voluntary tax compliance. enforcement. 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
Enforcement
Malcolm K. Sparrow
There is a certain foolishness in traditional enforcement approaches. They wait until the damage has been
done and then they react, case by case, incident by incident, failure by failure. Enforcement agencies accept
the work in the form in which it arrives, and, therefore, have tended to organize their activities around
failures rather than around opportunities for intervention.
How will the taxpayer behave after an audit?
• Evade more?
• Evade less?
Prospect TheoryDaniel Kahneman & Amos Tversky
• People are willing to take big risks in order to avoid losses– Ex: Choose between Lose 1000 or 50/50-chans of losing 2000 or 0
• People are not willing to take big risks in order to gain more– Ex: Choose between Win 1000 or 50/50-chans of winning 2000 or 0
Tax refund: less tax evasion
Tax debt: more tax evasion
Risk of loosing the business: more tax evasion
This means:
Time
Evasion
One evading taxpayer
New evaderLittle extra revenue
High preventive effect
”Old” evaderMuch extra revenue
Low preventive effect
The German case
8,0%
8,5%
9,0%
9,5%
10,0%
10,5%
2001 2004
Andel som arbetar svart
22,0%
24,0%
26,0%
28,0%
30,0%
2001 2004
Andel som upplever en ganska hög upptäcktsrisk Taxpayers participating in the informal sectorTaxpayers that perceive a high risk of detection
Danish researchers have shown that risk of detection had no impact on taxpayer behaviour directly.
But, the tax morale (social norms) had improved.
Is deterrenceeffective?
The purpose of audits is NOT
• To maximise revenue
• To perform as many checks and audits as possible
The purpose is to increase the willingness to complyin the long run
External pressure (incentives) can increase or decrease the individuals own moral
convictions.
• The moral conviction will decrease if the incentives are perceived to be controlling.
• The moral conviction will increase if the incentives are perceived to be supportive.
Crowding theory, Bruno S Frey
Slippery slope model
Perceptions of power
• Coercive powerCompliance through intimidation
• Legitimate powerCompliance through fairness
Reduces the willingness to comply
Increases the willingness to comply
Norms and deterrence
Social norms Personal norms Behaviour
Strong norms in favour of
compliance+ +
Low deterrent effect of
enforcement- -
Michael Wenzel, 2002
Norms and deterrence
Weak norms in favour of
compliance- -
High deterrent effect of
enforcement+ +
Social norms Personal norms Behaviour
Weak norms in favour of
compliance- -
Higher deterrent effect of
enforcement
Strong norms in favour of
compliance+ +
+ +
Norms and deterrence
Social norms Personal norms Behaviour
Stronger norms in favour of compliance+ +Strong norms in
favour of compliance+ +
Low deterrent effect of
enforcement- -
Norms and deterrence
Social norms Personal norms Behaviour
Stronger norms in favour of compliance+ +Strong norms in
favour of compliance+ +
Norms and deterrence
To support social norms is the purpose of enforcement, not
deterrence.
Social norms Personal norms Behaviour
Stärker normer för att betala
skatt+ +Strong norms in favour of
compliance+ +
Norms and deterrence
Social norms:
• What others do• What others think
Enforcement can influence
this
To support social norms is the purpose of enforcement, not
deterrence.
Social norms Personal norms Behaviour
What happens if a person don’t follow his personal norms?
• Feelings of shame
• Very big threat to self image
• The person needs to confirm that his actions is right– By finding ways to rationalize the behaviour– By doing it again– Can lead to change in personal norms
Trust based climate Antagonistic climate
Voluntary compliance
Enforcement contributes to trust
Coerced compliance
Enforcement destroys trust
Builiding trust and fairness
Controlling taxpayers
A strategic choice
Enforcement that support social norms and the willingness to comply
Enforcement used as deterrence
Communication and enforcement
Is the purpose to intimidate… …or to protect honest behaviour?
You must comply, or else…
We will make sure that others comply.
The evolution of the thinking
Selection for audit
Understand and influence behaviour
Right from the start
Fixing the taxpayer Fixing the environment
Risk management
An important shift
How do we perceive the taxpayers?Are the taxpayers the problem?
The philosophical perspective
Who you are determines what you do
What you do determines who you are
“The man who possesses character
excellence does the right thing”
“It’s not who you are underneath, it’s what you do that defines you”
The practical perspective
It is easier to change the environment than to change the person…
…regardless of what we might think of a persons character
We have always a choice – we are not victims
We don’t chose this view
• They don't understand
• People are strange
We chose this view
• We have not explained well enough
• We have not understood the needs
Its not about manipulating people to do
things
Its about working with
people towards common
goalsIts about building trust and fairness
We can influence the environment in many ways
• Social norms– Most taxpayers are compliant– Most taxpayers want to comply
• Simplify and automate– Integrated software
• Enforcement (not deterrence)– About fairness– About social norms– We never use threats– Its about catching “those who evade”
General levelOther taxpayers
Individual levelAudited taxpayers
Audits have often a positive effect
Audits can have a negative effect on
compliant taxpayers
Audits can have a positive effect on non-compliant
taxpayers
Audits can have a negative effect on non-compliant
taxpayers
The effect of audits depends on…
• The selection– Follow-up audit can be a good idea
• How the audit is carried out
• How audit activities are reported in media
Proactive measures
and support
Reassessments due to
unnecessary errors
Combat tax evasion and
crime
Moreresources
Fewerresources
Moreresources
To just keep correcting taxpayer errors is not effective
”Old” evaders
4 different audit strategies
Create better generalpreventive effect by
audit the “right” areas(according to the public)
4
Create better indivualpreventive effect by“follow-up” audits
3
New evaders Stop new
evaders2
Catch big evaders
1
“For every complex problem there is an answer that is clear, simple and wrong.”
H.L. Mencken
Enforcement
Service
Other circumstances
Number of errors
Type of errors
Size of errors
”The system” The result
Discussion
• What is the purpose of enforcement in Colombia?
• Should the purpose be different?
• What consequences does this have on how we choose goals and what we measure as success?
Strategic thinking
What we intend to do
What we did
This is our view
This is what we do
A strategy requires a goal
Plans are nothing, planning is everything.
Eisenhower
Dynamic thinking is crucial
We get stuck in familiar patterns
Ways of thinking
Insights
Working with things or people
PredictableControl
All cases exactly the same
UnpredictableDifficult to control
Unique cases
Strategic thinking is about
• Understanding the past and present
• Not predicting the future but having an idea of the current direction and have foresight about the future
• Thinking ahead
• Thinking in abstracts and patterns
• Collecting knowledge and gaining insights