, a critical gap persists in understanding the mechanisms through which taxpayer education translates into voluntary compliance. Existing literature largely conceptualises education as a direct compliance determinant, and frequently overlooking the mediating role of tax literacy in this relationship. Moreover, insufficient attention has been posited on how education quality and content interact with trust-building efforts to shape taxpayer behaviour (Agusti & Rahman, 2023; Fatt & Khin, 2011). This has led the researcher to address this gap by proposing a conceptual framework that positions tax literacy as a mediating variable between taxpayer education initiatives and voluntary tax compliance in Malaysia.

By developing and discussing this conceptual framework, the study contributes to both academic and policy discourses. It offers theoretical insights into the behavioural dimensions of tax compliance and provides practical recommendations for designing more effective educational strategies. With a clearer understanding of how education and literacy impact compliance behaviour, Malaysian tax authorities can improve its long-term revenue performance by adopting a more citizen-centric approach to reduce reliance on enforcement.

This paper is structured as follows: After the introduction, the next section provides a detailed literature review of tax compliance, taxpayer education, tax literacy within Malaysia and similar contexts. This is followed by a discussion of the proposed conceptual framework and its theoretical foundation, grounded in the Theory of Planned Behaviour and Human Capital Theory. The final sections address the implications for tax policy, followed by recommendations for future research, and concluding remarks.

LITERATURE REVIEW

Quality of Taxpayer Education Programmes

The quality of taxpayer education programmes is pivotal in shaping taxpayer behaviour and fostering voluntary compliance. In Malaysia, several studies suggest that while educational efforts are in place, their design and delivery often fall short of achieving desired outcomes. Hassan et al. (2023) reported that accommodative approaches like tax rewards and structured education programmes positively influence compliance behaviour, yet inconsistencies in content delivery reduce their overall effectiveness. As noted by Sanusi et al. (2021), collaboration between tax authorities and educational institutions can significantly enhance tax awareness, particularly when the educational content is tailored to specific demographic groups such as students or SMEs. However, the lack of sustained and targeted tax education campaigns remains a key barrier due to the absence of continuous and structured tax education strategies for school-level learners (Winarti & SeEtyowati, 2016). Collectively, these findings highlight the need to redesign Malaysia’s taxpayer education programmes to ensure that they are inclusive, ongoing systematically, and strategically aligned with national tax goals.

Tax Literacy

Tax literacy, which is defined as a taxpayer’s ability to understand tax obligations, procedures, and rights, functions as a crucial mediating factor between education programmes and voluntary tax compliance. Empirical findings suggest that low tax literacy levels significantly hinder effective compliance. The prior study by Abdullah and Sapiei (2008) reported that many Malaysians possess insufficient knowledge of service tax regulations, which adversely affects their ability to comply. Zandi et al. (2016) further revealed that inadequate tax knowledge among individuals often correlates with poor tax morale and evasion behaviour. In the recent finding, Ras et al. (2024) highlighted that economic constraints combined with low awareness of self-tax relief options, significantly reduce taxpayers’ ability to comply voluntarily. Other studies also show that religiosity and ethical education can enhance tax literacy, particularly among Islamic educators, who link tax obligations to moral duties (Rahman et al., 2024). These findings underscore the need for literacy-focused educational initiatives that not only communicate tax laws clearly but also promote ethical and practical tax understanding among various taxpayers groups .

Voluntary Tax Compliance

Voluntary tax compliance refers to the willingness of taxpayers to fulfil their obligations without enforcement measures. It is influenced by a variety of psychological, structural, and knowledge-based factors. Hamid et al. (2020) identified that both tax knowledge and income tax rates significantly impact voluntary compliance among individual taxpayers in Malaysia. Similarly, Jayakumar et al. (2024) noted that psychological empowerment and tax transparency positively shape compliance behaviour among SMEs. The role of religious values is also significant, as evidenced by Rahman et al. (2024) who demonstrated that Islamic educators with high religiosity were more inclined to comply voluntarily, as they perceived taxation as a moral and civic responsibility. However, tax evasion remains prevalent, often driven by distrust in tax authorities and complex tax systems (Pui Yee et al., 2017). This suggests that while education and literacy improve compliance, both must be complemented by simplified tax procedures and trust-building mechanisms. Therefore, a multi-dimensional approach that integrates with knowledge, transparency, and ethical orientation is essential for fostering sustainable voluntary tax compliance in Malaysia.

METHODOLOGY

Research Design — Narrative Review Methodology

This study employs a narrative review methodology to systematically explore the role of taxpayer education and literacy in promoting voluntary tax compliance in Malaysia. Unlike systematic reviews that focus on quantitative aggregation, narrative reviews allow for an in-depth qualitative synthesis of existing literature, capturing a broad range of perspectives, themes, and theoretical insights. This approach is particularly suited for understanding complex social phenomena such as tax compliance, where contextual and conceptual factors are prominent (Baumeister & Leary, 1997; Green et al., 2006). The narrative approach enables integration of diverse study designs and findings, highlighting patterns and gaps to inform future research and policy.

Key Steps in Conducting a Narrative Review — Data Collection through Scopus Database

The key steps in conducting the narrative review began with a comprehensive literature search performed through the Scopus database, selected for its extensive coverage of peer-reviewed journals across social sciences and economics. The process involved identifying relevant studies through systematic keyword searches, screening titles and abstracts for relevance, and retrieving full texts for in-depth analysis. Data extraction was focused on variables such as tax education, literacy, voluntary compliance, and related policy interventions. This stepwise approach ensured a robust and replicable literature corpus, enabling the review to draw from the most pertinent and recent empirical evidence on taxpayer education and compliance in the Malaysian context (Grant & Booth, 2009; Okoli, 2015).

Data Collection and Review Strategy — Search String and Integrative Thematic Analysis

The literature search utilised a carefully constructed Boolean search string combining key terms to capture relevant studies: (“taxpayer” OR “tax payer” OR “taxation” OR “fiscal”) AND (“education” OR “literacy” OR “awareness” OR “knowledge”) AND (“Malaysia” OR “Malaysian” OR “Southeast Asia” OR “ASEAN”) AND (“financial literacy” OR “tax knowledge” OR “compliance” OR “training”) AND (“policy” OR “programme” OR “initiative” OR “strategy”). This comprehensive search strategy targeted studies focused on taxpayer education and compliance in Malaysia and similar Southeast Asian contexts. The selected articles were then subjected to an integrative thematic analysis approach, which involved coding data to identify and synthesise key themes, concepts, and theoretical perspectives. This method enabled the distillation of complex information into coherent thematic categories, facilitating a nuanced understanding of how education and literacy affect voluntary tax compliance (Braun & Clarke, 2006; Whittemore & Knafl, 2005).

Key Findings from the Narrative Review

Table 1. Key Findings

The narrative review highlights that tax knowledge plays a pivotal role in fostering voluntary tax compliance in Malaysia, as taxpayers with a greater understanding are more likely to fulfil their obligations (Hamid et al., 2020; Abdullah & Sapiei, 2008). Nevertheless, the effectiveness of current tax education programmes is inconsistent, with some initiatives failing to significantly improve compliance, underscoring the need for better-designed and targeted programmes (Hassan et al., 2023; Zandi et al., 2016). The role of tax authorities is emphasised as critical, where transparent communication and trust-building efforts enhance taxpayer morale and compliance rates (Ali & Ahmad, 2014; Sanusi et al., 2021). Additionally, tax literacy, which involves thorough comprehension of tax regulations, is necessary for voluntary compliance, equipping taxpayers to navigate tax systems confidently (Ras et al., 2024; Winartati & SeEtyowati, 2016). Despite these positive influences, several challenges persist, such as insufficient awareness, distrust towards authorities, and the complexity of tax laws, all of which can deter compliance. To address these issues, the literature suggests enhancing the quality and accessibility of educational programmes, simplifying tax procedures, and fostering constructive relationships between taxpayers and authorities (Zandi et al., 2016; Fatt & Khin, 2011). Together, these insights underline the multifaceted role of education and literacy in promoting voluntary tax compliance in Malaysia.

Figure 1: Building Tax Compliance in Malaysia

Development of the Theoretical Framework

The theoretical framework for this study is grounded in the Theory of Planned Behaviour (TPB) (Ajzen, 1991), which has been widely adopted in tax compliance research due to its strong predictive capacity regarding individual behaviour. TPB posits that behavioural intentions are influenced by three key factors: attitudes towards the behaviour, subjective norms, and perceived behavioural control. In the context of taxation, these factors correspond to a taxpayer’s personal views on taxation (attitude), perceived social pressure to comply (subjective norm), and confidence in their ability to understand and fulfil tax obligations (perceived control). This theory provides a robust lens for evaluating the impact of taxpayer education and literacy, especially in influencing attitudes and enhancing perceived behavioural control, both of which are crucial for fostering voluntary tax compliance in Malaysia (Palil & Mustapha, 2011; Bobek et al., 2007).

Building upon TPB, this study conceptualises a framework where taxpayer education and tax literacy serve as key enablers that influence compliance behaviour through three primary channels: improving tax knowledge (cognitive component), shifting perceptions and attitudes towards taxation (affective component), and strengthening the individual’s confidence to comply (behavioural control). Literature suggests that improved tax literacy leads to more accurate tax filings, reduced tax evasion, and increased compliance rates (Abdullah & Sapiei, 2008; Hassan et al., 2023). Additionally, the role of tax authorities and institutional trust integrates with the TPB framework as a moderating factor that influences both subjective norms and attitudes (Ali & Ahmad, 2014). By integrating these components, the framework visualises taxpayer education not as a singular variable, but as a multidimensional construct that enhances understanding, reshapes perception, and empowers action, then ultimately strengthening voluntary compliance.

The practical implications of this framework are considerable. For policymakers and tax authorities, it suggests that effective tax compliance strategies should move beyond enforcement and incorporate education-focused, trust-building interventions. By investing in tailored tax literacy programmes and transparent communication efforts, authorities can positively influence taxpayer attitudes and perceptions, thereby leading to improved voluntary compliance (Sanusi et al., 2021; Zandi et al., 2016). Moreover, this framework provides a structured basis for future research to test the mediating effects of literacy on compliance behaviour, as well as the moderating role of institutional trust. In conclusion, the integration of the Theory of Planned Behaviour with current literature offers a comprehensive and dynamic theoretical foundation for understanding the interplay between education, literacy, and tax compliance in Malaysia’s evolving fiscal environment.

Given the preceding discussions, Figure 2 illustrates the proposed theory of the study:

Figure 2: Proposed theoretical framework

Proposition Development 1

Taxpayer education plays a crucial role in enhancing tax literacy, which is essential for enabling individuals to understand, interpret, and apply tax laws correctly. The relationship between education and tax literacy is well-supported in the literature, highlighting that structured and targeted taxpayer education programmes significantly improve taxpayers’ knowledge and awareness of tax obligations (Abdullah & Sapiei, 2008; Sanusi et al., 2021). Moreover, studies by Hassan et al. (2023) and Zandi et al. (2016) underscore the importance of disseminating accurate and accessible tax information through educational initiatives to foster informed citizenry and responsible tax behaviour. Educational interventions that are tailored to different taxpayer segments, such as students, small business owners, and the self-employed, have been shown to reduce misinformation and bridge the knowledge gap (Winartati & SeEtyowati, 2016). In the Malaysian context, low levels of tax literacy remain a challenge (Abdullah & Sapiei, 2008), but evidence suggests that well-designed education programmes have the potential to raise literacy and, subsequently, improve compliance behaviour (Hamid et al., 2020). Therefore, it can be posited that:

Proposition 1: Taxpayer education positively affects tax literacy.

Proposition Development 2

Tax literacy is essential in shaping voluntary tax compliance, as it equips individuals with the necessary knowledge, skills, and confidence to fulfil their tax obligations accurately and independently. In Malaysia, tax compliance is often undermined by an insufficient understanding of tax regulations, leading to unintentional non-compliance or evasion. Studies have consistently demonstrated that individuals with higher levels of tax literacy are more likely to file taxes correctly, understand available tax reliefs, and develop positive attitudes towards taxation (Abdullah & Sapiei, 2008; Sanusi et al., 2021). Tax literacy not only enhances cognitive understanding but also strengthens behavioural control, one of the central elements in the Theory of Planned Behaviour, which directly influences an individual’s ability and motivation to comply voluntarily (Hassan et al., 2023). Moreover, empirical evidence shows that tax knowledge and awareness serve as protective factors against evasion and reinforce trust in the self-assessment system, especially among small businesses and higher education students in Malaysia (Hamid et al., 2020; Jayakumar et al., 2024). Therefore, enhancing tax literacy is essential to cultivating a more compliant taxpayer base or one that understands both the procedural and ethical dimensions of taxation.

Proposition 2: Tax literacy has a positive effect on voluntary tax compliance.

Proposition Development 3

Tax literacy serves as a critical mediating variable that links the quality of tax education to voluntary tax compliance. Similar to the first proposition, tax compliance in Malaysia is often influenced by individual understanding and perceptions of the tax system. While quality tax education provides foundational knowledge and improves awareness, its impact on actual compliance behaviour is significantly enhanced when it results in improved tax literacy. This is also known as the ability of individuals to apply tax knowledge effectively in real-world contexts. Effective taxpayer education initiatives that focus on clarity, accessibility, and relevance have been shown to increase tax literacy, thereby empowering individuals to understand their rights and responsibilities, reduce unintentional errors, and foster positive tax attitudes (Abdullah & Sapiei, 2008; Sanusi et al., 2021). This enhanced literacy boosts cognitive and behavioural confidence, aligning with the Theory of Planned Behaviour, which posits that perceived behavioural control is key to voluntary action (Hassan et al., 2023). Empirical findings in Malaysia suggest that tax literacy is instrumental in translating educational efforts into compliant behaviour by shaping attitudes, reducing ambiguity, and strengthening trust in tax systems (Hamid et al., 2020; Jayakumar et al., 2024). Therefore, the effectiveness of tax education in promoting compliance is largely contingent on the degree to which it enhances tax literacy.

Proposition 3: Tax literacy mediates the relationship between quality of tax education and voluntary tax compliance.

CONCLUSION

This study concludes that the quality of taxpayer education significantly influences voluntary tax compliance, with tax literacy playing a crucial mediating role in this relationship. The findings underscore that well-structured and targeted tax education programmes enhance individuals’ understanding of tax obligations, foster positive attitudes, and increase their confidence in navigating the tax system, ultimately promoting voluntary compliance. Theoretically, the study contributes to the literature by integrating the Theory of Planned Behaviour into a fiscal context, reinforcing the importance of cognitive, affective, and behavioural components in shaping compliance behaviour. Practically, the results offer valuable insights for policymakers and tax authorities, emphasising the need for sustained investment in education-based compliance strategies and collaboration with educational institutions to build tax knowledge from an early stage. However, the study is limited by its reliance on self-reported data, the potential sample bias, and its focus on a specific national context, which may affect the generalisability of the findings. Future research should explore longitudinal data to assess the long-term impact of tax education, consider comparative studies across different regions or countries, and examine the role of digital tools and behavioural interventions in enhancing tax literacy and compliance outcomes.

ACKNOWLEDGEMENT

The authors would like to express their sincere gratitude to the Kedah State Research Committee, UiTM Kedah Branch, for the generous funding provided under the Tabung Penyelidikan Am. This support was crucial in facilitating the research and ensuring the successful publication of this article.

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