Abstract:
This study investigates the key factors that influence tax evasion among individual
taxpayers in Sri Lanka, a pressing issue that undermines public revenue and economic
development. The present research focuses on five major independent variables: tax
rate, tax knowledge, penalties for non-compliance, fairness of the tax system, and
individual moral attitudes. The study limited its analysis to five variables based on
prior literature and theoretical frameworks rather than factor analysis, with their
validity and reliability confirmed through statistical tests. A quantitative research
methodology was adopted, using a structured questionnaire administered to a sample
of 384 individual taxpayers registered with the Inland Revenue Department of Sri
Lanka. The 384 individual taxpayers were selected as the sample size, according to
the Morgan table. The data were analyzed using descriptive statistics, correlation, and
multiple regression analysis via SPSS software. The findings reveal that individual
moral attitudes, tax rates, and penalties for non-compliance have a statistically
significant impact on tax evasion, with moral attitudes showing the strongest
influence. However, tax knowledge and perceived fairness of the tax system did not
demonstrate a significant direct effect in the regression model, despite showing high
correlations. These results underscore the complex interplay between taxpayer
behavior and institutional structures. The study contributes to both academic
knowledge and policy-making by identifying critical areas for intervention.
Enhancing ethical tax behavior, improving the effectiveness of penalties, and
rationalizing tax rates are recommended strategies to mitigate tax evasion. The
research also highlights the need for further studies focusing on enforcement
mechanisms and tax education within Sri Lanka's unique economic context.
