Paper submission for the 2012 Interdisciplinary Perspectives in Accounting (IPA)
Conference, Cardiff, United Kingdom, 11th to 13th July 2012
Names: Sue (S.E.) Yong
Institution affiliation: Accounting academic group, School of Business and Law, Auckland
University of Technology, Private Bag 92006, Auckland 1142, New Zealand
Tel: 64 9 921 9999 extension 5721
Email: sue.yong@aut.ac.nz
Topic: Business behaviours and the ethnic entrepreneurs: An intra-cultural study
Abstract
With the increasing cultural diversity in most OECD countries, there is a need to understand
whether cultural values impinge on business behaviours. This study aims to examine the
effects of ethnicity on the tax and accounting decisions made by entrepreneurs of the four
largest ethnic groups in New Zealand. Data were collected from qualitative interviews of 59
ethnic entrepreneurs, business experts and tax practitioners. Hofstede’s (1980, 2001) cultural
dimensions of individualism-collectivism, power distance and long term-short term
orientations are used to explain ethnic entrepreneurs’ tax and accounting decisions. Ethnic
groups with cultural values of long term orientation (emphasis on the future) and collectivism
(allegiance to in-groups) were found to have least difficulty in paying their taxes and they
incur lower tax compliance costs. Comparatively, collectivistic groups are more permissive
of the cash economy than individualistic groups. As part of the emphasis on taxpayers as
“customers”, it is needful for tax authorities and business communities to understand the
cultural values impinging on business behaviours. It is by doing so that business taxpayers’
voluntary compliance can be enhanced, business compliance costs can be reduced, and tax
revenues of the government increased, resulting in a win-win situation for all parties.
Keywords: Hofstede, culture, ethnicity, tax compliance, SMEs, cash management,
accounting assistance
1
1. Introduction
Small and medium sized enterprises (SMEs) have been acknowledged to contribute
significantly to most countries’ economy in terms of GDP value-added outputs and
employment (Beddall, 1990; Ministry of Economic Development, 2009; OECD, 2004).
SMEs also collect value added and employment taxes on behalf of governments (Joulfaian,
2009; Torgler, 2007) and despite their important economic roles, smaller businesses in
particular, are known to participate in the cash economy (Bajada, 2002; Caragata, 1998; Cash
Economy Task Force, 2003; Morse, Karlinsky, & Bankman, 2009) and therefore they pay
less than their fair share of taxes (Ahmed & Braithwaite, 2005; Joulfaian & Rider, 1998).
Small business entrepreneurs are also known to have inadequate tax and accounting
knowledge (Ahmed & Braithwaite, 2005; McKerchar, 1995) and they do not trust or want to
interact with the tax authorities (Adams & Webley, 2001; Bird, 1992; Lewis, Ashby, Coetzer,
Harris, & Massey, 2005). However, with the influx of tertiary qualified business migrants
with various ethnicity (Deakins, Smallbone, Ishaq, Whittam, & Wyper, 2009; Pio, 2010), is
the existing literature still relevant? Unlike mainstream Anglo-Saxon Europeans, nonEuropean entrepreneurs operating in the OECD countries are known to use co-ethnic
labourers, finance and support systems for their businesses (Basu, 2006; Basu & Altinay,
2002). Ethnic groups with collective traits (group’s interests overrides individual’s interests)
are shown to depend on their social networks as sources of business information exchanges
(Bhalla, Henderson, & Watkins, 2006; Ram, Smallbone, & Deakins, 2002; Rothengatter,
2005a) .
Given the above and the increasing trend of cultural diversity of SME entrepreneurs in the
OECD countries (Basu, 2006; Ministry of Economic Development, 2007; Smallbone,
Fadahunsi, Supri, & Paddison, 1999), there is a need to understand the applicability and
relevance of the existing literature to non Anglo-Saxon entrepreneurs. This information is
important as it has policy implications in terms or regulation and assistance granted to assist
ethnic entrepreneurs to comply with the tax requirements.
2
This study seeks to examine whether ethnicity affects the tax and accounting decisions made
by SME entrepreneurs. It does so by analysing and comparing the decisions made by the four
largest ethnic SME groups in New Zealand, namely: European, Asian, Maori, and Pacific
Peoples (Ministry of Economic Development, 2007, 2009). New Zealand provides an
interesting case study of the effects of ethnicity and business behaviours as it is one of the
most culturally diverse nations in the OECD, with more than 200 ethnicities (Pio, 2010).
“Ethnic” for the purpose of this study is based on the differences between categories of
people (Petersen, 1980) and it is defined as people having a set of connections and regular
patterns of interaction among people “sharing common national background or migratory
experiences” (Aldrich & Waldinger, 1990, p. 112). For the purpose of this research,
“ethnicity” and “culture” are used interchangeably.
Although living in the same country, the Asian, Pacific Peoples and Maori ethnic groups
exhibit different traits from mainstream Anglo-Saxon Europeans. For example, indigenous
Maori show tribal and collective values (Warriner, 2007) whereas Pacific Peoples are
predominantly a collective group with strong church affiliations (Meleisea, 1987). On the
other hand, Asians are largely long term oriented (emphasis on future rather than past or
present outcomes) (Ahlstrom, Chen, & Yeh, 2010; Tsui-Auch, 2005) and the Europeans are
comparatively more individualistic (Frederick & Henry, 2004) than the other groups.
Additionally, the total percentage of SME ownership by the non-European groups in New
Zealand and United States is gaining importance (Ministry of Economic Development, 2009;
United States Census Bureau, 2010) and therefore their business behaviours ought to be given
some attention.
The next section will detail the literature pertaining to SMEs in terms of cultural influences
and their tax attitudes. This is then followed by an outline of Hofstede’s cultural framework
in Section Three. Section Four discusses the methodology and the research design. Section
Five reports the findings and analysis and the contribution to knowledge is explained in
Section Six. Section Seven concludes the paper and offers suggestions for future research.
3
2. Literature review
2.1 Culture, business behaviours and tax attitudes
Despite SMEs being heterogeneous in terms of business size, business duration and the
sectors in which they operate (Gartner, 1985; IFC & The World Bank, 2010), research has
shown that the cultural background of SME entrepreneurs affects their business behaviours
and tax attitudes (Coleman & Freeman, 1997; Schwartz, 1999; Trompenaars, HampdenTurner, & Trompenaars, 1994). In order to effectively regulate culturally diverse
entrepreneurs-taxpayers, it is needful for government authorities to account for the range of
culture-determined value systems of its citizens because culture, although basically
unconscious, manifests itself in the business practices and decisions that entrepreneurs make
(Crocombe, 2008; Hampden-Turner & Trompenaars, 1996). Cultural values are believed to
be enduring, are deeply embedded within individuals, and the visible effects of their actions,
words and behaviours are traceable to their cultural values (Hofstede, 1991; Hofstede &
Hofstede, 2005; Hoppe, 1998) .
Coleman and Freeman (1994) observe that “attitudes towards taxes and the tax system is a
product of taxpayers’ cultural background” (p. 366). Similarly, Smith and Kinsey (1987)
claim that “attitudes towards the tax system have indirect effects on intentions and attitudes
are part of the cultural context”(1987, p. 656). Coleman and Freeman (1994) and Bankman
and Karlinsky (2002) also anecdotally suggest tax attitude differences between local born
entrepreneurs and immigrants but fail to specify what those differences are.
An earlier quantitative, intra-cultural study of Israeli self-employed by Dornstein (1976)
found that new migrants and those from the least developed countries were less tax compliant
than those from Western Europe and migrants who had been in the country longer. Her
research, based on data obtained from the tax authority, showed that ethnicity affects
entrepreneurs’ tax attitudes. Given that, her research findings suffered some weaknesses as
ethnic entrepreneurs’ views were not taken into account even though they were the ones
affected by tax regulations.
4
More recent research on ethnic entrepreneurs’ tax attitudes was undertaken by Rothengatter
(2005b) using focus groups. He claims that that the “extent that cultural norms and values
regarding business conduct and one’s payment of taxes may vary from one ethnic group to
another” (p.14). He found that Asians, Greeks and Lebanese had different tax attitudes from
local born Australians with the Asians undertaking extensive tax planning to minimise taxes.
The variations in the tax attitudes are attributed to the deeply embedded social networks of
the Asians, Greeks and Lebanese (also known as collectivistic groups). Tax evasion via the
cash economy was considered acceptable for some of the Asian, Greek, and Lebanese
entrepreneurs, though this practice was abhorred by the local born Australians. SME
entrepreneurs who identified themselves as Australians were more willing to contribute
towards taxes compared to those who did not (Rothengatter, 2005a, 2005b). Similarly,
Coleman and Freeman (1994) found a South African entrepreneur practiced income
smoothing to avoid attention from the tax authority. They assert that “a [tax] strategy which is
successful with one group may completely repel another” (Coleman & Freeman, 1994, p.
355) for culturally diverse taxpayers-entrepreneurs.
Though Rothengatter’s (2005b) focus group inquiry is useful in identifying broad compliance
issues associated with ethnicity (Kitzinger & Barbour, 1999), his findings are dependent on
the perceived status of the participants within the group. In addition, the more dominant
voices may also mute the quieter ones which can skew the findings (Arksey & Knight, 1999;
Finch & Lewis, 2003; Kitzinger & Barbour, 1999). Rothengatter (2005b) also reported that
each ethnic group was accusing other groups of tax evasion, which limits our understanding
as to how ethnic groups undertake measures to comply with the tax regulations. With this, a
more useful approach is to study how ethnic groups make accounting and tax decisions by
seeking ethnic entrepreneurs’ views and the views of others who could verify their actions.
Earlier studies have shown that whites are more tax compliant and expressed greater
commitments to pay taxes than non-whites (Roth, Scholz, & Witte, 1989; Song & Yarbrough,
1978). However, the New Zealand survey on European, Chinese, Indian and Maori students
by Birch et al (2003) found a higher percentage of Europeans than Chinese had understated
their taxable incomes and that more Europeans and Maori knew of peers who had evaded
taxes. Though the authors acknowledged that “research into the relationship between
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taxpayer compliance and ethnicity is relatively scarce”(Birch et al., 2003, p. 71), their survey
findings had several limitations.
First, their student sample did not reflect the demographics or composition of the New
Zealand population (Statistics New Zealand, 2001). Second, student samples are not always
good proxies for actual taxpayers due to their tax, education, working, and age differences
(Cuccia, 1994; Fehr, Fischbacher, Rosenbladt, Schupp, & Wagner, 2003; Yong, 2006). In
addressing their research limitations, Birch et al (2003) suggest that future research to ensure
“the mix of respondents [be] broadened in order to more closely represent the New Zealand
population and further data to be collected to explore the underlying reasons behind
taxpayers’ responses”(p. 96). This study responds to this call by broadening the sample
respondents to reflect the mix of the New Zealand population by including the four largest
ethnic groups in the country.
2.2 Cross-cultural research and tax compliance
Cross-cultural studies linking tax attitudes have found that some countries have higher tax
morale (intrinsic motivation to pay taxes) (Frey & Torgler, 2007) than others. In their
experimental research, Alm and Torgler (2006) discovered that United States have higher tax
morale than Spain, and Switzerland has higher tax morale compared to other European
countries. Similarly, Cummings et al.(2004) found tax compliance differences between the
United States, Botswana, and South Africa was due to cultural differences in these countries.
The effects of culture on tax behaviours is further reinforced by Richardson (2005) who
found tax attitude differences between Australian and Hong Kong students. However, his
research on students has been criticised for not providing real life perspectives of actual tax
compliance behaviours (Ho & Wong, 2008). Though it is argued that students are important
participants for tax research (Alm, 2011; Alm & Jacobson, 2007), their results ought to be
interpreted carefully as students’ behaviours cannot be equated to that of actual taxpayers.
This is because students may gameplay (Cuccia, 1994) and they undertake more risks than
actual taxpayers (Gerxhani & Schram, 2006; Starmer, 1999). Unlike actual taxpayers, any tax
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evasion undertaken by students in experimental and survey research will not cost them or
adversely affect their reputations (Torgler, 2007).
Although the abovementioned cross-cultural studies indicate that country, as a generic
measure of culture, does affect taxpayer’ attitudes, they did not explore the different
characteristics (Hofstede, 1980), multidimensionality (Tsakumis, Curatola, & Porcano, 2007)
and complexity of culture (Hall, 1976; Trompenaars et al., 1994). Given that “culture is a
multivariate concept” (Tsakumis et al., 2007, p. 132), it is imperative to study the different
dimensions of culture to better understand how these might affect tax compliance decisions
and perceptions.
2.3 Cultural dimensions and tax compliance
To better explain the effects of culture on tax attitudes, several cross-cultural studies compare
collectivistic to individualistic societies. McGee et al. (2008) found that collectivistic Hong
Kong students are more conditional in their tax attitudes compared to individualistic United
States students, who view tax evasion as morally wrong. Hong Kong students justify their tax
evasion perceptions based on the government’s performance whereas United States students
form their judgements based on moral values and less on government’s performance.
Similarly, Chan et al.(2000) also observe that collectivistic Hong Kong students are less
compliant and have less favourable attitudes toward the tax system compared to
individualistic United States students.
The above cross-cultural studies provided some useful insights into the individualismcollectivism cultural dimensions on tax perceptions. However, Oosterbeek, Sloof and van de
Kuilen (2004) argued that most cross-cultural studies contain data from only one city of each
country, and that differences in outcomes may simply reflect differences across different
locations rather than differences across countries. They cautioned the generalisability of
cross-cultural research findings as representative of the entire country and suggest that a more
fruitful research would be to consider the tax attitudes of the various ethnic groups within a
location. Additionally, there may be other cultural dimensions beyond collectivismindividualism dimension that can help explain the tax attitude differences.
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In an attempt to incorporate several cultural dimensions on tax compliance, Tsakumis et al.
(2007) differentiated compliant from non-compliant countries by applying Hofstede’s (2001)
four cultural dimensions of individualism-collectivism (the relationship between individuals
and collectives); power distance (the management of inequality between people); uncertainty
avoidance (their stance towards ambiguity and uncertainty); and masculinity-femininity (task
focused or relationship focused). Tsakumis et al.(2007) profiled non-compliant countries as
those with high uncertainty avoidance, low individualism, low masculinity and high power
distance values. Their research findings are valuable for international tax comparisons and to
identify audit strategies for taxpayers from different countries. Their research however failed
to include Hofstede’s long term and short term orientation (individual’s stance towards time)
(Hofstede, 2001; Hofstede & Bond, 1988) which is particularly relevant to Asian countries.
To further understand cultural differences, Richardson (2008) extended the Tsakumis et
al.(2007) study by including legal, political and religious variables on the tax evasion index
of 47 countries. His regression results indicate that the higher the level of uncertainty
avoidance and the lower the level of individualism, legal enforcement, trust in government,
and religiosity, the higher is the level of tax evasion in the country. Like the Tsakumis et
al.(2007) study, Richardson failed to include Hofstede’s long term-short term orientation
cultural dimension to help explain the tax evasion differences in different countries.
Furthermore, Richardson admitted that research data used from country survey ratings “could
be prone to measurement error” (Richardson, 2008, p. 72) and consequently, his findings
should be used with some caution.
All cross-cultural research has certain limitations which ought to be considered when
interpreting their results, such as using countries as proxies for culture and the focus on tax
evasion attitudes. First, the use of countries as proxies for culture and assuming cultural
homogeneity within the country contradicts the increasing trend of multi-cultural societies in
the world (Naylor, 1996). Torgler (2007) advises that some cross-country tax analysis may be
misleading as “further efforts are still needed to better control for the properties of the tax
system and the way in which taxes are administered so as not to confound culture with
features of the tax structure” (p. 56). He acknowledges that in addition to culture, differences
8
in the country’s tax structures and tax administrations may affect the individuals’ tax
compliance decisions and perceptions.
Agha and Haughton (1996) also caution using tax recommendations based on cross-country
analysis. They state that “recommendations based on cross-country comparisons are apt to
have a “one size fits all” quality, which overlooks the history, traditions and special features
of any given country” (Agha & Haughton, 1996, p. 307). Li (2010) also admonishes crosscountry tax analysis, as other important factors such as “the countries’ tax burden, legal
origin, culture, and income distribution ought to be taken into account” (p. 160). Given that
cross-country tax analysis can be misleading due to the uniqueness of each country’s tax
system and historical background, it may be fruitful to undertake an intra-cultural study to
overcome these limitations and to identify the possible effects of cultural values on
accounting and tax behaviours.
Second, most of the abovementioned cross cultural tax research has concentrated on tax
evasion attitudes. However, not everyone wants to cheat on their taxes, as research has shown
a considerable proportion of honest taxpayers, who always pay their taxes (Baldry, 1987;
Elffers, 2000; Pyle, 1991). Pyle (1991) observes that “it seems that whilst the odds are
heavily in favour of evaders getting away with it, the vast majority of taxpayers behave
honestly” (p. 173). It has been claimed that some taxpayers are “simply predisposed not to
evade [taxes]” (Long & Swingen, 1991, p. 130) and they do not search for ways to cheat on
taxes (Frey & Foppa, 1986). Torgler (2007) laments that “tax compliance researchers have
paid substantial attention to tax evasion and thus to the decision as to how much income to
report in a tax return. But little is known about individuals’ compliance behaviour and
variables such as timely filing out of the tax form and paying individual taxes on time” (p.
258). Given that, it is worthwhile researching actual business behaviours of ethnic
entrepreneurs in terms of tax decisions.
The study reported in this paper addresses the methodological concerns associated with these
prior studies. It explicitly considers the impact of ethnic differences amongst real
entrepreneurs-taxpayers for whom compliance is thought to be relatively low – i.e. SME
9
entrepreneurs. In order to appropriately consider these ethnic differences, Hofstede’s cultural
framework is employed as a theoretical perspective.
3. Hofstede’s cultural framework
According to Hofstede, a person’s behaviour is partially determined by his or her mental
programme or culture which is defined as the “collective programming of the mind that
distinguishes the members of one group or category of people from others” (Hofstede &
Hofstede, 2005, p. 4). Culture affects one’s behaviour and it “forms the roots of action”
(Trompenaars et al., 1994, p. 24).
Hofstede’s cultural dimensions have been used to analyse human tendencies from different
countries (de Mooij, 2001; Hoppe, 1998) and ethnic groups within a country (Cohen, 2007;
Luczak, 2009; Popper & Sleman, 2001). According to Hofstede and Hofstede (2005), the
main cultural differences between nations/ethnic and regional groups lie in their values.
Hofstede used five cultural dimensions to explain the differences in people’s behaviours
across nations and ethnic groups which are: power distance, individualism-collectivism, long
term-short term orientations, uncertainty avoidance and masculinity-femininity. As this paper
only specifically examines three business aspects of the entrepreneurs, only the first three
cultural dimensions will be discussed.
3.1 Cultural dimensions of the ethnic groups
Power distance (PD) indicates the extent to which the less powerful members of institutions
within a society expect and accept that power is distributed unequally. For the purpose of this
research, Hofstede’s assessment of a country’s cultural dimension is based on the dominant
group, which in the case of New Zealand is the Anglo-Saxon Europeans (Pfeifer, 2005).
Hofstede states that New Zealand exhibits low power distance (Hofstede, 1980) compared to
the Asians, Maori and Pacific Peoples (Begley & Tan, 2001; Lucas, 2009; Pfeifer, 2005).
The cultural dimension of individualism pertains to societies in which the ties between
individuals are loose, whereas collectivism pertains to societies in which people are, from
birth, integrated into strong, cohesive groups which continue to protect them throughout their
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lives in exchange for unquestioning loyalty (Hofstede & Hofstede, 2005). This dimension is
measured in terms of how much the individual interest prevails over collective interests. New
Zealand, as a country, is highly individualistic whereas Asians, Maori and the Pacific Peoples
are collectivistic (Earley & Gibson, 1998; Mead, 2003; Redding, 1993; Tiatia, 1998).
Long term (LT) orientation relates to the “fostering of virtues oriented toward future rewards
[such as] long term planning, perseverance, and thrift, whereas short term (ST) orientation
relates to the fostering of virtues related to the past and present [such as] respect for tradition,
living for the day, preservation of “face”, and fulfilling social obligations” (Hofstede &
Hofstede, 2005, p. 210). Asian countries are high scorers for LT orientation whereas New
Zealand overall has medium term orientation (Hofstede & Hofstede, 2005). Pacific Peoples
are ST oriented with little future planning (Crocombe, 2008) and they generally undertake
tasks only when they are needed (Crocombe, 1976; McCoy & Havea, 2006). To the Maori,
“decisions require much contemplation and consideration from every angle” (Mataira, 2000,
p. 25) with little emphasis on future planning. They however emphasised present living and
nurturing relationships to preserve one’s mana (aura) (Clydesdale, 2007; Mitchell, 2009) .
3.2 Credibility and criticisms of Hofstede’s cultural framework
Although Hofstede has been widely cited in various disciplines including accounting,
international taxation, management, and entrepreneurship (Gray, 1988; Newman & Nollen,
1996; Sivakumar & Nakata, 2001), not everyone endorses his work. The main criticisms have
been targeted at: his chosen sample; the suitability of the self-report methodology; the
existence of cultural heterogeneity within country borders; and the dynamic nature of cultures
(Baskerville, 2003; McSweeney, 2002; Tung, 2008). Despite these criticisms, there have been
rebuttals and multiple independent verifications of Hofstede’s model (Hoppe, 1998; P. Smith,
2006; Sondergaard, 1994; Taras, Kirkham, & Steel, 2010; Williamson, 2002) which attest to
the soundness and credibility of his framework.
Despite its limitations, business researchers have applied Hofstede’s framework in increasing
numbers, making it “the dominant culture paradigm” (Sivakumar & Nakata, 2001, p. 557).
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Some have labelled Hofstede’s model as “a watershed conceptual foundation for many
subsequent cross-national research endeavours” (Fernandez, Carlson, Stepina, & Nicholson,
1997, pp. 43-44) and “the beginnings of the foundation that could help scientific theory
building in cross-cultural research” (Sekaran, 1983, p. 69). (For further discussions of the
criticisms and credibility of Hofstede’s work, see: (Sivakumar & Nakata, 2001; P. Smith,
2006; Taras et al., 2010; Williamson, 2002)). Since no alternative cultural framework has yet
been applied and tested to the extent that Hofstede has, Hofstede’s framework has been used
to theorise the business behavioural differences amongst the ethnic groups in New Zealand in
this study.
4. Research methodology and research design
Given the diversity of ethnic SME groups, it is appropriate to adopt a relativist ontology
where multiple realities are assumed (Denzin & Lincoln, 2005; Guba, 1990). As collectivistic
Pacific, Maori and Asian groups prefer face-to-face interactions (Brown, Tower, & Taplin,
2005; Tsui-Auch, 2004; Warriner, 2007), a subjective epistemology (Guba, 1990) is therefore
adopted. The naturalistic methodology (Lincoln & Guba, 1985) is also used to collect and
analyse the research evidence.
A total of 59 face-to-face, in-depth interviews were conducted with 36 ethnic entrepreneurs
(nine from each ethnic group), eight tax practitioners and 15 business experts in Auckland
from November 2006 to May 2010. The business experts are knowledgeable in every aspect
of SME operations and seventy-five percent of them had been SME entrepreneurs
themselves. They interact with SME entrepreneurs on a regular basis as they represent the
Inland Revenue Department (IRD), the Auckland Chamber of Commerce, Business
Enterprise New Zealand, the Pacific Business Trust, the Ministry of Maori Development, the
Maori Women Development League, the Small Business Advisory Group and the Ministry of
Commerce.
The participants were drawn from the largest city in New Zealand, Auckland, for several
reasons. First, Auckland has the highest number of SMEs in the country with three times
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more than the second highest, Canterbury (Ministry of Economic Development, 2009).
Second, Auckland is the most culturally diverse city in New Zealand (Statistics New Zealand,
2010). Third, Auckland has the highest net Maori asset base in New Zealand, which is almost
twice that of the second highest in the Waikato region (NZIER, 2007). Fourth, Auckland
remains the fourth largest 'Pacific' country by population (Baker, 2007) and the city of
Auckland is often described as the Polynesian capital of the world (Robie, 2009).
4.1 Demography of the sample participants
There were three groups of participants in this study namely: ethnic entrepreneurs, business
experts and tax practitioners. Eighty eight percent of the ethnic entrepreneurs were in micro
businesses (up to five employees) and 12 percent were in small and medium sized businesses
(from five to 99 employees). This is consistent with the averages of the New Zealand
business demographics in 2007 and 2009. The participants were 44 percent male, 47 percent
female and nine percent husband and wife teams. Seventeen percent of the businesses were
under two years old, 14 percent were from two to five years old, 36 percent were from six to
ten years old and 28 percent were more than 10 years old, with five percent recording nondisclosure. They operated in 14 of the total 19 industrial sectors in New Zealand (Ministry of
Economic Development, 2009).
An equal number of sole tax practitioners and tax practitioners from the small and medium
sized accounting firms participated in this research with equal numbers of male and female
tax practitioners. On the other hand, there were more male participants in the business expert
sample, with seven of them from ethnic-specific government agencies and business
associations.
4.2 Interview questions and data analysis
The interview questions comprised of some fixed and some open ended questions for the
three groups of participants. The open–ended questions allowed the researcher to enter the
fieldwork without being constrained by predetermined categories of analysis (Patton, 2002).
Specific questions for the ethnic entrepreneurs explored their sources of accounting
assistance used, cash job participation and their tax payment decisions. Specific questions for
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the business experts and tax practitioners explored cultural values on business behaviours
including tax payments and accounting assistance used by ethnic entrepreneurs. The analysis
of the findings follows a path as suggested by O’Dwyer (2004) involving data reduction, data
display, and data interpretation and conclusion drawing. This analytical method is an
adaptation of the analytical process developed by Miles and Huberman (1984).
5. Findings and discussion
This study examines three aspects of business decisions made by ethnic entrepreneurs
namely: tax payments, accounting assistance used and their participation in the cash economy
which is discussed in the following subsections.
5.1 Cultural values and tax payments
As can be seen from Table 1 below, more than 67% of the Maori and Pacific entrepreneurs
had tax payment difficulties compared to only 33% for the European and none for the Asian.
Difficulty in
meeting tax
payment
and/or
having to
make
arrangements
with the IRD
Yes
No
Subtotal
Europeans
Asians
Maoris
Pacific
Peoples
Total
3
6
9
0
9
9
6
3
9
7
2
9
16
20
36
Table 1: Participants having difficulty meeting tax payments and having to arrange a
payment plan with the IRD
The Asian group’s behaviour can be traced to their thrifty nature and financial assistance
provided by family members. The strong financial support from families for the Asian group
was noted as the factor distinguishing this group from the collectivistic Maori and Pacific
groups:
“I see the Indian community very much work within their group, their own family, their own
extended family. They seldom use banks, the family is the bank. That is also prevalent in
other cultures like the Chinese is similar but the Pacific Islander don’t work in a similar way
because they don’t have the money.” (Business Expert 9)
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Being long term (LT) oriented, future financial planning is given priority by Asian
entrepreneurs, unlike the short term (ST) oriented Pacific and Maori. Asian entrepreneurs
prefer to pay their taxes on time to avoid penalty costs and to maintain good taxpaying
histories to stave off future adverse repercussions:
“Oh I plan ahead. I make sure that I do not get into that situation. I budget my cash flows as
I know when the tax amounts are due and I see that I have enough liquid cash to pay that. We
have never had the situation with inadequate cash flows.” (Asian entrepreneur 3)
The fact that Europeans show some difficulty with tax payment is a reflection of their
medium term orientation. On the other hand, Maori and Pacific Peoples emphasised living for
the present and maintaining traditions and social standing. Their short term orientation led to
poor cash flow management and planning, as experienced by Pacific entrepreneur 1:
“Managing cash flows was an issue for us. At the start we did not have any budget and what
we did was money was coming in and money was going out and we didn’t track where the
money was going. Like we didn’t keep money for PAYE, or keep money for tax or for GST
and then cash flow suffered and then you had to inject some of the family money into the
business to keep going... We were just naïve because we put all the tax payments on the back
burner.” (Pacific entrepreneur 1)
One of the contributing factors for collectivistic Maori and Pacific Peoples in having tax
payment difficulties is due to their obligations to fulfil their in-groups’ needs, including
church giving, overseas remittances and family contributions:
“The culture to give to your family is ingrained in you the minute that you are born. Your
whole existence is to give to the church and to give to the family. We have got family that are
going into debt, family falling apart and children running around without shoes while the
parents are paying pokies to try to get some money to pay the rent because they have given
all their money to the church.” (Pacific entrepreneur 7)
Collectivistic Maori also spent considerable resources and effort in maintaining one’s mana
(aura). The traditional Maori attitude towards ownership and possessions is “to utilise and
share which contrast(s) to the accumulate and acquire dispositions of non Maori” (De Bruin
15
& Mataira, 2003, p. 179). Furthermore, many do not have suitable collateral for borrowings
due to their multiple tribal land ownership, as observed by Business Expert 5, even though
they are asset rich but are cash poor:
“Mainly is because they do not have the collateral for borrowings. For example, they may be
living on the land but often the land is not theirs but it is jointly owned by the iwi (family) or
hapu (sub-tribe). And therefore you cannot use the land as collateral against the loan”.
The above findings showed that collectivism and long term orientation cultural dimensions
have influenced tax payment decisions made by ethnic entrepreneurs.
5.2 Sources of accounting assistance used by ethnic groups
Ethnic entrepreneurs used three main sources of accounting assistance to file their tax returns,
namely paid accountants, unpaid family and friends, and the IRD, as shown in Table 2 below:
Accounting
Europeans
Asians
Maoris
Pacific
assistance
Peoples
used to file tax
returns
Paid
8
3
6
6
Accountant, or
bookkeeper, or
business
mentor or
business coach
Family or
0
4
3
1
Friends or
peers (unpaid)
IRD
1
2
0
2
Subtotal
9
9
9
9
Table 2: Sources of help sought by ethnic groups with tax queries
Total
23
8
5
36
In Table 2, the Asian group is most dependent on family and friends for assistance, followed
by the Maori and Pacific groups, thus reflecting their collectivistic traits. The Asians are the
least dependent on their paid accountants, which exhibits their long term orientation of
frugality. Unlike Maori, some of the Asian and Pacific entrepreneurs showed greater
16
willingness to interact with the IRD despite their high power distance values. This is because
cost savings is more important than their fear of authority, particularly for those who were
knowledgeable in accounting and had good taxpaying histories. On the other hand,
individualistic Europeans were dependent on their paid accountants to assist with their tax
filing tasks. Their low power distance values also resulted in their collegial relationship with
their accountants:
“I speak to my accountant because they are more knowledgeable about our accounts and I
feel that they can explain the accounts to me and I still prefer to talk to my accountant than
the IRD as the accountant will give us some solid advice on our business. Possibly also that
the accountant is working for us but not necessarily the IRD” (European entrepreneurs 9).
The Maori and Pacific entrepreneurs in this sample also showed lack of tax knowledge and
therefore were reliant on paid accountants to help fulfil their tax obligations. Due to high
power distance values, they revered their accountants by not challenging them, and they
implicitly undertook a subordinate role to their accountants:
“Like some Polynesians we do not question the accountants and go back and ask
them. I am always too scared to question my accountant too. It is kind of fear them
as they will not look at you favourably and help you more in the future sort of thing.
My attitude is that I try to stay away from them as much as I can, and also I don’t
want to upset them or question them.” (Pacific entrepreneur 3)
“The Pacific Islanders look at authorities with high esteem and that’s why they struggle with
that they always rely on others to tell them what to do and how to do it and they are
followers.” (Business Expert 10)
In Table 2, the Maori sample would not seek help directly from the IRD due to their high
power distance values and fear of authority brought about by historical oppressive European
colonisation and land confiscation (Henry, 2007). Most viewed the IRD as a “white
bureaucracy” who could harm them and therefore they preferred to be “out of sight” from the
authority. Their non contact with the IRD has led to higher tax compliance costs with adverse
consequences:
“They are terrified of the IRD or anything relating to compliance even with the local
government and things like that. This has something to do with the history, and how
the government has dealt with the people in terms of the land loss, the Crown and
stuff like that. The injustices relating to the historical events and the perceptions of
17
the “big brother governance” still remain in some people.” (Business Experts 3 and
4)
The fear of the IRD is very real for the Maori entrepreneurs, as Business Expert 10 felt that
majority of them perceived the IRD as wielding the big stick. With this, power distance
values do exert significant influence on the entrepreneurs’ decisions as to what assistance
they would use to discharge their tax obligations.
The above showed the interplay of collectivism and power distance affecting the decision
made by the ethnic entrepreneurs regarding the sorts of accounting assistance used when
filing their tax returns.
5.3 Ethnic groups’ perception of the cash economy
All the SME entrepreneurs from the collectivistic groups in this study had participated
personally by purchasing goods and services in the cash economy. Most were aware of peers
who were also involved in the cash economy and felt there were valid justifications for the
cash economy by way of tax savings and retaliating the taxing authorities:
“The small businesses do not earn a lot of money. The IRD is quite strict with the
recording and small businesses have to make sacrifices in some ways and in order to
compensate them for the sacrifices, cash jobs would help.” (Asian entrepreneur 6)
“Of course people would want to cheat the government because they don’t get
anything from them back other than the fear, penalty, and stress. The IRD is like a
big brother who is bullying, bullying all the time and you don’t want to do anything
nice for him but you want to take as much from him when they are not looking sort
of thing.” (Pacific entrepreneur 3)
“In the Maori businesses, unlike the classic business model, there is more cash and
more in-kind business transactions like bartering. It is also harder to keep good
records. Also there is an element in some of the areas that they (Maori) are not part
of the New Zealand tax system, and that they are not taxpayers and therefore they do
not want to be brought into the fold.”(Business Expert 6)
In contrast, individualistic Europeans in this sample were totally against participating in the
cash economy as they viewed the practice as morally wrong and not benefitting their
business:
“But I personally would not do it, as I am against it totally. Someone offered me
cash job the other day, and I refuse it.” (European entrepreneur 8)
18
“I don’t know but I have a business partner and I made sure that everything is done
through the books... I have been approached by people who want to do a cash job
and I refused because I can’t see how it can help them.”(European entrepreneur 2)
The above findings are consistent with the findings by Rothengatter (2005a, 2005b), McGee
et al (2008) and Chan et al (2000) as shown in sections 2.1 and 2.3 that collectivistic groups
particularly Asians are more permissive of the cash economy than local born Australian
(Europeans) and Americans. This is important for policy makers to understand the rationale
behind the cash economy for collectivistic groups.
6. Contribution to knowledge
It is important to understand the rationale for the different ethnic groups’ tax and accounting
decisions. This study shows that their business decisions are dependent on their cultural
values of power distance, individualism-collectivism and long term orientations. This study
found that ethnic groups with long term orientation and collectivistic traits had no problems
with their tax payments or accessing in-group accounting assistance. In addition,
collectivistic groups were shown to be more permissive of the cash economy than the
individualistic group. This adds to the existing literature that cultural values should be given
some consideration in understanding ethnic group’s business behaviour. This information is
useful to assist policy makers, government agencies and regulators in identifying strategies to
encourage better compliance from ethnic taxpayers.
7. Conclusion and suggestions for future research
This research shows that cultural values can and do influence their business decisions and
their participation in the cash economy. Some cultural values assist with ensuring timely tax
payments and enabling access to in-group resources which makes it easier to comply with the
tax regulations. On the other hand, some cultural values promote the practice of the cash
economy as well as raising tax compliance costs. Given that, both the tax authority and the
business community should be mindful of the cultural influences on businesses and to
customise their regulatory and assistance measures to effectively meet the needs of the ethnic
groups.
19
As this study has shown the effects of ethnicity on business behaviours, further research
should be undertaken to extend the present study. There are several suggestions that follow.
First, increase the sample size of the four ethnic groups in Auckland to verify and validate the
present findings. Second, the sample participants should be drawn from other regions outside
of Auckland where there are large concentration of SMEs. Third, subgroups within the four
ethnic groups can be included to determine the relevance of the present study to these
subgroups. Fourth, ethnic SME entrepreneurs from other international tax jurisdictions with
similar tax regime should be tested to validate the present findings.
In conclusion, government authorities need to have a better understanding of the cultural
values of the entrepreneurs-taxpayers and how these impinge on their business behaviour.
This understanding will assist them to target their regulatory strategies in order to match the
varied characteristics of their taxpayers. It is also consistent with the call for responsive
regulation (Braithwaite, 2007) that there should be a suite of regulatory strategies in order to
more effectively meet the needs of culturally diverse entrepreneurs-taxpayers. The aim is to
build a more cooperative relationship between the tax authority and the business community
by understanding how culture may affect the way businesses are operated.
20
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