Cooperation between DIAN and Skatteverket Anders Stridh amp Lennart Wittberg 1 5 June 2015 Enforcement Malcolm K Sparrow There is a certain foolishness in traditional enforcement approaches They wait until the damage has been done and then they react case by case incident by in ID: 474094
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Slide1
Voluntary tax compliance
Cooperation between DIAN and Skatteverket
Anders Stridh
&
Lennart Wittberg, 1 – 5 June 2015Slide2
EnforcementSlide3
Malcolm K. Sparrow
There is a certain foolishness in traditional enforcement approaches. They wait until the damage has been done and then they react, case by case, incident by incident, failure by failure. Enforcement agencies accept the work in the form in which it arrives, and, therefore, have tended to organize their activities around failures rather than around opportunities for intervention.Slide4
How will the taxpayer behave after an audit?
Evade more?
Evade less?Slide5
Prospect Theory
Daniel Kahneman & Amos TverskyPeople are willing to take big risks in order to avoid losses
Ex: Choose between
Lose
1000 or
50/50-chans of losing 2000 or 0People are not willing to take big risks in order to gain moreEx: Choose between Win 1000 or 50/50-chans of winning 2000 or 0Tax refund: less tax evasion
Tax debt: more tax evasion
Risk of loosing the business: more tax evasion
This means:Slide6
Time
Evasion
One evading taxpayer
New evader
Little extra revenue
High preventive effect
”Old” evader
Much extra revenue
Low preventive effectSlide7
The German case
Taxpayers participating in the informal sector
Taxpayers that perceive a high risk of detection
Danish researchers have shown that risk of detection had no impact on taxpayer behaviour directly.
But, the tax morale (social norms) had improved.Slide8
Is deterrence
effective?Slide9
The purpose of audits is
NOT
To maximise revenue
To perform as many checks and audits as possible
The purpose is to increase the willingness to comply
in the long runSlide10
External pressure (incentives) can increase or decrease the individuals own moral convictions.
The moral conviction will
decrease
if the incentives are perceived to be
controlling
.The moral conviction will increase if the incentives are perceived to be supportive.Crowding theory, Bruno S FreySlide11
Slippery slope modelSlide12
Perceptions of power
Coercive power
Compliance
through
intimidation Legitimate powerCompliance through fairnessReduces the willingness to complyIncreases the willingness to complySlide13
Norms and deterrence
Social norms
Personal norms
Behaviour
Strong norms in favour of compliance
+
+
Low deterrent effect of enforcement
-
-
Michael Wenzel, 2002Slide14
Norms and deterrence
Weak norms in favour of compliance
-
-
High deterrent effect of enforcement
++
Social norms
Personal norms
BehaviourSlide15
Weak norms in favour of compliance
-
-
Higher
deterrent effect of enforcement
Strong norms in favour of compliance++
+
+
Norms and deterrence
Social norms
Personal norms
BehaviourSlide16
Stronger
norms in favour of compliance
+
+
Strong norms in favour of compliance
++
Low
deterrent effect of enforcement
-
-
Norms and deterrence
Social norms
Personal norms
BehaviourSlide17
Stronger
norms in favour of compliance
+
+
Strong norms in favour of compliance
++Norms and deterrence
To support social norms is the purpose of enforcement, not deterrence.
Social norms
Personal norms
BehaviourSlide18
Stärker
normer
för
att betala skatt++Strong norms in favour of compliance++
Norms and deterrence
Social norms:
What
others
do
What
others
think
Enforcement can influence this
To support social norms is the purpose of enforcement, not deterrence.
Social norms
Personal norms
BehaviourSlide19
What
happens if a person don’t
follow
his
personal norms?Feelings of shameVery big threat to self imageThe person needs to confirm that his actions is rightBy finding ways to rationalize
the
behaviour
By
doing
it
again
Can
lead
to change in personal normsSlide20
Trust
based
climate
Antagonistic
climate
Voluntary
compliance
Enforcement
contributes
to
trust
Coerced
compliance
Enforcement
destroys
trust
Builiding
trust and
fairness
Controlling
taxpayers
A strategic choice
Enforcement that support social norms and the willingness to comply
Enforcement used as deterrenceSlide21
Communication and enforcement
Is the purpose to intimidate…
…or to protect honest behaviour?
You must comply, or else…
We will make sure that others comply.Slide22
The
evolution
of
the
thinking
Selection for audit
Understand and influence behaviour
Right from the start
Fixing
the
taxpayer
Fixing
the
environment
Risk management
An important shiftSlide23
How do we perceive the taxpayers?
Are the taxpayers the problem?Slide24
The philosophical perspective
Who you are determines what you do
What you do determines who you are
“The
man who possesses character excellence does the right
thing”
“It’s
not who you are underneath, it’s what you do that defines
you”Slide25
The practical perspective
It is easier to change the environment than to change the person…
…regardless of what we might think of a persons characterSlide26
We
have always a choice – we
are
not
victims
We don’t chose this viewThey don't understandPeople are strange
We chose this
view
We have not explained well enough
We have not understood the needsSlide27
Its
not
about
manipulating
people
to
do
things
Its
about
working
with
people
towards
common
goals
Its about building trust and fairnessSlide28
We can influence the environment in many ways
Social norms
Most taxpayers are compliant
Most taxpayers want to comply
Simplify and automate
Integrated softwareEnforcement (not deterrence)About fairnessAbout social normsWe never use threatsIts about catching “those who evade”Slide29
General level
Other taxpayers
Individual level
Audited taxpayers
Audits have often a positive effect
Audits can have a negative effect on compliant taxpayers
Audits can have a positive effect on non-compliant taxpayers
Audits can have a negative effect on non-compliant taxpayersSlide30
The effect of audits depends on…
The selectionFollow-up audit can be a good idea
How
the audit is carried out
How
audit activities are reported in mediaSlide31
Proactive measures and support
Reassessments due to unnecessary errors
Combat tax evasion and crime
More
resources
Fewer
resources
More
resources
To just keep correcting taxpayer errors is not effectiveSlide32
”Old” evaders
4 different audit strategies
Create better general
preventive effect by
audit the “right” areas
(according to the public)
4
Create better indivual
preventive effect by
“follow-up” audits
3
New evaders
Stop new evaders
2
Catch big evaders
1Slide33
“For every complex problem there is an answer that is clear, simple and wrong.”
H.L. MenckenSlide34Slide35
Enforcement
Service
Other
circumstances
Number
of
errors
Type
of
errors
Size
of
errors
”The system”
The
resultSlide36Slide37
Discussion
What is the purpose of enforcement in Colombia?Should the purpose be different?
What consequences does this have on how we choose goals and what we measure as success?Slide38
Strategic thinkingSlide39
What we intend to do
What we did
This is our view
This is what we doSlide40
A strategy requires a goalSlide41
Plans are nothing, planning is everything.
EisenhowerSlide42
Dynamic thinking is crucialSlide43
We
get stuck in familiar
patternsSlide44
Ways of thinking
InsightsSlide45Slide46
Working with things or people
Predictable
Control
All cases exactly the same
Unpredictable
Difficult to control
Unique casesSlide47
Strategic thinking is about
Understanding the past and presentNot predicting the future but having an idea of the current direction and have foresight about the future
Thinking ahead
Thinking in abstracts and patterns
Collecting knowledge and gaining insights