Road to Improved Tax Compliance

Road to Improved Tax ComplianceWays to ensure tax compliance

Catherine B. Pasco10/3/2013

I. IntroductionFor quite some time, tax evaders had happily succeeded with their utmost objective to pay least taxes (or none at all) by all means and in varied faces of tax evasion. They came in various ways such as the following: Non-reporting of income, Over-declaration of expenses, Fictitious expenses, Claiming personal expenses as business expenses Borrowing of invoices and receipts, Non-filing of returns, and more.

Philippine tax system is on a pay-as-you-file system under voluntary compliance where taxpayers learn for themselves how, what, and when to pay taxes. Unfortunately, tax evaders look at it is as PAY-AS-YOU-LIKE.

The Bureau of Internal Revenue (BIR) is doing its best in improving the system that would enforce tax laws, rules and regulations, and eventually hit hard tax evaders. Even though there are loopholes in the taxation process and in the tax administration, the BIR continues to develop programs and tactics that are geared towards strict tax compliance in the Philippines, discover lapses, and track down tax evaders.

There are many benefits when tax compliance is strictly observed. First, it can raise GDP growth by 3% from taxes alone if Filipinos, especially the professionals, pay the right taxes. Second, without new tax measures, the government will not be able to generate the necessary revenues to achieve inclusive growth and meet the Millennium Development Goals (MDGs) considering that the tax gap in certain taxes exceed 4% of the countrys gross domestic product.

This paper discusses how to combat the present problems our taxing authority faces nowadays, especially on how to encourage tax compliance on taxpayers. Before trying to figure out such treatments and responses to these problems, it is important to know how what drives taxpayers to be non-compliant. Being knowledgeable on the causes of such behavior will enhance tax compliance and will result to long-term outcomes in the end.

II. Understanding what influences taxpayer behaviorIt has been shown that before planning any response to non-compliance, risks need to be assessed in terms of their potential impacts the likely cost to revenue, in the short term and the long term, the potential impact on the government programs and the risk to the reputation of the authority and community confidence in its administration. Then, an authority needs to determine, in accordance with some standardized criteria, how the risks identified should be grouped and prioritized for treatment. Confidence that any action taken will be successful grows from a clear understanding of what is motivating the non-compliant behavior identified.

Two broad approaches to the problem of compliance have been identified. The first stems from an economic rationality perspective and has been developed using economic analysis. The second is concerned with wider behavioral issues and draws heavily on concepts and research from disciplines such as psychology and sociology. Each approach can be valuable in terms of understanding tax compliance and the issue is to determine how the two approaches might be used to reinforce each other.

Many OCED (Organization for Economic Cooperation and Development) have invested resources into research to help understand the factors that influence taxpayer behavior. From this research the following factors emerge as significant:

A. Economic FactorsFinancial burden There appears to be a relationship between the amount of tax owed and compliance behavior. For example, if a business owner has a tax liability that can easily be paid they may be willing to comply. However, if the liability is large potentially threatening the existence of the business the owner may avoid paying at all or try to adjust the data reported so as to incur a smaller (but incorrect) tax liability.

Cost of compliance Taxpayers appear to face a number of common costs of having to comply with their tax obligations over and above the actual amount of tax they pay. These include the time taken to complete requirements, the cost of having to rely on accountants, and the indirect costs associated with the complexity of tax legislation. Furthermore, small businesses often express resentment about being unpaid tax collector because of their role in collecting and paying both indirect and direct taxes.

Disincentives Investigations into the impact of deterrents, such as financial penalties and threats of prosecution(s), suggest that they may have a time limited effect on compliance behavior of taxpayers. However, studies have shown that those who are compliant want those who are non-compliant to be punished.

B. Behavioral FactorsIndividual differences - While many taxpayers comply with their tax obligations, some do not. Individual factors influencing behavior include gender, age, education level, moral compass, industry, personality, circumstances, and personal assessment of risk.

Perceived inequity Taxpayers who believe the system is unfair or who have personal experiences of unfair treatment are less likely to comply.

Perception of minimal risk 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. This presumably accounts for the greater under-reporting of certain types of income. For example, salary and wage income is usually highly visible to a taxing authority because of third party reporting. However, other forms of income may be much less visible and therefore subject to more creative accounting.

Risk taking If people view tax avoidance as a game to be played and won: they like to test their skill in avoiding their obligations and avoiding being caught.

In a recent work, economic psychologist Paul Webley focuses on business tax compliance. He provides an overview that non-compliance behavior occurs in relation to both individuals and businesses. According to Webley, the main reasons for non-compliant behavior can be categorized as:

Equity The perceived fairness of a taxation system is important, with taxpayers behavior influenced by two perceptions: that the system treats them unfairly compared to others, and that the government is doing too little with the revenue it collects.

Opportunity for non-compliance Several studies report this as the most significant explanatory factor for non-compliant behavior. However, it is unclear whether those who are pre-disposed to non-compliance seek work where there are more opportunities for example, self-employment as opposed to Pay As You Earn (PAYE) employment.

Individual differences Those who do not comply tend to be male, younger, egotistical, have positive attitudes towards tax evasion and negative attitudes towards taxation authorities. There is some evidence to suggest that education about the taxation system has a direct impact on reducing the propensity to evade.

Social norms If a person believes that non-compliance is widespread they are much more likely not to comply themselves. Studies indicate that it is effective in reducing non-compliant behavior to ensure that taxpayers have an accurate understanding of the compliance behavior of others.

Dissatisfaction with revenue authorities There is a positive correlation between belief by taxpayers that the revenue authority is inefficient or unhelpful and the likelihood of their non-compliance. However, it is unclear just how potent this is compared to other factors.

III. Discovering what drives specific behaviorUnderstanding the general theory of taxpayer motivation can help the revenue authority to shape and manage its compliance program in a strategic way. In the same way, understanding the factors that drive specific compliance behavior is essential to guide the selection of appropriate treatment strategies. Analyzing the taxpayers compliance behavior will assist the taxing authority in addressing the direct cause of the non-compliance rather the symptom, thereby achieving a longer-term compliance outcome. This process can be illustrated in the figure below:

Figure 1 Understanding taxpayer compliance behavior

For example, over claiming business expenses (failure to report accurately) may be the non-compliant behavior that is observed and that needs to be addressed. However, the driver of the behavior may be the taxpayers need to increase cash in an attempt to remain competitive in a business environment where competitors routinely under-report their income or deal in cash. Alternatively, the driver may be the taxpayers perception that the tax rates are too high and the desire to earn some money as compensation.

In a situation such as this, treating the behavior (the symptom) will only have an impact on the affected taxpayer and even then only for a limited period of time. Moreover, the taxpayer concerned may actually feel hard done by to have been singled out for attention when those around get away with the same behavior. This may in turn simply serve to fuel feelings of resentment to the taxation system and provoke further acts of non-compliance. Thus, looking for the underlying cause of the behavior and selecting the appropriate strategy to address it could account for a difference in outcomes between short-term, isolated compliance (or even aggravated non-compliance) and long-term sustainable compliance.

IV. Recognizing the effect of the tax system itselfIt should not be automatically assumed that the target population will able to change their behavior by themselves. This is a further reason why a taxing authority must understand where the cause of the behavior problem lies.

For example, the behavior of the target population may be to always submit tax returns late (failure to file). Further analysis and investigation might determine the cause to be third party entities not making necessary information (e.g. details of dividend distributions) available to the target population in a timely fashion.

In this situation, penalizing the target population for their behavior is not going to fix the underlying systemic problem. A more effective strategy would be to work with the third party information providers to improve the timeliness of their information distribution.

A. LegislationGood compliance outcomes begin with good legislation. Tax laws that are clearly defined with regards to its purpose and interpretation can combat non-compliant behavior. Furthermore, it can guide tax authorities in establishing administrative compliance programs that will increase compliance risk management. Difficult or ambiguous laws create increased opportunities for taxpayers to behave in ways that were unintended by the law.

In many ways, good laws strengthen the taxing authoritys ability to deliver fairness in the conduct of its administration. If the community perceives the law to be unjust or inappropriate then, inevitably, there is an increased risk of non-compliant behavior. For example, some taxpayers in the UK refused to pay the poll tax of the early 1990s. This action was regarded by many of those refusing to pay the tax as morally right because the tax was perceived as unfair it treated people on similar incomes in a different way. Further, the extent of non-compliance snowballed when the amount of tax payable increased as a result of non-payment by others.

A variation on this theme is that the application of the law can sometimes have unintended consequences from an administrative perspective. Obvious examples of this are instances of the law that take effect at economic boundaries. The law is clear about its intent and application and yet we observe behavior that indicates active effort on the part of the community to either avoid being covered by the law when it is deemed to be onerous or else to be covered by the law when it is considered to be desirable.

B. AdministrationAdministration begins with the law in place. The law represents a component of the context or environment in which a revenue authority operates and it is from this environment that we discern the compliance risks associated with administration of the law. The challenge for revenue authorities is to administer the law in a manner that sustains community confidence in their administration.

To that end, the manner of administration must be commensurate with the level of exposure to compliance risk. Any compliance imposition on the community or sub-section of the community needs to be acceptable according to community standards. In general, the compliance costs to the taxpayer associated with administration must be appropriate. Perceived high costs in relation to a given risk can inadvertently lead to increased community dissatisfaction and therefore to a decrease in taxpayer compliance. In short, as a participant in the community, a revenue authority must administer within community standards.

V. Determining the treatment strategiesIf the risk has been appropriately stated, and if the driver of the non-compliant behavior for the selected target group has been clearly identified, then the next step is to select or develop an appropriate treatment strategy to address the behavior.

An important insight in the development of a compliance program is that it be well balanced. It should include a good mix of both proactive and reactive strategies as well as strategies that cover all aspects of compliance management from education to prosecution. Furthermore, a good balance will see the inclusion of strategies to address risks relating to different taxes or revenue products, such as income tax (including tax collected through withholding arrangements) and VAT. Because, non-compliance may arise as a consequence of many different drivers and express itself in the form of different behavior, a good compliance response will oftentimes be a suite of strategies rather than a single approach.

Building community confidenceAct with fairness and integrity A number of empirical studies have shown that compliance is nurtured by trust. The key to creating trust for a revenue authority is to act in ways that the community will experience to be fair. Peoples judgments about trust are linked to their evaluations of the procedures by which authorities act. Evidence 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 directions.

The perceived fairness of an organization is largely influenced by personal experience from earlier encounters, other peoples experience, and media reports. This suggests that an authority should treat citizens fairly and respectfully, listening to them and providing clear explanations on their queries. Treatment must also be equitable and consistent: the perception that one has been dealt with more or less favorably than the other will rapidly weaken trust.

A very important conclusion is that the behaviour of the revenue authority should be regarded as a part of the overall treatment strategy for influencing taxpayer behaviour. Each encounter with a taxpayer provides an opportunity for the authority to strengthen the loyalty and support of members of the public. Trust is a resource like no other; it is not depleted through use but rather through lack of use.

A lack of integrity destroys trust. Corruption in any administration cannot be tolerated because trust and corruption cannot coexist.

Pursue a flexible, customized approach If it is to build and sustain the confidence of the community, a revenue authority must respond appropriately to the actions and motivations of the community it serves. The figure below presents a continuum of regulatory and enforcement strategies aligned to a continuum of individual taxpayer attitudes and motivations. By understanding the factors that influence taxpayer behaviors and the range of attitudes towards compliance, the revenue authority is able to select the most appropriate meaning fair and just response.

Figure 2 Model of compliance

The model shows that for the majority of taxpayers who choose to pay the correct amount of tax on time, the provision of ongoing assistance will be the most helpful response to encouraging continuing compliance. However, as we move up the continuum from taxpayers who are willing to do the right thing to taxpayers who have decided not to comply, taxpayers must be made aware that the authority will detect their non-compliance and take credible enforcement action. Credible enforcement means the taxpayer will be in a worse position after the enforcement action than they would have been if they had complied in the first instance. Achieving this will require sufficient resources to maintain a sustained effort.

Revenue authorities must have at their disposal the tools to permit them to impose sanctions upon taxpayers for non-compliant behavior. However, the research clearly shows us that taxpayers will only respond better to compliant efforts if they perceive that they have been treated fairly by the authority and can accept that the authority has the power to take the course of action it has. If the model of compliance (see figure 2) is consistently and appropriately applied, this in itself represent a significant step towards demonstrating procedural justice and, in turn, building community confidence.

Improving complianceCompliance is most likely to be optimized when a revenue authority pursues a citizen-inclusive approach to compliance through policies that encourage dialogue and persuasion, combined with an effective mix of incentives and sanctions. The following discussion outlines principles that have been derived both from the research literature and the practical experience of revenue authorities. An enduring challenge for a revenue authority is to convert these principles of fair treatment into concrete operations and routines in the day-to-day practices of its officers.

Make taxpayers obligations clear If taxpayers do not understand what their obligations are, any intervention to enforce compliance will be perceived as unfair. Taxpayers must be at least aware that such policies exist and that if it cant be complied with, they will be accountable for their actions. Thus, a first step in considering how to address a specific non-compliant behavior should be to review whether or not the appropriate steps have been taken to make obligations clear meaning transparent, easy to understand, simple, and not confusing.

Make it easy to comply Experience tells us that the majority of taxpayers want to comply with their taxation obligations (within cultural and social norms). The appropriate response from a tax administration perspective is, therefore, to make it easy for them to do so. The attention to new businesses in various jurisdictions is simply an example of attempts to make it easy for taxpayers to comply by clearly advising them of their taxation obligations at the commencement of their business lives.

Making it easy to comply can, potentially, include all the initiatives an authority might take to improve service delivery. For example, in recent years, many authorities have sought to expand the range of electronic services (e-services) provided and have seen a rapid increase in the number of taxpayers and tax advisers taking advantage of the ease and convenience they provide. In many countries, the administrative burden of tax compliance has been shown to fall more heavily on small businesses than on large businesses. This has prompted authorities to increase efforts to simplify administrative requirements, including exploring ways of more closely aligning tax reporting to the natural systems businesses use for their own banking, accounting and financial reporting. Such initiatives have the potential to save businesses time and cost and improve the reliability of information received by the authority.

Exercise sanctions when appropriate (See Figure 2) Taxpayers move up and down the continuum of the compliance pyramid for a variety of reasons. These reasons (drivers) are what revenue authorities attempt to identify through risk assessment process. Experience has taught us that overall, it is a more cost effective proposition to achieve compliance by increasing the numbers of taxpayers at the lower levels of the pyramid. Thus, the challenge for authorities is to employ strategies that progressively move taxpayers down the continuum to the lower levels.

While the revenue authoritys preferred strategy will be one of self-regulation or voluntary compliance (at the base of the pyramid), the greatest leverage the authority can exert towards that outcome comes from taxpayers knowing that the authority has the power and will use it (at the top of the pyramid) to punish those who do not comply.

According to Ayres and Braithwaite, the threat of severe punishment is most effective when it is used with a hierarchy of lesser sanctions. That is, regulators will be able to speak softly when they carry big sticks (and crucially a hierarchy of lesser sanctions). Paradoxically, the bigger and more various are the sticks, the greater the success regulators will achieve by speaking softly. Sanctions are important, not so much as a prevention, but as a mechanism to convince people that others are complying.

Make your powers and activity visible A revenue authority must not only have powers of credible enforcement, but must also communicate effectively its use of these powers. This aura of power helps give the authority as an institution its credibility and allows individual officers more freedom to be co-operative with individual taxpayers.

How might perception of an authoritys legitimate power be enhanced? Strategies that may help to achieve this outcome include: Encouraging media reports of successful prosecutions; Publishing information that provides taxpayers with early warning of behavior that may be regarded by the authority as non-compliant. This kind of alert may, for example, provide reports of court or tribunal decisions or interpretive rulings by the authority on matters of law or administrative practice; Sending leverage letters advising taxpayers that the authority is aware of a specific risk and inviting a specific response. Such letters have dual utility: they prompt compliant behavior from the potentially non-compliant (deterrence) and they support the perception among the compliant that their compliance is not in vain: wrongdoers are being pursued (reinforcement); and Exercising vigilance in follow-through of known defaults in relation to basic obligations of registration, filing, reporting and payment. At some point, leniency in extending time to pay becomes counterproductive in promoting voluntary compliance.

However, its not so much as to making your powers and activity visible rather, it is also very important for the image of the taxing authority to know how and when to exercise such power. Knowing your limitations and putting justice at the top will gain the taxpayers trust and confidence which will most likely improve tax compliance.

Emerging evidence suggests that the efficacy of the risk management process can be enhanced if the risks identified and the proposed treatments are given appropriate visibility not only within the administration but within the customer base as well.

Provide incentives One area of influence that is not used to any great extent by revenue authorities is that of incentives as a tool to achieve compliance. However, initial research evidence suggests that individual responses to positive incentives are greater than the responses to deterrence factors.

Even I, as a future taxpayer, would be more inclined to comply with my responsibilities and pay taxes on time if revenue authorities will give incentives to those who fulfill and conform to their tax duties. The losses suffered with those who do not comply will be much greater and more dangerous in comparison to providing incentives to those faithful taxpayers. Positive reinforcement, as they say, will give better results in the end.

VI. Classifying risk treatments and developing a suit of responsesAll taxing authorities face common problems when dealing with taxpayers even in the initial stages of the taxation process. This includes failure to register, failure to file, failure to accurately report, and failure to pay. The discussions that will follow can help taxing authorities combat these problems and eventually ensure tax compliance in the end.Failure to registerFailure to register is often a result of lack of awareness or misunderstanding by taxpayers of their obligations, particularly where registration requirements may be based on the definition of business versus hobby, revenue turnover thresholds, or more complex employee versus contractor rules. Non-compliance through these types of factors is often at the lesser end of the continuum as distinct from deliberate attempts to evade registration or falsely register in order to obtain future refunds or entitlements.

Early education programs Several revenue bodies are developing tax awareness programs at schools as a means of providing an early initial understanding of the tax system with a longer term outcome of instilling future complaint behaviors during formative learning periods. This is clearly a future-based initiative with the expectation that the large majority of new generations of taxpayers will increasingly be self-managing and compliant.

Most, if not all, business owners only learn how to file taxes when it is time to actually do so. Sometimes, they dont even take the effort to learn and understand how our taxes come and go. It would be great if we will be able to learn about taxation in schools and not only when the need arises.

Targeting new entrants Similarly, there is also expansion of education and assistance programs targeting new business entrants under broader over-arching assistance strategies. These programs are aimed at informing taxpayers of their obligations together with available assistance and self support programs at early engagement points within respective tax systems including registration and initial filing or payment activities.

A number of revenue bodies have also developed protocols with other government agencies including co-location of tax administration staff with staff of other agencies to provide a common contact point for taxpayers to complete registration requirements for a number of government agencies or services.

General education programs Several agencies commented on the use of broadcast communication programs to target a range of general compliance obligations including correction of common misconceptions within both the SMEs and general taxpayer populations. These programs are being applied both at a singular risk area such as failure to register and also simultaneously at a combination of risk areas such as failure to register in conjunction with failure to accurately report. In some instances, such campaigns have been used to present the revenue bodys perspective in response to heightened media activity that tends to occur in relation to the introduction of tax law amendments or new regimes.

Other initiatives across revenue bodies have included the progressive review and updating of information materials using simple and clear language to both enhance understanding of registration requirements and to convey information in a style that encourages voluntary interaction and seeks to positively influence community perceptions of the tax administration.

Similarly, many revenue bodies are progressively increasing the range of information held on agency websites. This is seen a cost effective option through both reduced print requirements and greater speed in providing updated information. The use of website subscription functions are enabling revenue bodies to generate messages when new updates are made potentially reaching much broader taxpayer groups at low cost. While web-based information sites allow large amounts of information to be made available, effective site design that enables easy access to this information is critical. Similarly, maintaining the currency of web-based information is essential and periodic reviews to remove redundant material must be undertaken.

Media and the internet, in todays generation, now plays a very important role. How the media sees it and it portrays information to the public is very crucial. Taxing authorities must learn how to use technology in order to be able to use it to their advantage.

Failure to fileIt is evident that the use of alternative technologies and enhanced online services is an area revenue bodies are seeking to pursue in order to leverage the high use of technology based tools by SMEs. Technologies, such as web-based portals, are seen as offering increased cost effectiveness over traditional contact and response methods. However, they also require considerable investment not only in application development but, also in the infrastructure required to support them, particularly where the requirements may be subject to regular change.

Increase use of technology to assist filing While only limited new risk treatments were identified, each uses a different form of technology and is unique in its intended focus, including: Online submission of standard audit files and returns to both increase filing performance and also assign compliance ratings for future service strategies; Proactive pre-filing contacts via SMS to habitual late filers; Use of third party data and data matching to more accurately identify non-filers; and Development of self-management tool for access and use by taxpayers.

Revenue bodies need to consider whether developing new technology-based solutions will by themselves is enough to drive taxpayers to utilize them. Some experiences to date suggest that while SME taxpayers are early adopters of technologies and may be comfortable with accessing and downloading useful information and tools, this may not necessarily extend to engagement in real-time interactions with revenue bodies.

Failure to accurately reportAudits and investigations are generally viewed by all countries as constituting the key means of detecting non-compliance. However, many revenue bodies no longer regard audit as the immediate response. Most audits are of an administrative nature but may also extend to criminal investigations where fraud or other serious wrong doing is identified. Several revenue bodies indicated that, in combination with increasing access to and use of third party information and improved risk assessment techniques, more targeted audit activity on priority risk is occurring. In many instances, audit activity is concentrated on selected cash based industries or other high risks sectors with the intent to generate leverage through wider publicity and word of mouth throughout target groups. This targeted activity is often done with the cooperation of key industry representatives.

Acting with transparency and integrity Actively promoting programs of enforcement activity not only informs non-compliant taxpayers that they may be selected for review but, also enhances community perceptions that effective actions are being taken by the agency, particularly when combined with publication of examples of serious non-compliance.

Incentives and sanctions Incentive based approaches need to contain a component that is of value to the taxpayer so that they are encouraged to comply, or include a sanction that deters the taxpayer from not complying, or a combination of both. From the research, three different examples provided incentive based components ranging from enhanced disclosure provisions, enhanced tax credits, and reward lottery to software grants to encourage improved record keeping.

The most common form of sanctions are monetary penalties that may take the form of additional taxes, administrative penalties for late filing or payment, interest, penalties on tax shortfalls, or criminal penalties imposed by the courts. In many countries, approaches have been developed whereby penalties may be reduced under statutory provisions where disclosure of non-compliance is made prior to or during an audit.

Promote effective record keeping Poor record keeping is a recognized compliance risk for many SMEs and improvements in this area are central to accurate reporting. Not only is this sound business practice for taxpayers, it also provides an audit trail of cash and other financial transactions. As such, there is an incentive for revenue bodies to provide support in this area and a number of countries have programs in place.

Audit revisit programs A number of countries have established or are establishing audit re-visit programs. These programs generally establish a timeframe for a follow-up compliance check where an earlier audit has identified material reporting discrepancies. Taxpayers may be identified for a revisit audit at the time the original audit is concluded or identified based on risk profiling or random selection. These types of review commonly revisit previously identified areas of concern to identify whether these have been addressed in subsequent reporting periods. They also signal persistence by the revenue body to ensure repeated non-compliance does not occur. This type of program can also be used to measure changes in compliance levels over time and the effectiveness of audit activity.

Informant leads programs A number of revenue bodies also indicated the use of an informant or anonymous information program by which members of the public can provide reports to the revenue body of suspected or observed non-compliance with tax laws. In many cases, revenue bodies have actively promoted such programs to create a sense of self regulation by the wider community. In some countries these programs provide incentives through monetary rewards for validated information about non-complying businesses.

While countries with these types of programs in place have commented that they are actively used and can result in significant examples of individual non-compliance, they are also prone to misleading or vexatious claims driven by incomplete information, business competition, or relationship breakdowns. The use of these types of programs however can be enhanced by short and targeted promotion of informant program in support of the commencement of a new and broader risk treatment.

Failure to payIf a taxpayer has met the initial three compliance obligations of registration, filing, and reporting, it does not necessarily mean that payment compliance is assured. Payment compliance risks are, in most cases, not necessarily identifiable until after a due date has lapsed and no payment has been made.

Common to treatments in this risk area was the focus on continual education of payment obligations and for the revenue body to demonstrate greater persistence in pursuing collection. In most examples, messaging targeted early contact by potentially defaulting taxpayers to avoid penalties or other collection actions. In respect of persistence in collection activities, agencies commented that as with many functions they perform, broad-based education efforts must be supported by appropriate targeting of key and persistent defaulters to ensure ongoing non-compliant behaviors are minimized. Agencies have also noted that this requires increasing investment in more sophisticated and automated case management and monitoring tools.

Some agencies have also commented that under-reporting or failure to make payment is sometimes regarded by some taxpayers as victimless non-compliance and that despite the greater use of broad-based social responsibility campaigns, levels of unpaid taxes continue to grow. In response to this risk, a small number of agencies have developed disclosure initiatives whereby the details of persistent large tax debtors are made public to discourage such behavior and increase collection levels.

VII. ConclusionIn order to manage and improve compliance with tax and other relevant laws, revenue authorities need to adopt an administrative approach that encourages voluntary compliance within a cooperative and participative regulatory environment. Such an approach recognizes that almost all authorities rely, at least to some extent, on self-assessment, given that a system based on reviewing every event or transaction that may have taxation implications would be too time-consuming and costly. It also recognizes that modern revenue administration is founded on managing risk responding quickly to circumstances and leveraging the impact of interventions.

It has been proven that taxpayers are more likely to increase voluntary compliance when they believe that the revenue authority acts in a way that is fair and reasonable. Regulatory response that is consistent with a framework such as the compliance pyramid reinforces this belief because taxpayers tend to regard tough enforcement action as more procedurally fair when persuasion has been tried first. Further, while taxpayers value being trusted themselves, they want to know that the authority will be able to deal with others who cannot be trusted. In this way, responsive regulation builds community confidence and belief in the legitimacy of the tax system.

In the end, when both the taxing authority and the taxpayer are at the same level in terms of understanding the importance and impact of taxation, only then will there be a systematic and strict observance of the laws and policies embodied.

BIBLIOGRAPHY(Sub-group, 2004)(Foundation, 2009)(Pinshaw, 2009)(Administration, 2009)2 | Page