voluntary tax compliance. knowledge. cooperation between dian and skatteverket / anders stridh &...
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Voluntary tax complianceCooperation between DIAN and SkatteverketAnders Stridh & Lennart Wittberg, 1 – 5 June 2015
Knowledge
Know the enemy and know yourself, and in a hundred battles you will never be defeated. If you know only yourself, not the enemy, your
chances of winning and losing are equal. If you are ignorant of either the enemy or yourself, you will surely be defeated in every battle.
Sun Tzu
P.S. The taxpayer is not the enemy
More knowledge from research has changed the view on human behaviour…
Homo EconomicusKnows everything and is completely rational
Homo SapiensLimitied knowledge and
makes mistakes
Based on macro-
economic theory
Based on behavioural
economics
…which affects tax compliance strategies
Homo EconomicusKnows everything and is completely rational
Homo SapiensLimitied knowledge and
makes mistakes
Influencing behaviour is a
math problem and mostly about deterrence
Influencing behaviour is a
complex problem and mostly about the environment
Two important insights from behavioural economics
Small changes in the taxpayers environment can have great impact on
behaviour
We tend to underestimate the importance of external factors and overestimate the
importance of personal character
Two different offers to subscribe to a magazine
Offer no 1
$59 Only digital
$125 Paper + digital
8
68%
32%
Offer no 2
$59 Only digital
$125 Paper + digital
$125 Only paper
16%
84%
0%
Source: Dan Ariely
9
I give you €1 if you help me with these boxes
I give you €100 if you help me with these boxes
Could you please help me with these boxes?
No
Yes
Yes
Behavioural Insight Team (BIT)
aka ”The Nudge Team”
Examples:• 83 % instead of 67 %
reacted to a reminder to pay when the wordings were changed
• Survey responses increased from 36 % to 76 % when a post-it note was used
11
Group 1Writing an essay that is anti-
Castro
Group 2Writing an essay that is pro-
Castro
Fundamental attribution error
We do the opposite regarding ourselves
If you are late for a meeting then it is because you are lazy. If I am late for a meeting it is because the bus was late.
How much of the behaviour is based on morale and character and how much is based on circumstances and context?
• “Risky” taxpayers• Treatments towards target groups• We want to influence the behaviour of the taxpayers
– does this mean that it is something wrong with the taxpayers?
The right tool used in the right way will be the cheapest solution in the long run
Risk Management
Working witheverything
Going throughthe pile
Working withsomethingJust auditing
selected cases
Working withcompliance
Choosing activities withina compliance strategy
1980 1990 2000
Risk Management help us chose activities
The Swedish story
What is Risk Management?
Decision making tool
The purpose is to enable a Tax Administration to accomplish its strategic objectives by facilitating management to make better decisions.
Risk is always connected to an objective
- Bad things are happening- Things are not occuring as expected- Good things are not happening
Risk is the threat or probability that an action or event will adversely affect an
organisations ability to achieve its objectives.
Identifying based on objectives
Implementation
Evaluation The Swedish Risk
Management Model
Assessment and
prioritization
Analysis
Organizational requirementsTwo things are important
What wewant to
achieve?Capabilities
Now and in the future
Keep it as simpleas possible,
but not any simpler
Benefits and challenges
• Decision based on knowledge and according to goals and strategy– Tool for management
• Better use of resources– Decide in advance on prioritizations
• From freedom to freedom with constraints
More control Less freedom for auditors
Lessons we learned in Sweden
• It takes time• It is a journey with many changes• Biggest problem: too complicated planning
structure with a lot of internal administration and long planning cycles
• It is difficult to link analysis and prioritization• It is a risk that we dress the old way of
thinking in new words and do things in a more complicated way
Major benefitsExperience from Sweden
• Holistic view– We know what is happening in the organisation
• Planning in cooperation with regions
• More focus on the correct form of treatment
• More focus on the “right” risks
• Coordination of support and training
The tax gap
Voluntary compliance
Enforcement
Tax gap+
+
Theoretical correct tax
90%
1-2%
8-9% Lost taxes
Expensive taxes
Cheap taxes
Voluntary compliance is the goal
How much tax should be paid in one year in Sweden?
Total tax level
Tax determined
Tax gap about 8-9 %
Result of taxchecks and auditsabout 1-2 %Total tax level
– Theoretical sum of taxes that should be paid in one year.
Tax determined– Total of all taxes determined by Tax Agency after examining tax returns, compliance checks etc.
Tax gap map
International SEK 46
bn
Illicit work SEK 66 bn
Other nationalSEK 21
bnPrivateindividuals 22 10 9 3
Micro companies 52 7 43 2
Small/medium-sized companies 26 14 5 7
Large companies 25 15 2 8
Public sector,organizations etc.
2 < 1 1 < 1
Undistributed,other groups
6 — 6 —
Total tax gap approx. SEK 133 bn
Compliance checks approx. SEK 22 bn
Tax gap per group SEK 22 bn
Tax gap per category
Informal economy50 %
Other national16 %
International34 %
Why Tax gap map?
• A pedagogic picture for the dialogue with the government
• A pedagogic picture for the dialogue with other internal and external stakeholders, e.g.
– media– cooperating partners against tax fraud and economic crime– industry organisations and labor unions– managers
• Input to the planning process – risk management and risk analysis– identifying our need of knowledge
Shift happens!
• Preventive measures • Cooperation• Increasing audits on severe tax
evasion
• Tax haven investigations• Tax treaties and voluntary
disclosures• Propose legislation
• Support and make it easy• Automate the process
How to measure the tax gap
• It is difficult!
Top down approachBased on national accounts
Bottom up approachBased on audits and surveys
Estimation of the tax gap
Discussion
• Does it represent the amount of money, that in theory, the government is missing?
• Is it a good idea to reduce the tax gap with methods that could reduce economic activity?
Unintentional non-compliance
Opportunitiesmatter
Opportunity
• Important predictor for tax evasion
• Tax evasion is more common when there are opportunities for evasion– E.g. self employed versus private individuals
• But it is also about opportunities for making mistakes
… leads to uncertainty…
Complexity…
Have I paid the right amount?
… leads to perception of unfairness…
… leads to non-compliance
The road of compliance The road of non-compliance
??
Lazy non-compliance
The road of compliance The road of non-compliance
??
Lazy compliance
Practical implications
• Reduce opportunities for evasion– Loophole in the law?– Low risk of detection?
• Increase opportunities for compliance– Make it easy to comply– Simplifications and increased support– e-filing– Pre-filled tax return
• More third party reporting and withholding
Crime and punishment
Why do people commit crime?
• Social norms?
• It is easier than not to?
• They gain something?
• It is easy to rationalize?
Are criminals bad people?
What is the purpose of punishment?
• Payback (revenge or like paying a debt)?
• Change the behaviour of the criminal?
• Change behaviour of other people?
• Fairness – it just feels right?
Should the punishment
be adjusted to the criminal or to the crime?
If adjusted to the criminal: Better individual preventive effect, but decreased general preventive effect due to perceptions of unfairness and lack of
predictability.
If adjusted to the crime: Better general preventive effect, but decreased individual preventive effect due to perceptions of unfairness.
Regardless of how the punishment is adjusted it should be directed towards the crime, not the individual
Don’t send the message “You are a bad person”
Send the message ”What you did was wrong”
Reintegrative shaming, John Braithwaite
How to prevent crime
• Support social norms
• Make it easy to do the right thing
• Reduce gains from crime
• Make rationalizing crime more difficult
Do not treat criminals as bad people
Fairshare culture
Cops and robbersInteresting
object to study Partners
Taxpayerperspective notof any interest
Taxpayers areinteresting fromour perspective
We need tounderstand the
taxpayerperspective
If the taxpayers are not the problem – they can be part of the solution
1970 1990 2010
Trust becomes more important
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Cooperation with others important
Co-operation with trade - Large contractors
Cooperate with actors who may come in contact with underground economy
– Contractors infrastructure and labour-intense services
– Support tender process, Code of conduct– E-service for tender information– More than 500 partners covering € 40 Bn
Enhanced relationship (Cooperative compliance)Large taxpayers
• On-going pilot project• Based on the Dutch model
• Agreements with large taxpayers• Transparency in exchange for certainty
• Criticised in media– Perceived as threat to equal treatment
• A review is going on• We don’t know the result yet
A case study
Is it possible to influence attitudes?A practical case from The Swedish Tax Agency
“I personally think its OK for people to cheat on their taxes if they get the chance”
Age 18-24 All ages
1998 7% 7%
2001 12% 7%
Percent that agree:
63
Problem
• Young people have a more positive attitude towards tax evasion
• Will they pay tax when they get older?
64
Solution
A campaign to influence the attitudes of young people
65
66
Campaign strategy
• Target group– 500 000 young people aged 16-20
• Build knowledge– What are taxes used for?
• Communicate on young people’s terms
• No lecturing
Activities 2002
• Short film in cinemas and on TV
• Website
• Mass media debate
• Letter from the Director-General
• Informative tray-cloths in schools
Tax
67
68
69
Results
• 90 % noticed the campaign
• 50 % had discussed taxes with friends or parents
70
Activities 2003
• A new commercial spot in cinemas
• Stickers put on to objects paid for by taxes
10 cm
71
72
73
Activity for 2004
The Black Box. A box distributed to the schools containing:
• A film about young people during their summer holiday trying to earn money for a trip to Florida.
• A role play with accessories from the characters in the film for a role-play and debate about taxes.
• Support and instructions to the teacher how to lead the role-play and the debate.
74
”I personally think its OK for people to cheat on their taxes if they get the chance”
Age 18-24 All ages
1998 7 % 7 %
2001 12 % 7 %
2002 7 % 7 %
2004 5 % 5 %
Percent that agree:
75
0%
5%
10%
15%
20%
25%
30%
2002 2003 2004 2005
Before the campaign
After the campaign
During the campaign
“It is OK that people work in the informal sector”
Percent that agree:Age 16-20
76
Not like this
77
“If possible, I would hide income from taxation”
78
Private individuals 2012
I would
Neither
I would not
No opinion
”The tax agency is good at combating tax evasion”
Private individuals 2012
No
Yes
No opinion
Neither
Discussions
• How is the fair share culture in Colombia?
• What can you do in order to improve it?