Control variables were added in both stage 3 and stage 5 in order to assess whether the. Utility theory, developed by allingham and sandmo, assumed taxpayers to be utility maximisers in decisions of tax reporting and compliance, where tax evasion was viewed as. This study offers an overview of the theoretical foundations for explaining tax compliance behavior. For many years, the internal revenue service irs has presumed that its activities promote better income tax compliance in the general populationboth through deterrence and. Improving tax compliance requires longterm reform efforts, beginning with strengthening the organization and management of the revenue agency, implementing robust collection sys. Several theories of taxation exist in public economics. Estimating the impacts of tax policy, enforcement, and irs responsiveness 1. Fairness of tax system it is widely believed by tax administrators and the taxpayers that growing dissatisfaction with the. This study seeks to understand specific factors that are. These factors have been compressed into several models theories providing insights into the subject matter.
Review of modelstheories explaining tax compliance. Tax morale is an interesting topic, as it allows to check to which extent it makes sense to extend economics with aspects from other social sciences as, e. The interest generated by the subject matter of tax compliance behavior has led to. Initially, the literature which emerged from the united states had a strong focus on economic theory. Physiocrats believed that there is an inherent tendency for all taxes to be concentrated on objects or classes which enjoy a surplus. Review of models theories explaining tax compliance behavior this study offers an overview of the theoretical foundations for explaining tax compliance behavior. Tax compliance, selfassessment and tax administration. During the 1980s structured research into tax evasion and noncompliance became widespread following the political concerns in the united states of an increasing tax gap. Tax policy is concerned with how societies carry out taxation.
Observations show that tax compliance cannot be satisfactorily explained by the level of enforcement. This article reports several experiments in the domain of tax compliance that illustrate the nature of the challenge and implications for both theory and policy. However, taxpayers attitude has been identified as crucial one factor that play important role in influencing tax compliance behavior. The determinants of individual income tax compliance. A theoretical examination of the role of auditing and the. According to this theory, the state should levy taxes on individuals according to the benefit conferred on them. Factors affecting tax compliance attitude in africa. Pdf on apr 1, 2004, arindam dasgupta and others published the economic theory of tax compliance with special reference to tax compliance costs find, read and cite all the research. When the tax rate reaches a certain limit, entrepreneurship incentives are suppressed, the motivations for.
Tax morale is an interesting topic, as it allows to check to which extent it makes. Tax compliance is likely to become a more significant aspect of tax policy as most of the old problems remain and new considerations are raised by developments such as self. Taxpayers face wellknown and wellidentified individual motivations in their compliance decisions, motivations that originate with the standard economic model of tax. Measures of tax compliance outcomes a practical guide contents executive summary chapter 1. The tax control framework should be capable of providing assurance to stakeholders, including external stakeholders such as a tax administration, that tax risks are subject to. Governments at all levels national, regional and local need to raise revenue from a variety of sources to finance publicsector. Theories of taxation benefit theory cost of service. In psychology, compliance refers to changing ones behavior due to the request or direction of another person.
A positive approach to taxpayer compliance, public finance finances publiques, vol. Improving tax compliance 2 international monetary fund approved by vitor gaspar prepared by michael keen. Tax education is being provided as one of the tool to. Introduction to tax policy theory by allison christians. Tax compliance with special reference to tax compliance costs arindam dasgupta overview and motivation a clear understanding of the impact of different types of taxes on individual. The higher the tax rate, the higher the motivation for tax evasion. Expanding the theory of tax compliance from individual to group motivations james alm abstract taxpayers face well known and well identified individual motivations in their compliance decisions, motivations that originate with the standard economic model of tax. The interest generated by the subject matter of tax compliance behavior has led to identification of several factors that are believed to influence individual tax compliance decision. The economic theory of tax compliance with special. The characteristic nature of smes pose a threat to the voluntary tax compliance. According to brown and mazur 2003, tax compliance is multifaceted measure and theoretically, it can be defined by considering three distinct types of compliance such as payment.
Tax compliance is defined as degree to which a taxpayer complies or fails to comply with the tax rules of his country. Compliance theory is an approach to organizational structure that integrates several ideas from the classical and participatory management models. These theories seem to be more important than ever, particularly in light of the current administrations interest in tax reform. Taxpayers attitudes and tax compliance behaviour in kenya. Explaining compliance and other behaviour changes 39bodanskychap39. Pdf the economic theory of tax compliance with special. The estimated tax gap in the uk for the years 2010 to 2011 in percent of the estimated theoretical tax revenue. Panayiotis nicolaides abstract this paper presents an evolutionary theory of. Expanding the theory of tax compliance from individual to. By empirically establishing which factors affect tax compliance attitude in the selected countries, the paper derives feasible recommendations for policy makers and revenue administrations on. This theory was advocated by the physiocratic school of thought in france during the middle of the 18 th century. His analysis is based on a data set of individual artisan firms and individual audit data. A theory of planned behavior approach christopher robert jones abstract.
Frey, tax compliance as the result of a psychological tax contract. Using the tpb, tax compliance is conceptualized as a function of three broad factors. The basic idea in the theory is that tax compliance is a function of three broad factors. In this paper i attempt to contribute to compliance theories and offer a. Tax compliance theory and the literature springerlink. The economists have put forward many theories or principles of taxation at different times to guide the state as to how justice or equity in taxation can be achieved.
Utility theory, developed by allingham and sandmo, assumed taxpayers to be utility maximisers in decisions of tax reporting and compliance, where tax evasion was viewed as worthwhile if the. Oran this article examines the relationship between tax penalties and tax compliance. It is going along with the group or changing behavior to fit in with the. The tax compliance literature is a good example for the fruitful interdisciplinary dialogue between different social sciences. Tax compliance 201 social norms and panayiotis nicolaides.
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