Tax knowledge Literature Review and Hypotheses Development

144 perceptions and consequently compliance behavior. This study is supported by White et al. 1990, who suggested that a formal class in taxation would enhance the knowledge about the law and appreciation of fiscal policy goals, thus increasing perceived fairness. Despite the evidence that fairness is a multi-dimensional construct, these prior studies tend to focus on the effect of tax knowledge on the overall fairness of the tax system rather than on each dimension of fairness. To critically assess the role of tax knowledge on fairness perceptions of the tax system, I believe it is essential not only to distinguish the types of knowledge, but also the dimensions of fairness that the type of knowledge has affected. Having said that, this study examines the impact of tax knowledge on five dimensions of fairness as discussed earlier. Thus, it is hypothesised that: H 3 : Tax knowledge positively influences the dimensions of fairness perception 1 to k of New Zealand taxpayers.

3.4 Tax complexity

Tax complexity arises due to the increased sophisticatication in the tax law Richardson Sawyer, 2001. In New Zealand, Tan and Tower 1992 claimed that the efforts made by the tax authority at that stage to simplify the tax law had failed. In their study, the authors applied the Flesch Reading Ease Index to measure the readability level of New Zealand tax legislation, Tax Information Bulletins TIBs and Tax Return Guides. The Flesch Reading Ease Index measures the difficulty ranging from zero most difficult to 100 least difficult. The authors‘ findings indicated that there was no progress with simplification at that time, except for the Tax Return 145 Guides. Tan and Tower 1992 recommend that shorter sentences and active style of writing will help improve the readability of tax legislation and consequently reduce the complexity of the tax law. A more recent study by Pau et al. 2007 provides contrary evidence on tax simplification in New Zealand. The researchers test the effectiveness of the then newly written Income Tax Act 2004 18 partially completed, TIBs and binding rulings using readability measures, namely the Flesch Reading Ease Index, Flesch-Kincaid Grade Level Index, average sentence length and percentage of passive sentences. Pau et al. 2007 found significant improvements in respect of tax simplicity through these measures. Sawyer 2007 agrees with the authors that there have been some improvements in tax simplification but continual change to the legislation has to a certain extent delayed the rewrite programme and also delayed the benefits. As a consequence, the rewrite programme has only recently been completed, after more than a decade. 19 Some researchers agree that a certain degree of complexity in the income tax system is necessary to ensure the system is fair. This is particularly applicable to the perceptions of the tax authority and tax professionals, suggests White 1990. Applying four scenarios of tax complexity, she asserts that both the tax authority and tax professionals tax lawyers and tax accountants prefer complexity in the tax law but at different levels. The tax authority prefers tax complexity that will increase their 18 This legislation contains further changes to Parts A and B, the rewritten sections of Parts C, D and E, with re-enactment of the remaining parts of the Income Tax Act Pau et al., 2007. 19 The rewrite programme started in 1993 and the final stage was passed by the New Zealand Parliament on October 25, 2007 Sawyer, 2007.