Taxes are a hot button issue for everyone. Those who have to pay it would like to pay as little as possible, but those running the nation often make them pay more. But as the cost of living rises and a nation’s budget expands, powers that be are always discussing ways to increase the taxpaying pool as an alternative to merely raising taxes each year.
In the US, tax compliance results from intensive audits and IRS constantly reminding citizens to pay their dues on time. Not to mention seasonal advertising by tax assistance services reminding people it’s that time of the year. The IRS also hands out punishments to those who don’t comply — so there’s that too. But economists feel punishments only help increase resentment and feel they should be avoided as much as possible. After all, the resentment common across taxpayers is often driven by the distrust in government not making fair use of tax revenues.
On the other hand, both the government and citizens suspect that corporates are dishonest and often slam them over tax avoidance. The corporate sector then takes advantage of schemes elsewhere where tax rates are lower and shift base.
Economists feel instead of taking a hardline approach, rewarding taxpayers could be more effective in motivating citizens and businesses to pay taxes. The reward system could vary in different situations and economic conditions. Some of the rewards could be special schemes like faster access to dedicated tax assistance phone lines with shorter wait times.
Citizens could be rewarded with a waiver for the following year or granted free admission to public spaces under state or federal administration. For example, in Finland, incentives have been used to significantly influence taxpayer behavior through tax credits, which can be used for different purposes, including nursing homes.
Other suggestions are rewarding businesses with tax-compliance certificates by grade — such as a ‘gold’ certificate for best compliance, a ‘silver’ level below that — which firms can use and promote to help them build an image among the public. Such tax compliance certificates can be incentivized to renew business licenses easier or at cheaper rates.
To improve tax compliance there also needs to be a conducive tax administration. This would imply tax collection agencies be better equipped for assessment through technology upgradation. Such agencies should also offer a quick settlement of disputed cases and, more importantly, assure convenience and simplicity in taxation.
Economists also support the idea of early education on taxation and tax compliance. Many feel the US’ academics do not focus enough on financial education at an early age. There should be courses on tax basics, how tax revenues are utilized by state and federal government, and ethical business practices for high school students and business graduates.
Higher tax collections are beneficial for the overall society. Rewarding honest behavior and minimal coercive actions can go a long way in bringing more people into paying taxes. After all, tax compliance simply reflects general social norms.
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