Tax literacy in the digital economy

Abstract: Due to the digital economy the average taxpayer now has access to other income streams where the majority of transactions can be virtual transactions. Even though these transactions are virtual or takes place in the shared economy, it might still have a taxation effect for the taxpayer and they need the necessary taxation knowledge to be able to account for these transactions on their tax returns. Likewise, tax administrations are increasingly making use of advanced technologies to prevent and detect non-compliance. For some taxpayers this brings new challenges and knowledge requirements in respect of their interaction with revenue authorities. Empirical findings has shown that taxpayer knowledge is a factor influencing tax compliance and accordingly, taxpayer education is generally one of the key approaches adopted by tax authorities to improve taxpayer compliance. The concept of ‘tax literacy’ is however proposed to be a wider concept than tax knowledge alone and needs further investigation in the context of its role in taxpayer compliance. The aim of this paper is to illustrate the usefulness of a conceptual framework of tax literacy as a tool in identifying tax compliance risks for individuals in the digital economy. The risks addressed in this paper are limited to those which could result from deficits in taxpayers’ knowledge and skills, as well as a lack of information resources. Using fundamental concepts from the literature on ‘literacy’ and drawing on established theories in especially the ‘financial literacy’ domain, the concept of ‘tax literacy’ is explained in this paper and presented as a three-dimensional framework. Understanding that tax literacy is a process of ‘making meaning’ from the interaction between tax awareness and contextual knowledge. The framework illustrates three elements of tax literacy, namely 1) tax awareness, 2) contextual knowledge and skills, and 3) meaning making or informed decision making. The first element, tax awareness, refers to individuals’ understanding of their role in the fiscal exchange or social contract with government. This awareness forms the basis of the framework, as it is a necessary condition for being tax literate. The second element proposes procedural as well as a legal component of contextual knowledge and skills. The procedural context allows for a consideration of the knowledge and skills required to interact with tax authorities and having your records for tax purposes in order. The legal context refers to an understanding of how you are taxed. The third element propose that taxpayers’ engagement in fulfilling their tax obligations is the result of a social construction of their awareness and knowledge, based on own perceptions. In other words, a combination of awareness, knowledge, skills and attitude are necessary to make decisions on acting in a tax compliant manner or not. The usefulness of the proposed framework as a tool in identifying tax compliance risks for individuals in the digital economy was illustrated with highlighting examples of specialised knowledge requirements on a procedural and legal level as it pertains to individuals as taxpayers in the digital age

Exploring work-readiness skills required by tax technician candidates

Abstract: Tax technicians are tax practitioners who assist tax consultants and normally work under their supervision. In South Africa, tax practitioners need to be registered with the revenue authority and a recognised controlling body to ensure that the practitioners are appropriately qualified and adhere to a code of ethics. An undergraduate diploma qualification may provide a student access to become a tax practitioner practicing as a tax technician. A candidate tax technician must apply for registration with a controlling body and will have to display competence in a knowledge component, practical skills component as well as a workplace component of the tax technician occupational qualification..

A conceptual framework of tax knowledge

Abstract: This paper aims to develop a conceptual framework of tax knowledge that can be used to analyse and discuss tax knowledge as a factor influencing tax compliance. Design - Relevant literature was sourced using keywords pertaining to tax knowledge in order to identify the constructs of the framework, thereafter secondary interview data on small business owners’ tax challenges was thematically analysed to perform a preliminary assessment of the proposed framework in order to lend further support to the suggested elements of the framework..

A tax compliance risk profile of guesthouse owners in Soweto, South Africa

Abstract: A conceptual framework to assess the particular tax situation of small business owners identifies three key aspects that distinguish small business owners’ perceptions of their tax obligation. These aspects are: they are likely to perceive more opportunities not to comply than employed taxpayers; they are likely to lack meaningful taxation knowledge and they are likely to frame the paying of taxes as a loss. Aim: The aim of this article was to sketch a tax compliance risk profile of guest house owners in Soweto to suggest strategies to negate those factors that may negatively influence their compliance behaviour..

The determinants and measurement of trust in tax authorities as a factor influencing tax compliance behaviour

To trust is to believe that another person will cooperate for your benefit and will not take advantage of you if an opportunity to do so arises. Trust is valued as a relational variable providing the base for voluntary cooperation. This article aims to determine, by reviewing studies on the effect of trust in tax authorities on tax compliance, the determinants, effect and measurement of trust in this context. Findings from a number of studies indicated that trust in tax authorities is positively related to tax compliance, and it was found that perceptions of fairness, treatment by authorities, norms and attitudes, and subjective tax knowledge are the main factors determining trust in tax authorities. However, many studies use very limited descriptors when measuring perceptions of trust in authorities, and it is suggested that a standardised survey instrument could be developed to measure such perceptions

Management of trade credit by small and medium-sized enterprises

Abstract: This study identifies the trade credit management situation within the small and mediumsized enterprise (SME) environment. The purpose of this study is to determine the trade credit management practices of SMEs, focussing on debtors alone, in order to establish whether South African SMEs mismanage trade credit. Focussing on SMEs, this study created a unique opportunity to determine the trade credit management practices of SMEs specifically. This article provides vital evidence containing SMEs’ trade credit management practices and insight to entrepreneurs (SME owners) and government regarding possible reasons why SMEs find it difficult to manage trade credit effectively. Data were analysed using statistical techniques such as descriptive statistics, frequencies, cross-tabulations and mean scores. The intention is that SMEs and small firms can use the results of this study in assessing the appropriateness and effectiveness of their own practices and, in doing so, contribute towards the sustainability and viability of SMEs in order to empower SMEs to operate successfully in addressing the South African development challenges

Rewarding tax compliance: taxpayers’ attitudes and beliefs

In a society the tax climate is determined by the interaction between taxpayers and tax authorities. In a ‘service and client’ climate, taxpayers do not expect authorities to automatically suspect them of being tax evaders. Evidence suggests that recognising good tax behaviour with strategies of rewards has a positive effect on voluntary tax compliance. Principles derived from the cognitive evaluation theory predict that when feelings of competence are affirmed and this is accompanied by a sense of autonomy it can enhance the intrinsic motivation for an action. The present research surveyed the attitudes and beliefs of taxpayers involved in small business on being rewarded for tax compliance. Results were corroborated with the principles of the cognitive evaluation theory and it was found that that the principles of the theory are applicable to rewarding tax compliance behaviour

Tax knowledge for the digital economy

Abstract:Orientation: Because of the digital economy, taxpayers have access to new income streams. These virtual transactions have taxation consequences, and therefore taxpayers need specialised taxation knowledge to understand their tax obligations and act in a tax compliant manner. Research purpose: The aim of this article was to identify the unique tax knowledge requirements for individuals functioning in the digital economy by systematically reviewing literature on the tax challenges arising from this new economy. Applying a conceptual framework of tax knowledge, these knowledge requirements were categorised as either general, procedural or legal. By identifying these requirements, it was possible to point out the risks within these categories that may cause obstacles to individuals to act fully tax compliant. Motivation for the study: Understanding the different knowledge requirements of taxpayers may assist tax authorities to identify the tax compliance risks of these taxpayers in their capacity as individuals functioning in the digital economy. Research approach/design and method: A qualitative approach was used in the study through a thematic search of appropriate literature such as articles, reports, blogs and media releases. These documents were systematically reviewed to identify the knowledge requirements for individual taxpayers functioning in the digital economy. Main findings: The findings suggest that there are specific tax knowledge requirements in different areas that must be in place to ensure tax compliance in the digital economy. Any shortcomings in these areas of knowledge create the risk of non-compliance for individuals functioning in the digital economy. Practical/managerial implications: Taxpayers and tax authorities alike should take note of the risk areas identified in each area of knowledge (general, procedural and legal) and devise strategies to deal with taxation issues arising from transactions in the digital economy. Contribution/value-add: This study applied a tax knowledge framework and identified the general, procedural and legal tax knowledge requirements of individuals functioning in the digital economy. The study also pointed out associated compliance risks, which may assist tax authorities to target strategies for improving taxpayer knowledge in these three areas

Principles for understanding, encouraging, and rewarding voluntary tax compliance

D.Phil. (Taxation)Any modern economy depends largely on taxation as a source of revenue and governments therefore realise the importance of having a willing taxpayer base. Many tax authorities use a compliance model to engage with taxpayers, in terms of which different strategies are used to encourage compliance, ranging from enforcement strategies on the one hand, to strategies of assisting taxpayers to comply, on the other. It is widely recognised in the literature that the majority of taxpayers are voluntarily tax compliant, but it appears that tax authorities place more emphasis on how they can enforce compliance than on how they can recognise those who are voluntarily compliant. The concept of voluntary compliance is not well defined in the literature and is commonly used in the sense of “compliance in the absence of an external enforcement action.” By means of an in-depth review of the literature from a socio-economic viewpoint, the present thesis aimed to define principles and also construct a framework for understanding voluntary tax compliance. It was found that voluntary tax compliance means the acceptance of a tax obligation by a taxpayer without having to be forced, driven by personal and internalised social norms, within a climate of trust between the taxpayer and tax authority. The framework for voluntary compliance was shown to consist of three dimensions: strong personal norms; internalised social norms; and a climate of high trust. Each dimension encompasses its own variables that also influence one another. Strategies used by tax authorities to encourage voluntary tax compliance were analysed with the aim of identifying strategies based on a power orientation, a service orientation, or a norm orientation. It was shown that different strategies influence different variables of the voluntary ii compliance framework, such as tax knowledge, fairness, trust, and ethical values. Through this analysis, principles for building a voluntary tax climate could be identified..

Customs Valuation Challenges in Multinational Enterprises’ Controlled Transactions: An African Perspective

Purpose: The paper aims, from an African perspective, to investigate the practice of inconsistent custom duty valuations experienced by related MNEs and to explore the impact this may have on MNEs. Design/Methodology/Approach: Perceptions from industry experts from various African countries were sought by means of a questionnaire and supplemental literature was reviewed with a view to address the stated objectives. Findings: The main findings point to custom officials’ lack of knowledge of transfer pricing principles, possible corruption by custom officials and custom authorities keeping reference prices. The impact on MNEs appear to mainly relate to additional costs in the form of storage, consignment seizure, and lengthy court battles. Implications/Originality/Value: Strategies to address challenges arising in custom valuations suggest training of customs officials, coordination and exchange of information between relevant departments within the revenue authority and making use of advanced pricing agreements