Understanding taxpayer attitudes through understanding taxpayer identities

For tax systems which rely on voluntary self-reporting of tax obligations, the need to understand what drives taxpayer attitudes and behaviour is important in ensuring that taxes owed are declared and collected. An understanding of the motivations underlying taxpayer attitudes and behaviour is also beneficial to tax authorities through informing them of which strategies might be most appropriate and effective in achieving greater compliance. Inappropriate strategies are not only costly and ineffective, but may also be counterproductive. Contrary to the understanding of taxpayers as being motivated purely by personal self-interest, this paper argues that how taxpayers perceive themselves in relation to other taxpayers and tax revenue authorities is fundamental to understanding the motivations which underlie taxpayer behaviour. This paper illustrates, both theoretically and empirically, that taxpayers can think of themselves as members of broader social categories (for example, Pay as You Go (PAYG) versus non-PAYG) and that this qualitatively changes how they think about themselves and what drives their attitudes and behaviour. This has strong implications for compliance strategies currently employed by tax revenue authorities and these implications are discussed

The multiplicity of taxpayer identities and their implications for tax ethics

It is argued that many social factors (ethics, norms, legitimacy) affecting tax compliance derive their meaning and potency from taxpayers’ identities, the way they position themselves socially relative to other taxpayers, and the tax authority. Study 1 explored how 1200 Australians categorised themselves spontaneously in the tax context. Study 2 used survey data from 965 Australians to investigate what implications different identities (personal, subgroup, national) have for tax ethical attitudes. An inclusive identity in terms of one’s nation was related to attitudes most conducive to tax compliance. It is concluded that the concept of identity is key to responsive regulation

Regulating more effectively: The relationship between procedural justice, legitimacy and tax non-compliance

In recent years many OECD countries have been observing an increase in middle-income taxpayers making use of aggressive tax planning strategies to reduce their tax. In many cases it is unclear whether these strategies are designed and used by taxpayers to legally minimise tax or to illegally avoid tax. What is clear, however, is that those that are designed to exploit loopholes in tax law pose a serious problem to the integrity of a tax system and therefore need to be dealt with in a way that restores both faith and equity back into the system. One issue that needs to be considered when doing this, however, is how tax authorities can best regulate taxpayers who may have inadvertently become involved in such illegal tax planning practices. Using cross-sectional survey data collected from 2292 Australian taxpayers in 2002 (Study 1) and longitudinal survey data collected from 659 Australian taxpayers in 2004 (Study 2), it will be demonstrated that regulatory enforcement strategies that first attempt to coerce and threaten taxpayers back into compliance can sometimes result in taxpayers questioning the legitimacy of the Tax Office’s authority, which can subsequently lead to active resistance towards that authority. It will also be shown that the imposition of harsh and excessive civil penalties for tax non-compliance can in fact lead to subsequent non-compliance in the future. It will be argued that a responsive regulatory approach that relies on principles of procedural justice may be the only effective enforcement strategy available to tax authorities who wish to prevent both widespread resistance and future non-compliance to their rules and decisions

Financing Australia: A 'post-modern' approach to tax compliance and tax research

Promoting compliance is at the heart of Australia’s tax regime management. Many factors affect compliance levels and practices, which can be grouped as individual, political, economic and social factors, set within the contextual facets of ‘globalisation’. How these affective factors are epistemologically framed should also be considered central to tax compliance and its research. This paper departs from prevailing positivist approaches, arguing there is now room in compliance research to take a more ‘post-modern’ perspective. This is possible on two fronts. First, there are new compliance tools, such as the Australian Tax Office’s Compliance Model (ATO Compliance Model), that embraces some of the tenets of modern social theory by encouraging dialogue, empathy and positive change. Second, qualitative research methods present grounded, in-depth and positioned research, and are able to locate ‘intangibilities’ missing from other research perspectives. Drawing these two strands together, this paper discusses qualitative research carried out into the experiences and perceptions of the ATO Compliance Model ‘champions’ in the Australian Taxation Office. It illustrates how effective both the ATO Compliance Model is in promoting deep-seated attitudinal and practice change in champions, and also how qualitative methods can look ‘below the line’ of usual compliance markers to grasp the subtleties of change. In sum, this paper argues that a ‘post-modern’ approach does indeed have a place in tax research today

Procedural justice and tax compliance

Throughout the 1990s, tens of thousands of Australian taxpayers invested in massmarketed tax effective schemes. They enjoyed generous tax breaks until the Australian Taxation Office (Tax Office) told them in 1998 that they abused the system. This study examines the circumstances surrounding taxpayers decision to invest in scheme arrangements. It also explores investors perceptions of the way the Tax Office handled the schemes issue and, perhaps more importantly, why such a large number of investors defied the Tax Offices demands that they pay back taxes. Data were taken from in-depth interviews conducted with 29 scheme investors. Consistent with the procedural justice literature, the findings revealed that many of the scheme investors interviewed defied the Tax Offices demands because the procedures the Tax Office used to handle the situation were perceived to be unfair. Given these findings, it will be argued that to effectively shape desired behaviour, regulators will need to move beyond enforcement strategies linked purely to deterrence. A strategy that aims to emphasise the procedural justice aspects of a regulatory encounter will be discussed

Championing the compliance model: From common sense to common action?

The Compliance Model was introduced into the Australian Tax Office (Tax Office) as both a procedural and product-outcome innovation, where it has been met with varying degrees of acceptance and criticism. This paper analyses interviews with 22 Compliance Model ‘champions’, to examine what the Compliance Model meant to them and how they put it into practice. It shows how champions believed the Compliance Model was ‘common sense’. It represented and brought together various trains of thought and ideas they already had about how they wanted to work. Champions were able to put these thoughts into action, as the Model legitimised their beliefs and gave them a new language – or ‘discursive space’ – in which they could try and do things differently. Working from ‘within’ the Model, it became a new way of thinking. They were able to see the positive effects of using the Compliance Model and became committed to using it as a tool for encouraging sound working practices and greater taxation compliance. This suggests that the Compliance Model could be taken forward in the Tax Office by putting into action small, day-to-day, behavioural changes that exemplify the conceptual foundations of the Model, without having to change staff ‘values’ or ‘culture’. By bringing the Compliance Model gradually to life, Tax Office staff could experience first-hand the positive effects of the Model, which, for the champions at least, was the strongest factor in committing them to its validity as a worthwhile form of practice

Making tax law more certain: a theory

Rules can make tax law certain in simple and stable regulatory domains. A theory of how to make the law more certain is developed for more complex, dynamic domains. Its first step is to define overarching principles and make them binding on taxpayers. One of those overarching principles would be a general anti-avoidance principle. Next, a set of rules to cover the complex area of tax law is defined. The legislature lays down that in a contest between a rule and an overarching principle, it will not be the rule that is binding. That is, the principle is not merely used to assist in interpreting the rule. Rather it is the principle that is binding with the rules used to assist in applying the principle. Specific sets of rules for the most commonly used types of transactions or business arrangements are also written. This might involve a dozen different sets of rules to regulate concrete arrangements. Such rules actually merely specify examples of how the principles apply. Each of the dozen sets of illustrative rules are followed with an explanation that the reason for the rules being this way in this concrete situation is to honour the overarching principles. This is a way for the legislature to make it clear to judges that it is the principles that are the binding feature of the law. The paper also discusses what to do when judges do not respect this, reverting to old habits of privileging rules. It also discusses how to nurture shared sensibilities around the principles among judges, practitioners and the community

Trusting the Tax Office: Does Putnam's thesis relate to tax?

Data from the Community Participation and Citizenship Survey are used to explore the factors that influence people to place trust in strangers and impersonal others. We use Putnams social capital thesis to explore whether civic engagement and associational membership are major factors in the development of generalised or social trust, and whether this kind of trust is generalisable to trust in government institutions, specifically the Australian Taxation Office. There is partial support for Putnams thesis that civic engagement develops social trust. More important is affective trust which is developed in the family and through familiar others. We find that trust is generalisable, being extended to strangers and to the impersonal others in government institutions. It is trust that builds trust and government institutions like the Tax Office begin their task with benefits accrued through generalised trust

Tax compliance by the very wealthy: Red flags of risk

Executive summary: A study of 235 High Wealth Individuals (HWIs) and the entities they control was undertaken on 1997 and 1998 tax returns. From this data, and using a list of 207 candidate issues, five red flags for overall risk of aggressive tax planning by HWIs were identified. These red flags indicated recurrent risks that can be predicted using different kinds of analyses of overall high risk. ..

Responsive regulation, multilateralism, bilateral tax treaties and the continuing appeal of offshore finance centres.

Regulatory dialogue between states with widely diverging tax systems has emerged as a key feature of OECD, IMF and EU initiatives on Offshore Finance Centres or Tax Havens. This has brought together states of differing dimensions in size, population, economy and power. Where there is such a discrepancy in power between states there is often a temptation to assert a command and control regulatory approach. This was the initial reading of the OECD’s Harmful Tax Practices Project that identified 35 tax havens - small states in Europe, the Pacific, Indian Ocean and the Caribbean - and demanded that they repeal financial secrecy legislation and commit to exchange of information agreements. As these initiatives have unfolded there has been a transition away from regulation by command and control towards responsive regulatory dialogue in which tax havens have been encouraged to cooperate through engagement and active participation. Based on qualitative research with key stakeholders in OFC jurisdictions and multilateral organisations, this paper explores this transition. It argues that the preservation of tax bilateralism has limited the capacity of multilateral organisations to deploy the full range of regulatory techniques, particularly those involving penalty and coercion. Instead all parties, tax haven states and multilateral institutions, have been confined to the broadest base of the regulatory pyramid. It suggests that while responsive regulation and meta regulatory principles may not provide ‘quick-fix’ solutions to international tax avoidance, they may offer more enduring policies to manage the sovereign states that seek to legislate for offshore ‘loopholes’