Sandford, Godwin, and Hardwick (1989) was the first study to spot and distinguish compliance costs from administrative costs. The authors describe compliance costs as the costs incurred by taxpayers complying with the requirements laid on them by the tax law and the revenue authorities. These are costs over and above the actual payment of tax and over and above any distortion costs inherent within the nature of the tax. These costs would vanish if the tax was abolished. These include the costs of collecting, remitting and accounting for tax on the products and profits of the business and on the wages and salaries of its employees, and also the costs of collecting and updating the knowledge to enable the work to be done, including knowledge and legal obligations and penalties. (Sandford, 1995)
Americans For Fair Taxation (2007) view tax compliance cost as the total time and money spent on filling out the tax forms, learning the tax rules, keeping records, and other tax-related matters.
Compliance costs of taxation are amount of resources expended by taxpayers, in addition to the amount of tax they are needed to pay, in conforming to the requirements of the relevant tax legislation. Compliance costs are not only incurred by taxpayers but by all the parties concerned in making possible the transfer of funds from the private sector to the government department that controls public money.
For individuals, the compliance costs include costs of acquiring adequate knowledge to meet legal requirements; of collecting the necessary receipts and different data; making the correct calculations and completing tax returns; paying professional advisors for their tax advice; and paying incidental costs of telephone, postage, and travel to communicate with tax advisors or the tax office. For a business, the compliance costs include costs of collecting, remitting, and accounting for tax on the products or profits of the business, and on the wages and salaries paid to its employees. Tax Compliance costs for a business also includes the costs of getting the knowledge to enable this work to be done including the knowledge of their legal obligations and penalties. (Sandford, Godwin & Hardwick 1989).