Basically, nobody likes to pay taxes. Some people think of tax as a tribute and hence it is perceived as no more than a burden (ICONEG, 2016). Some taxpayers have very little confidence in the taxation system, so they don’t cooperate easily. Others are either completely unaware or have very little knowledge of taxation matters, so they end up breaching the tax laws inadvertently. Therefore, the tax authorities must come up with different measures to tackle these challenges. The measures are generally implemented through sound policies.

The following are some of the policies recommended for implementation:

Make clear and simple tax laws

When the tax laws are complicated and difficult to understand, taxpayers will need to hire tax experts. Having to hire experts will entail extra costs to them. So, some taxpayers will rather choose not to comply with the tax laws and bear the burden of that extra cost. In addition, when the tax laws are not easily understood, the taxpayers do not comprehend their obligation clearly. Therefore, taxpayers might go for an easy option by defaulting on their tax obligations. On the other hand, if the tax laws are simple and easy to understand, taxpayers know their obligations clearly and will be more willing to comply.

Build taxpayers’confidence

Revenue authority must exercise its powers in a fair and just manner. The tax laws should be applied without any bias or favoritism. People will be watching how the revenue organization is conducting its affairs. If the revenue authority is to build people’s trust, it needs to be transparent in its conduct of business. Some empirical findings have shown that compliance is nurtured by trust (Murphy K, 2002). Taxpayers watch out for how the revenue authority conducts its duties and act accordingly with either trust or distrust. There is evidence that shows that people who feel they have been treated fairly by an organization will be more likely to trust that organization and be inclined to accept its decision and follow its directives (OECD, 2004).

If the revenue authority is to build a good trust in the people, it should behave in a trustworthy manner. Once a good amount of trust is achieved, it needs to work hard towards maintaining it. For a revenue authority, its taxpayers’ trust is a great resource on which it can bank towards achieving a good compliance level.

Make taxpayers’ roles & responsibilities clear

If the taxpayers do not know their roles clearly, they may be breaching tax laws inadvertently. The majority of the taxpayers are willing to comply with the tax laws provided they understand their responsibilities clearly. Therefore, it is important that the revenue authority should educate taxpayers on their obligations. They should be made aware of their duties and rights as taxpayers. At the same time, taxpayers should also be informed of what rights the tax authority will have over them. If there are new laws that have been enacted, taxpayers should be very well informed about it. Fundamentally, taxpayers should be made aware of where their tax money is going after it has been collected by the revenue authority. If they know that their money is coming back to them in the form of social benefits, they will be more than willing to pay their tax dues.

Create a conducive environment for easy compliance

If the tax filing and payment procedures are complicated, the chances are that they might opt for an easy choice, which is not to comply. Hence, if the government wants people to come forward and comply with the tax laws, the procedures to file tax returns and payment of taxes should be made conducive. The revenue authorities should make themselves accessible to the taxpayers. The help desk services must be prompt and helpful. The tax centers should be ideally located so that people can easily walk in or drive to.

Reward good taxpayers

There are many benefits of rewarding the taxpayers who are compliant with the tax laws. Honoring taxpayers in recognition of their honest tax declaration and tax payment can gain their trust. The names of the award winners have to be published in print media or announced on television so that others will be encouraged to follow suit. The rewards can be provided in various forms. A certificate of recognition of the honest taxpayers will be very meaningful to them. One positive advantage of awarding such certificates is that taxpayers can build their goodwill in the market. In general, the overall morale of the taxpayers will be boosted when the revenue institution bestows genuine accolades upon them in appreciation of their compliance.

Use deterrence tools

This is one of the most primitive and frequently used tools by revenue agencies around the world. This policy is intended to bring compliance to the taxpayers through fear. The most handy tool under this category is the use of frequent audits. Resorting to frequent audits and levying hefty penalties, if caught breaking tax laws, can really instill fear in taxpayers. In order to bring a bigger impact, some countries even resort to naming and shaming the taxpayers through the media. However, this measure should only be resorted to if other modern techniques fail to bring about compliance.

Enhance tax morale

Tax morale as a concept was first developed while trying to seek an explanation of the ‘unexpected gap’ between expected and actual levels of tax compliance (Kornhauser, 2007). It’s a broad and general term that impacts taxpayers’ voluntary tax compliance in a direct proportional manner; the higher the tax morale, the higher the voluntary tax compliance.

In recent times, the study carried out jointly by the OECD and the UN (OECD/CAF/UN ECLAC, 2018[4]) concluded that countries with high tax-to-GDP ratios have higher tax morale, albeit in varying degrees. The study attributed this trend to effective government performance. The same study also confirmed that tax morale is influenced by age, education, gender, religion, and trust in government. The same study also found that women have higher tax morale than men globally, except in Africa.

As the degree of tax morale is directly proportional to voluntary tax compliance, revenue agencies should do all they can to boost taxpayers’ morale.

Develop user-friendly ICT Apps

One of the reasons why taxpayers don’t comply with the tax regulations is the complexities of the procedures. If the process of filing tax returns and payment of taxes are made easy, they are bound to be forthcoming. In this day and age, ICT has advanced so much that countries have developed various tax software systems. The automations have made the life of taxpayers much easier. It saves them time, effort, and money. However, the majority of the taxpayers today need the help of the experts to operate the software. Hence, the tax authorities need to look into the possibilities of simplifying the complex software systems so that the taxpayers can perform their jobs themselves. Although mobile tax software is available today, very few countries have implemented it. Adoption of such an easy-to-use platform will definitely boost taxpayers’ compliance. The most significant advantage of mobile tax software is that taxpayers can get their work done on the go. This should make a huge impact on the voluntary compliance of taxpayers.

Conduct awareness campaign

The role of tax awareness campaigns in promoting tax compliance is huge. Oftentimes people breach tax laws due to a lack of knowledge. In general, there will be very few people who are willing to break the law with full awareness. By nature, people are duty-bound and uphold morality.

The awareness can be imparted through various means. The most powerful and effective way to create awareness is by organizing in-person workshops. Here the participants can have the opportunity to interact directly with the resource persons and get their doubts clarified instantly. On the other hand, for the tax authorities, it will be a great opportunity to try and convince taxpayers in person to carry out their obligations seriously.

Other means of creating awareness can be through publicity campaigns such as by organizing talk shows on television, radio, or podcasts. It can also be achieved through advertisements in print media.

Recognizing the limitations of the age-old method of punitive measures, the revenue agencies today are focusing on improving voluntary tax compliance through other methods. The advantages of achieving a higher compliance level without having to resort to the traditional measure, which is unpopular, are many.  Firstly, the revenue agencies wouldn’t have to face the irks of the taxpayers. Secondly, the financial resources and human efforts could be channeled into the areas where it is most warranted. Besides, simplification of the tax laws, creating a good ambiance for tax filing and payment, motivating taxpayers through rewards, creating awareness, and introducing simple and user-friendly ICT platforms, would significantly boost the voluntary compliance of the taxpayers.

Contributed by

Wangdi Drugyel

Collector

Department of Revenue and Customs