Tax Morale in Norway (and elsewhere) – flexible or firm? Presentation for the seminar in Lusaka April 2012

Some results from academic research Economic view of man (homo economicus): deterrence (the risk of getting caught and the size of the punishment) is the sole influencing factor on compliance Problematic view: does not explain the high level of voluntary compliance given that risks are small and penalties relatively small Tax Morale in Norway and elsewhere 4/23/2017

Deterrence: The effect of audit General level Other tax payers Audits have a positive effect Studie på baggrund af compliance målinger (nix-pille sagerne) Brev sendt til både kontrollerede og ikke-kontrollerede skatteydere effekten var størst på dem der ikke tidligere var blevet kontrolleret Kontrol fremstår mere skræmmende når man ikke har prøvet det! Individual level Audited tax payers Potential negative effect on compliant tax payers Potential negative effect on non-compliant tax payers Potential positive effect on non-compliant tax payers Tax Morale in Norway and elsewhere 4/23/2017

More influencing factors according to research Opportunity (sometimes) makes thief Inefficient public spending lowers compliance Norms (“tax morale”) influences compliance RA dealings with the taxpayer has an impact State and structure of the economy Tax Morale in Norway and elsewhere 4/23/2017

Elements influencing taxpayer compliance Public spending efficiency Tax morale Economy Deterrence Revenue authority behavior shows fairness Opportunity Tax Morale in Norway and elsewhere 4/23/2017

Definition of tax morale The norms of behavior governing citizens and businesses in their relationship with government and its revenue body In other words: Tax morale describes the moral principles or values individuals hold about paying their or their employers tax Tax morale is not to be treated as a black box Mechanisms must be identified that shows how tax morale might arise or how it might be maintained Tax Morale in Norway and elsewhere 4/23/2017

Tax morale – where does it come from? Industry Neigbours, friends, idols, general public Staff Trade unions Competitors Revenue body Media Software suppliers Accountants Tax Morale in Norway and elsewhere 4/23/2017

Factors influencing tax morale According to econometric research: Significant trust between taxpayers and revenue body level of religiousness age gender marital status Not significant: income education level Tax Morale in Norway and elsewhere 4/23/2017

My personal list of factors that lowers tax morale personal norms have priority over public norms no bad consciousness when breaking rules strong individualism – “self-made man” way of thinking free-riding attitudes defeat sense of public duty “everyone does it” – generally accepted not to pay tax unclear what is right or wrong - creates moral nihilism feeling of being unfairly treated by the revenue body Tax Morale in Norway and elsewhere 4/23/2017

Empirical results - Norway A survey from 2001 asked the following question (was also asked in 1980 and 1989): Do you think it is understandable that people do illicit work? Answer 1980 1989 2001 Yes 78% 67% 61% No 6% 9% 13% Neither yes or no 20% Don’t know 3% 2% Tax Morale in Norway and elsewhere 4/23/2017

Empirical results – Norway and elsewhere Source: World Values Survey (1993) Tax Morale in Norway and elsewhere 4/23/2017

Comparisons across tax administrations DETERRENCE EFFECTS OF AUDITS ECONOMY OPPOR-TUNITIES FOR TAX EVASION PUBLIC SPENDING EFFICIENCY RA DEALINGS WITH TAXPAYER TAX MORALE NTA UNCERTAIN GOOD SMALL HIGH MOSTLY FLEXIBLE AT ? TRA ZRA Tax Morale in Norway and elsewhere 4/23/2017

How do taxpayers perceive the Tax Agency? Tax Morale in Norway and elsewhere 4/23/2017

Complex interactions between different compliance factors High level of voluntary compliance Personal norms & deterrence Works well if the deterrence is perceived as supportive. Procedural fairness important. Only personal norms Works well because personal norms have great influence on behaviour. Only deterrence Deterrence can replace the personal norm. That is a weaker incentive. Nothing Does not work well. Low level of voluntary compliance Tax Morale in Norway and elsewhere 4/23/2017

Conclusions A strong tax morale enhances compliance Tax morale is maintained and improved by revenue body behavior less threatening, more understanding. more efficient cooperating with good forces in society involving communities, industry organizations, trade unions general attitude to paying taxes build a sense of citizenship the quantity and quality of public goods repair potholes and improve bad schools Tax Morale in Norway and elsewhere 4/23/2017

Some discussion points Is it possible to measure the tax morale level? If yes, how? Do you believe that the tax morale in your country is firm or flexible? What can you as a tax administration do to improve the tax morale in your country? Tax Morale in Norway and elsewhere 4/23/2017