Did you cast your vote yesterday? Your vote decides on the fiscal policies that will be adopted in the next five years or so. A fiscal policy entails the extent of taxes to be imposed and how the collected tax revenue will be expended by the government. And the two have several economic ramifications. Some may be positive to you and the economy and some negative. Voting is, therefore, among the most important civic duties in a democratic society. And so is paying taxes.
What makes you pay taxes? Yes, it is your civic duty. But, perhaps, it is the interplay of several factors. Those within yourself and those outside you. In the previous two articles, we have discussed some of the factors. Tax knowledge, group dynamics, fiscal exchange, and others. But would a friendlier tax authority make your pay taxes voluntarily? In this article, I focus on this aspect and how it tends to shape tax compliance behaviour.
Trust in the tax authority and power of the tax authority are two main dimensions shaping tax compliance behaviour. Trust is the general opinion of taxpayers that the tax authority is benevolent and work beneficially for the common good. Power, on the other hand, is taxpayers’ perception of the potential of tax officers to detect non-compliance and accordingly punish. Whilst the use of power can increase tax compliance (enforced compliance), voluntary tax compliance is achieved by increasing levels of trust. Thus, boosting trust in authorities generates voluntary compliance. So, the logical follow-up question is how to boost trust in the tax authority.
A “tax service” or a “tax authority”?
The tax officers’ attitude towards taxpayers is of great importance as it can boost either trust or distrust. Studies have shown that a ‘service and client’ climate between tax authorities and taxpayers tends to foster mutual trust and cooperation and stimulate taxpaying behaviour. But a ‘cops and robbers’ climate creates distrust and resistance, giving rise to cheating behaviour. For example, how does the tax administration approach tax audits or similar enquiries for the taxpayers? And are the audit findings resolved? A service-oriented tax administration tends to put more emphasis on promoting taxpayer services. The basic thrust of these actions is to treat the taxpayer more as a client than as a potential criminal.
The tax administration should promote tax education to taxpayers and potential taxpayers. Provides services that assist taxpayers in filing tax returns and paying taxes on time. Reminders of deadlines are good practice. Improving phone advice service (free and accessible ‘hotlines’). Improving the tax administration’s website, online services, and tools. Simplifying tax procedures (including tax forms) and tax payment process. Timely issuance of guidelines and practice notes for areas of tax that are known or likely to be contentious or complex to taxpayers. Make available to taxpayers updated versions of tax laws and regulations. Make it easier for taxpayers to obtain private and class rulings. The list is endless.
Not surprising, for some countries, the names of their tax administrations reflect this service paradigm. South Africa (South African Revenue Service (SARS)), US (Internal Revenue Service (IRS)), Russia (Federal Tax Service), and Mexico (Tax Administration Service), just to name a few. But the issue is not the name but the deeds.
By Shabu Maurus, Tax Partner, Auditax International.