Once Bitten, Twice Shy? The Lasting Impact of Enforcement on Tax Compliance

Do Tax Audit Increase Post-Audit Reported Income? Evidence from Indonesia

“…revealed that based on experimental results, an increase in the probability of audit would increase disclosure of reported income, especially for taxpayers with low and middle income groups. Taxpayers with high income tend to express lower income than before based on the perception that the audit will not automatically know and give punishment for tax evasion [8] The results of this study also contradict the research of DeBacker [12]. They stated that based on taxpayer return data, taxpayers who are in the lowest income group (first quartile) respond the most among other income groups after experiencing an audit in terms of disclosure from their taxable income.…”

“…The positive influence that exists in the form of the increase in income reporting after this auditing is by the previous empirical research that has been done by De Backer [12] and D'Agosto et al (2018). Both of them stated that doing the inspection/audit had a significant effect to the increase in reporting of further disclosure of tax liability seen through the increase in reporting of taxable income [12] or the increase in reported earnings base.…”

“…On the other hand, there are a few studies about taxpayer response after tax audit using real data of tax returns. One of them is by DeBacker [12] confirmed that audit impacts the increasing of audited taxpayer's income reporting. Different amounts depend on the variety/source of income and individual characteristics.…”

“…This study used difference-in-differences method in its regression analysis. The empirical specification in this study was suited to the model that Gemmel and Ratto [5] and DeBacker [12] used as follows:…”

“…This result according to DeBacker [12] is likely because low-income groups may no longer have other sources of income that can be hidden so that they finally reveal the actual income after being audited. This is in contrast to high-income groups that may have multiple income sources so that they still have the possibility of hiding the income and report only a small part of the reality [12] While the opposite results happen when using Indonesian taxpayers data, one of the reasons for this is probably due to a lot of overpayments audit made by DGT for low income group. This group (low income group) might still do not understand that when they declare overpayment they will be audited.…”