Why some people don’t pay taxes - (2)
The higher the relative financial tax burden, the more likely a taxpayer may default. The costs associated with tax compliance, over and above the actual tax liability may also deter some taxpayers from compliance. Penalties, interest and fines for non-compliance may work but only for some time. Incentives for being compliant may have a longer positive effect. But it's not only the monetary or financial effects to a taxpayer that matters. Numerous behavioural factors also tend to influence tax compliance behaviour.
Individual differences: While many taxpayers comply with their tax obligations, some do not. Individual factors influencing behaviour include gender, age, education level, moral compass, industry, personality, circumstances, and personal assessment of risk. In his research on business tax compliance, economic psychologist Paul Webley found that those who do not comply tend to be male, younger, arrogant and have positive attitudes towards tax evasion and negative attitudes towards taxation authorities. Webley suggests that education about the taxation system has a direct impact on reducing the propensity to evade.
Social norms: Is tax non-compliance an acceptable norm? The “But everyone else is doing it” attitude. If a taxpayer believes that non-compliance with taxes is widespread, they are much more likely not to comply themselves. Hence some studies indicate that if taxpayers can be made to have an accurate understanding of the good tax compliance behaviour of others, it is likely to reduce non-compliant behaviour.
Perceived inequity: Some taxpayers may believe ‘the system’ is unfair or they have personal experiences of ‘unfair’ treatment (dissatisfaction with tax authorities). Or that the system treats them unfairly compared to others, and that the government is doing too little with the revenue it collects. These taxpayers are less likely to comply with taxes. In his research, Webley found a positive correlation between belief by taxpayers that the revenue authority is inefficient or unhelpful and the likelihood of their non-compliance.
Risk-taking: Some taxpayers view tax avoidance as a game to be played and won. They like to test their tax avoidance skills. Also, if a taxpayer has the opportunity not to comply and thinks that there is only a minimal risk of being detected, he or she will take the risk. Under-reporting of certain types of income is a typical example. Employment incomes (salaries and wages) are usually highly ‘visible’ to a tax authority because of employer reporting under the PAYE system. However, other forms of income may be much less visible and therefore subject to more ‘creative’ accounting.
There is no firm answer to what influences taxpayer behaviour either towards compliance or non-compliance. Hence an Australian academic Dr Valerie Braithwaite suggested that some economic and behavioural factors combine to cause individual taxpayers (individuals or businesses) to adopt sets of values, beliefs and attitudes that he described as motivational postures. There are four of them. Those who either deliberately evade their responsibilities or choose to opt-out (“The disengaged”). Also, some don't want to comply but who will comply if they can be persuaded that their concerns are being addressed (“Resisters”). But some are positive and are willing to comply but have difficulty in doing so and don’t always succeed (“Triers”). And lastly, there are those who are always willing to do the right thing (“Supporters”). Dr Braithwaite further cautions that an individual taxpayer can adopt any of these attitudes at different times. Or adopt all the attitudes simultaneously to different issues. Hence these attitudes are not fixed characteristics of a person or group.
By Shabu Maurus, Tax Partner, Auditax International.