The Alternative Approach: Responsible Taxpayer View/ Behavioral Model of Tax Evasion
This alternative strategy might be regarded as the most recent significant development in the
literature on tax compliance that can assist explain what the conventional model cannot. This
strategy was categorized by Mikesell and Birskyte (2007) as the responsible taxpayer stance.
This method was known as the behavioral model of tax evasion by Slemrod (2007). The key idea
of this strategy is that, unlike the utility maximization model, choosing to comply with tax laws
does not just involve calculating financial costs and benefits. It considers more than just
economic considerations that might have an impact on tax compliance decisions in order to
approach tax evasion from a perspective that goes beyond the likelihood of being found and
penalised.
The responsibility taxpayer view, as defined by Mikesell and Birskyte (2007), holds that people
are morally responsible, willing to comply, and willing to pay taxes when: 1) they are motivated
to do so; 2) they clearly understand what their tax obligations are; and 3) payment of those
obligations is made convenient (Mikesell).
2007; & Birskyte, p. 1048). Instead of taking enforcement action against taxpayers, this strategy
relies more on a gentler approach to encourage taxpayer compliance through education. To
ensure that taxpayers are aware of their tax obligations. This alternate strategy focuses on the
issue of
Assuming that there are still plenty of taxpayers who are unaware of their obligations,
procedures, and responsibilities with regard to taxes. It's sometimes referred to as a "kinder and
gentler IRS" strategy (Mikesell & Birskyte, 2007).
Slemrod (2007) addressed the significance of motivation, perceptions, and attitudes that
influence tax compliance decisions in addition to the educational component, including: 1)
intrinsic motivation (civic virtue) 2) judgments of the fairness of the tax system. 3) Beliefs
regarding government confidence; 4) perspectives on whether tax cheating is acceptable.
Tax compliance decisions may be influenced by intrinsic motivation. Internal motivation is
referred to as intrinsic motivation. Civic virtue, or intrinsic motive for tax compliance, refers to
the idea that one pays taxes out of a desire to be a good citizen or to give back to society rather
than out of a sense of obligation. However, if sanctions are implemented, civic virtue may be
overshadowed since individuals may feel compelled to pay taxes (Frey, 1997). According to
Scholz and Lubell's experiment from 2001, taxpayer cooperation drastically decreased once
heavier fines were instituted. This conviction has also caused the IRS to adopt a softer strategy,
favoring rewards over sanctions or carrots over sticks.
Slemrod (2007) contends that attitudes of the fairness of the tax code also influence tax
compliance behavior. The societal norms against tax evasion will be strengthened if the tax
system is seen as fair. Therefore, tax evasion becomes more expensive because it carries a
greater risk of a bad reputation if discovered and a guilty conscience if not. In other words, a
fairer tax system should result in higher tax compliance because it will make society think that
dodging taxes is wrong.
Decisions about tax compliance are influenced by both trust in government and opinions about
the fairness of the tax code. In other words, taxpayers will be more ready to pay taxes if they
believe that their government is fair and acts in their best interests. These tax payers are referred
to as "contingent consenters" by Levi (1998) because they collaborate and pay taxes even when it
goes against their immediate desire to free-ride. According to the findings of surveys conducted
by Torgler and Slemrod in 2003, tax compliance is positively correlated with a nation's level of
trust in its leadership. The results of Slemrod's study of citizens in Germany and the United
States likewise indicate a favorable correlation between tax compliance and confidence in the
government (Slemrod, 2003). In other words, more tax compliance is correlated with stronger
public confidence in the administration. The justification is that citizens' faith in the
government's ability to spend their tax dollars fairly and effectively could increase.
Attitudes regarding the legitimacy of tax evasion may also affect taxpayer compliance.
According to the World Values Surveys from 1999 to 2002, different nations have different
attitudes toward tax evasion (Slemrod, 2007). The average for the US and the OECD was 2.28
and 2.34, respectively, when respondents were asked whether tax evasion is justifiable on a scale
of 1 (never justifiable) to 10 (always justifiable). This indicates that tax evasion is viewed
negatively and generally as unacceptable in the US and the OECD. The United States and the
OECD may see less tax evasion as a result than developing nations, where citizens may view tax
evasion as more acceptable. Individuals with varied cultural, educational, and religious
backgrounds, as well as those with different personal ideas, values, and traits, may have different
attitudes towards the appropriateness of tax evasion.
The alternative method for tax compliance includes behavioral viewpoints that are not included
in the standard utility maximization method. Taxpayers may be obedient and eager to give back
to society. Government policy to increase taxpayer compliance could include improving tax
education, encouraging civic virtue of contributing to the society by paying taxes, offering
rewards to compliance taxpayers, improving procedural fairness in tax and government
administration, and creating anti-tax evasion attitudes among citizens. Tax compliance decisions
are not only limited to the calculation of financial costs of getting caught and benefits from
evading taxes.
Factors Affecting Tax Compliance
Numerous research on tax compliance concentrate on examining the factors that influence tax
compliance. Most studies concentrate on tax enforcement, such as tax audits and penalties, which
are what important in the conventional approach. The others look into other variables such tax
amnesties, positive incentives, attitudes and views toward tax systems, tax rates, real income
levels, and demographic traits. All of these research make an effort to comprehend the factors
that affect tax compliance in order to identify solutions to enhance tax administration and
increase tax compliance. However, Thailand still lacks any comprehensive research on these
determinants.
Tax audits, first
The topic of tax audits is a hot one in the field of tax compliance research. Scholars are interested
in audit probability, audit productivity (percent of undeclared revenue discovered), and prior
audit alerts. Higher audit rates are anticipated to boost compliance (Alm, 1999). According to
expected utility theory or the compliance lottery concept, if audit probability and productivity are
higher, so will the expected loss of getting caught. Therefore, taxpayers will disclose a higher
level of income (Allingham & Sandmo, 1972). This notion is supported by studies that employ
TCMP data, including Witte and Woodbury (1985), Dubin and Wilde (1990), and surveys like
Kinsey (1992), Shreffinn and Triest (1992), which show that compliance rises as audit rates rise.
The results of experimental approaches are consistent with those published by Alm (1999, p.
756), with an estimated reported income-audit rate elasticity of 0.1–0.2.
Findings by Alm and McKee (2006) are really intriguing. To analyze individual compliance
reactions to preliminary data on audit probability and productivity, they employ experimental
methodology. The quantity of unreported money that will be found through audits is referred to
as the audits' productivity. According to the research, notification increases compliance for those
who are aware they will be audited but decreases compliance for those who are unaware they
will be audited. With prior notice of audits, total compliance actually declines. The findings are
intriguing because they suggest that it would not always be beneficial to inform taxpayers
exactly what will happen to their reports.
Recent laboratory experiments by Alm, Jackson, and McKee (2009) evaluate the effects of
different information dissemination methods (formal information provided by the tax authority
and informal communication between taxpayers) on compliance with the frequency and
outcomes of audits. The tax authority should use pre-announced audit rates that are credible and
annual reports of enforcement efforts that emphasize the frequency of audits from the preceding
period as essential instruments to increase compliance. Another result is that unofficial
communication will only be successful in the presence of a formal announcement of audit rates.
B. Sanctions
Again, the compliance lottery viewpoint predicts that stiffer fines will spur greater compliance.
According to Alm (1999, p. 756), the income-fine rate elasticity of less than 0.1 indicates that
compliance only minimally increases with an increase in the penalty rate. The Kirchler review,
According to Muehlbacher, Kastlunger, and Wahl (2007), numerous research failed to
substantiate the idea that harsher penalties would lead to higher tax compliance.
For two key reasons, according to Mikesell and Birskyte (2007, p. 1064), the effect of penalties
on compliance is significantly less than the audit rates. First, enforcing harsh sanctions is
constrained by political and societal factors. Second, fines only work when they are coupled with
an increased likelihood of audits. If the tax authority doesn't enforce these penalties more strictly,
raising fine rates won't do much good. Additionally, from the perspective of the responsible
taxpayer, harsher fines could not necessarily result in good outcomes and might deter voluntary
compliance. Interesting conclusions are reached by Kirchler et al.
On the one hand, penalties must be severe enough to have a deterrent impact on taxpayers and to
lower the projected value of tax evasion. On the other hand, if penalties are excessive, the tax
system will be seen as unjust and unfair, and people would look for any way to pay their taxes
without breaking the law. Kirchler et al. 2007, p.
C. Motivating Factors
Instead of concentrating exclusively on the detection and punishment of noncompliance, tax
compliance academics' perspectives have changed toward more positive incentives for tax
compliance (Slemrod, 1992). Slemrod highlights the current practice of resolving tax compliance
difficulties with "carrots" rather than "sticks." According to experimental investigations, using
positive reinforcement results in increased compliance. Laboratory experiments are used by Alm,
Jackson, and McKee (1992) to examine the impacts of positive incentives and audit rate and
penalties on compliance (lottery prize, fixed reward, future audit reduction, and the increase in
public good). The findings imply that increased compliance with the law is aided by both
proactive incentives and
tax payer adherence. For them to have a major impact on taxpayer compliance, positive
incentives in particular must be immediate and noticeable. Taxpayers can only receive benefits if
they cooperate completely. As a result, the compliance rates for those taxpayers have changed
from being extremely low to being extremely high.
Tax Amnesties
Tax amnesties might also be seen of as a way to encourage both purposeful and unintentional
noncompliant people to pay their taxes. According to Andreoni et al. (1998), 33 of the 50 states
have employed tax amnesties to allow noncompliant taxpayers the opportunity to voluntarily pay
their past taxes without being subject to criminal prosecution or other sanctions. Tax amnesties
have generated substantial money for numerous states, including over $100 million for
California, Illinois, Michigan, and New Jersey, and $401 million for New York (Andreoni, et al.,
1998, p. 853). If offered too frequently, tax amnesty, on the other hand, can be seen as giving tax
evaders greater opportunities to dodge taxes. According to Alm et al. (1990), their experiments
yielded two main and intriguing findings. First, since taxpayers who intentionally comply with
the law expect future amnesties, tax amnesties may result in decreased post-amnesty compliance.
Second, strengthening post-amnesty enforcement efforts (such as sanctions) would lessen this
unfavorable effect and might actually improve post-amnesty compliance over just doing so.
Perceptions and Attitudes Toward Tax Administration
Decisions about tax compliance are also influenced by attitudes and views of the tax
administration (Shreffinn & Triest, 1992). Decisions about tax compliance are influenced by
three main categories of attitude and perception: 1) The procedural fairness of tax administration
and systems, 2) The standard of government services, and 3) Social norms around tax evasion.
In tax systems and government administration, procedural fairness is crucial because it provides
taxpayers with justifications for paying their fair amount of taxes. Procedures fairness, according
to Tyler (1997, p. 1), made people feel obligated to follow group norms because they were
legitimate and deserving of respect. The social norms against tax evasion and confidence in
government are strengthened by ensuring that everyone is treated equally, fairly, and respectfully
(Hanousek & Palda, 2004; Slemrod, 2003; Torgler, 2003). People assume that fair procedures
will result in fair distribution because of procedural fairness in tax systems and government
management (Thibaut & Walker, 1975). Therefore, procedural fairness fosters favorable
attitudes and impressions about tax administration and government operations, which aid in
promoting taxpayer compliance.
In addition to procedural fairness, responsive service increases compliance by fostering favorable
sentiments toward tax administrators and the tax system (Smith, 1992). Strong evidence
supporting the impact of government service quality on tax compliance decisions was discovered
by Hanousek and Palda (2004). Tax avoidance is a common strategy used by taxpayers who
believe they are not getting adequate government services for their money. According to this
viewpoint, the reason why taxpayers don't pay taxes is because they think the government is
ineffective and insensitive to their needs. Therefore, the effectiveness of government services
affects citizens' desire to comply and pay taxes. Service delivery that is quicker and of higher
caliber will boost tax payer compliance.
Social norms about tax evasion have an impact on taxpayer compliance decisions in addition to
the procedural fairness and responsiveness of the tax systems and government administration.
The extent to which tax evasion is regarded as socially acceptable action in particular depends on
societal norms. Because of the shift in societal norms that makes noncompliance acceptable
conduct, negative publicity of noncompliance, for instance, may promote tax evasion.
within the social (Shreffinn & Triest, 1992). Taxpayers who observe others evading taxes are led
to believe that doing so is normal, tolerated by the government, and even encouraged (Alm,
1999).
Trust in the government is ultimately influenced by attitudes and impressions such as procedural
fairness, responsive service, and social standards. Higher tax compliance is linked to greater
public trust (Hanousek & Palda, 2004; Slemrod, 2003; Torgler, 2003). In order to prevent tax
evasion, the government must be responsive, procedurally fair, and socially acceptable.
Tax Rates F
Empirical evidence suggests that higher tax rates reduce compliance, with underreported income-
tax rate elasticity ranging from -0.5 to -3.0, according to Alm (1999, p. 753). According to the
compliance lottery interpretation, this may be read as an increase in the gains from cheating at
higher tax rates. To prevent tax evasion, however, lowering marginal tax rates does not make
much sense. Concerns about equality and efficiency should guide the creation of the tax rate
(Sandmo, 2005).
G. Levels of Actual Income
Theoretically, there should be a positive correlation between actual income and tax compliance.
According to Alm et al. (1992), more income increases reported income, with the reported
income-income elasticity being estimated to be between 0 and 1 in empirical data and about 34
in experimental results. Kirchler, et al. (2007) reviewed the data on the relationship between
actual income and tax compliance and discovered
that the evidence is conflicting. Others show a negative link (e.g., Baldry, 1987; Collins &
Plumlee, 1991; Slemrod, 1985) or even no association between real income and tax compliance
(see, for example, Alm et al., 1992; Christian, 1994; Fishlow & Friedman, 1994). (See Feinstein,
1991; Kirchler, et al., 2007).
H. Demographic Information
According to the TCMP data, younger, single, and self-employed individuals have lower levels
of compliance. Younger individuals are also less obedient, according to experimental
investigations. Additionally, women are more compliant than men (Alm, 1999; Andreoni, et al.,
1998). As they are just beginning their jobs, younger people may have less knowledge of tax
obligations and a weaker feeling of citizenship. Because they qualify for fewer deductions than
those with families, single persons may feel that the tax system is less fair and hence exhibit
lesser compliance. Self-employed workers are more likely to be less compliant since their
income is difficult to audit. Females may be more obedient since they are thought to be more
responsible than males at the same age.
The two main perspectives on tax compliance were then examined. One is the conventional
utility maximization method, which assumes that taxpayers weigh projected advantages and
losses from noncompliance and that enforcement and penalties are necessary to encourage
compliance. The other is an alternate strategy known as the responsible taxpayer view, which
holds that if individuals are motivated and aware of their obligations, they will pay taxes when it
is convenient for them to do so. Decisions on tax compliance are not made solely on a financial
or moral basis, but rather on both, thus it is vital to comprehend both points of view.
Three main research techniques are used to explore the factors that influence tax compliance:
historical data, surveys, and experimental investigations. Researchers use a variety of research
techniques to confirm various parts of tax compliance difficulties since each has unique strengths
and shortcomings. According to the literature, audit rates, fines, rewards, tax amnesties, attitudes
and perceptions toward tax administration, tax rates, actual income levels, and demographic
variables are significant elements that influence tax compliance. The impacts of the likelihood of
audits and fines on tax compliance were extensively researched, with a focus on enforcement
through audits and penalties. Although softer motivational techniques like making the tax system
fair and convenient to increase tax compliance received less attention, they are on the rise.
However, Thailand lacks any thorough research on these determinants. The next chapter outlines
the research techniques used to investigate the hypotheses presented in the previous chapter
about perceptions and factors influencing tax compliance in Thailand.
