Determinants affecting tax compliance: A case of business households in Ho Chi Minh City, Vietnam

 136 Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152 
Determinants affecting tax compliance: 
A case of business households in Ho Chi Minh City, Vietnam 
Khuc Dinh Nam1*, Nguyen Thi Binh Minh1 
1Nong Lam University, Vietnam 
*Corresponding author: khucdinhnam@hcmuaf.edu.vn 
ARTICLE INFO ABSTRACT 
DOI:10.46223/HCMCOUJS. 
econ.en.11.1.984.2021 
Received: September 21st, 2020 
Revised: January 14th, 2021 
Accepted: January 18th, 2021 
Keywords: 
tax compliance, business 
households, personal norm, tax 
rate, tax knowledge 
This paper aims to identify key factors influencing the tax 
compliance of business households in Ho Chi Minh City, Vietnam. 
The researchers surveyed 215 owners of business households in Ho 
Chi Minh City from June 2020 to July 2020. Analysis of the model 
includes the 4 phases following: (i) Applying the expert 
methodology; (ii) Cronbach’s test for reliability of the scale and 
exploratory factors analysis (EFA); (iii) Pearson correlation 
coefficient analysis; (iv) Regression analysis and hypothesis test of 
a model. The results of this study revealed that factors affecting tax 
compliance of business households in Ho Chi Minh City, Vietnam 
in descending order of importance: Tax Rate, Tax Knowledge, Tax 
Penalty, Personal Norm, and Perceived Fairness (of the system). 
Moreover, the tax rate had a negative relationship with tax 
compliance and the others had a positive one with tax compliance. 
Finally, the research also proposes some implications to enhance 
tax compliance of business households and directions for further 
research. 
1. Introduction 
In Vietnam, business households are also one of the important economic sectors 
contributing to Vietnam’s economy. However, the General Statistics Office of Vietnam showed 
that there were more than 5.6 million business households in 2018, but according to the General 
Department of Taxation’s data, the whole country had just over 1.7 million business households 
having tax payments in 2018. Statistics from the General Department of Taxation show that from 
2015 to 2018, the tax revenue collected from business households only increased slightly over the 
years, while the proportion of contribution to the state budget decreased. Ho Chi Minh City is an 
economic, financial, commercial, and service center of the country, and is the nucleus of the 
southern key economic region. With a high economic growth rate, the city size accounts for only 
0.6% of the area and 8.3% of the population but has contributed 20.2% of the gross national 
product and one-third of the State budget every year. Therefore, Ho Chi Minh City is home to 
many business households that provide accommodation services as well as other services related 
to the residents such as catering, entertainment, and essentials, etc. 
Although tax compliance has been researched for a long time, the factors influencing tax 
compliance are very different among different countries and individuals. Moreover, most of the 
previous studies are done in developed countries having comprehensive infrastructure and a stable 
tax law system and the number of tax compliance research in developing countries like Vietnam 
is low in numbers. Particularly, no study has been reported to identify determinants impacting on 
 Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152 137 
tax compliance of business households in Vietnam although the role of business households is 
important to Vietnam’s economy. Therefore, this study “Determinants affecting tax compliance: 
A case of business households in Ho Chi Minh City, Vietnam” is the first study on tax compliance 
of business households in Vietnam to fill the gap and is very necessary and meaningful in current 
Vietnam’s economic conditions. The results of the study provide a framework for assessing the 
impact of determinants on tax compliance of business households to help tax authorities to come 
up with appropriate tax management policies for business households. Moreover, the study also 
proposes some recommendations that can help the tax authorities propose solutions to enhance tax 
compliance of business households in Ho Chi Minh City in particular and in Vietnam in general. 
The main objective focuses on: (i) a literature review of factors affecting tax compliance, (ii) 
identifying determinants impacting on tax compliance of business households in Vietnam, and (iii) 
policy implications. 
2. Literature review 
2.1. The definition of tax compliance 
For a long time, many researchers have tried to define tax compliance. For example, 
Allingham and Sandmo (1972) defined tax compliance as reporting all actual income. Andreoni, 
Erard, and Feinstein (1998) showed that tax compliance related to the willingness of taxpayers to 
accomplish the tax laws, to truly report tax bases to correctly ... ty, Vietnam. Therefore, 
decreasing the tax rate for business households can enhance tax compliance of business 
households. 
Regarding Tax Knowledge (β = 0.395), the result of this study shows a significant positive 
impact on tax compliance. Thus, hypothesis H1 is accepted. This result is as like as results of 
Niemirowski et al. (2003); Ngo et al. (2019). This result also suggests that Tax Knowledge is a 
key factor influencing tax compliance of business households. It means that providing and training 
knowledge about tax to business households can help to prevent tax evasion and enhance tax 
compliance of business households. 
Regarding Tax Penalty (β = 0.361) had a significant positive impact on tax compliance. 
Thus, hypothesis H3 is accepted. This result is consistent with Hasseldine et al. (2007) and Ngo et 
al. (2019) that increasing the tax penalties led to increasing tax compliance of business households. 
Regarding Personal Norm (β = 0.313), this study found a positive and significant 
relationship between Personal Norm and tax compliance. Thus, hypothesis H4 is accepted. This 
finding is similar to the following studies Braithwaite (2003); Wenzel (2003) that the more 
developed the moral reasoning or tax ethics, the more likely it is voluntary tax compliance of 
business households. 
Regarding the Perceived Fairness (of the tax system) (β = 0.085), this study found that a 
positive and slight relationship between Perceived Fairness and Tax Compliance. Thus, hypothesis 
H5 is accepted. This result is consistent with Tilahun (2018). The result also suggests that if 
business households think that the tax system is fair, Tax Compliance is more like occur. For 
example, if a business household feels that their tax burden is similar to the same income group, 
their Tax Compliance probably increases. 
6. Conclusions and recommendations 
This paper focuses on identifying determinants affecting Tax Compliance of business 
households in Ho Chi Minh City, Vietnam. The results of qualitative research proposed a model 
for Tax Compliance with 5 factors and 17 observed variables: Tax Knowledge, Tax Rate, Tax 
Penalty, Personal Norm, and Perceived Fairness. Quantitative research used a 5-point Likert scale 
to evaluate observed variables. The valid sample size for quantitative research was 215 and SPSS 
25 was used for data processing. The results of EFA showed that 17 observed variables were 
measuring 5 factors as the proposed model. After analyzing regression, Tax Knowledge, Tax 
Penalty, Personal Norm, and Perceived Fairness had a positive relationship with tax compliance 
while the tax rate had a negative one. These determinants are organized according to the level of 
influence from high to low following: Tax Rate, Tax Knowledge, Tax Penalty, Personal Norm, 
and Perceived Fairness respectively. 
According to business households in Ho Chi Minh City, Vietnam, the “Tax Rate” had the 
strongest and negative impact. To enhance tax compliance of business households, the tax 
authorities need to reduce tax rates and the local authorities need to improve the responsibility of 
the Local Tax Consultative Council for determining taxable income and tax rate of business 
households and avoiding omitting business households that have not been included in the tax 
administration. 
Because “Tax Knowledge” had a second impact on tax compliance of business households 
in Ho Chi Minh City, Vietnam, the government in general and tax authorities, in particular, should 
 Khuc D. Nam, Nguyen T. B. Minh. Ho Chi Minh City Open University Journal of Science, 11(1), 136-152 149 
develop professional training programs related to tax laws, tax issues, and modes of tax payment 
and collection for business households. With the help of tax education, business households can 
improve compliance with tax. 
Despite the “Tax Penalty” had the third impact on tax compliance of business households 
in Ho Chi Minh City, Vietnam, there are 2 solutions to enhance tax compliance. Firstly, the tax 
authorities need to publicize the list of individual business households having high tax risks and 
tax debts in the media like making with companies in Vietnam. As a result, other business 
households may be more active in tax compliance. Finally, the tax authorities should strictly punish 
those cases that deliberately file incorrect returns or evade tax, or commit tax fraud to increase tax 
compliance of business households. 
“Personal Norm” had a fourth impact with a positive impact on tax compliance of business 
households in Ho Chi Minh City. Therefore, the tax authorities should set up good propaganda 
groups to communicate how to behave correctly about tax and to disapprove non-compliance 
behaviors. Especially, these groups can help business households by sharing tax experiments. 
Moreover, legal education should be included in all level educational programs in Vietnam. 
Although the least impact on tax compliance of business households in Ho Chi Minh City 
was “Perceived Fairness” (of the tax system), there were also some solutions concerning this. 
Firstly, the government must build transparent, non-bureaucratic, and responsible institutions and 
must use the collected tax wisely for the benefits of the public such as good infrastructure facilities. 
Secondly, the tax authorities should assess the taxable income based on the information provided 
by business households and checked by the Local Tax Consultative Council. Finally, the tax 
authorities should consider the available market condition, inflation, and fairness among business 
households. Therefore, the tax authorities and the Local Tax Consultative Council need to 
coordinate closely and work seriously and fairly. 
In conclusion, this study focused on bringing evidence that some determinants do have an 
impact on tax compliance of business households in Ho Chi Minh City, Vietnam. However, this 
research also has some limitations. First of the survey ample has trust been limited to 215 
observations conducted in Ho Chi Minh City, so further research can broaden this study to cover 
some other provinces and cities of Vietnam or the whole country. Moreover, this study only 
researched some factors affecting tax compliance. Some other factors need to be considered in 
future further studies, such as tax compliance cost, income level, income source, tax audit, etc. 
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