Tax compliance, self-assessment and tax administration

James, Simon and Alley, Clinton (2002): Tax compliance, self-assessment and tax administration. Published in: Journal of Finance and Management in Public Services , Vol. 2, No. 2 (2002): pp. 27-42.

Abstract

Tax compliance is likely to become even more important with developments such as self-assessment and electronic commerce. This paper re-examines the meaning of tax compliance. It finds that existing definitions are usually too narrow to encompass the topic in full and a wider definition is offered. The paper describes the purpose of tax compliance and the factors that affect the willingness of taxpayers to comply with a tax system. It discusses two different approaches to tax compliance and suggests that caution should be shown in the use of penalties and the emphasis should be on assisting citizens to meet their tax obligations. Fortunately recent developments have seen closer cooperation between tax agencies and academic researchers. A pressing task is the development of an approach that incorporates both the economic and behavioural approaches to tax compliance and a successful strategy for tax compliance must give due weight to all relevant factors and their interaction.

• Item Type: MPRA Paper
• Language: English
• Keywords: Tax compliance; self-assessment; tax administration
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General; H - Public Economics > H8 - Miscellaneous Issues > H83 - Public Administration ; Public Sector Accounting and Audits

References

Allingham, M.G., & Sandmo, A. (1972). Income Tax Evasion: A Theoretical Analysis. Journal of Public Economics,1, pp. 323-338.

Alm, J., Bahl, R., & Murray, M. N. (1993). Audit selection and income tax underreporting in the tax compliance game. Journal of Development Economics, Vol. 42, pp.1-33.

Alm, J., Cronshaw, M. B., & McKee, M. (1993). Tax compliance with endogenous audit selection rules. Kyklos, Vol. 46, pp. 27-45.

Alm, J., Jackson, B., & McKee, M. (1992). Institutional uncertainty and taxpayer compliance. American Economic Review, Vol. 82, No. 4, pp. 1018-1027.

Andreoni, J., Erard, B., & Feinstein, J. (1998). Tax Compliance. Journal of Economic Literature, Vol. 36, pp. 818-819.

Baldry, J.C. (1986). Tax evasion is not a gamble: a report on two experiments. Economics Letters, Vol. 22.

Barr, N.A., James, S.R., & Prest, A.R. (1977). Self-Assessment for Income Tax. London, Heinemann.

Bergman, M. (1998). Criminal law and tax compliance in Argentina: testing the limits of deterrence. International Journal of the Sociology of Law, Vol. 26.

Bernasconi, M. (1998) ‘Tax evasion and orders of risk aversion,’ Journal of Public Economics, Vol. 67, pp. 123-134.

Blumenthal, M., Christian, C., & Slemrod, J. (2001). Do normative appeals affect tax compliance: evidence from a controlled experiment in Minnesota. National Tax Journal, Vol. 54, No. 1, pp.125-138.

Bordignon, M. (1993). A fairness approach to income tax evasion. Journal of Public Economics, Vol. 52, pp. 345-362.

Brand, P. (1996). Compliance: A 21st Century Approach. National Tax Journal, Vol. 49, No.3, pp. 413-420.

Brealey, R.A., & Myers, S.C. (2000). Principles of Corporate Finance (6th ed). Boston, Irwin, McGraw-Hill.

Cho, J., Linn, S.C. & Nakibullah, A. (1996). Tax evasion with psychic costs and penalty renegotiation. Southern Economic Journal, Vol. 63, pp. 172 - 191.

Coleman, C., & Freeman, L. (1997). Cultural foundations of taxpayer attitudes to voluntary compliance. Australian Tax Forum, Vol. 13, No. 3, pp. 311-337.

Collins, J. H., & Plumlee, R. D. (1991). The taxpayer’s labour and reporting decision: the effect of audit schemes. The Accounting Review, Vol. 66, pp. 559-576.

Cook, P.J., & Moore, M.J. (1994). This Tax is for You: The Case for Higher Beer Taxes. National Tax Journal, Vol.47, pp. 559-573.

Cordes, J.J., Nicholson, E.M., & Sammartino, F.J. (1990). Raising Revenue by Taxing Activities with Social Costs. National Tax Journal, Vol 43, No.3, pp. 343-357.

Cowell, F.A. (1985). The economic analysis of tax evasion. Bulletin of Economic Research, Vol. 37, pp.165-196.

Cowell, F.A. (1992). Tax evasion and equity. Journal of Economic Psychology, Vol. 13, pp. 521-543.

Cremer, H., & Ghavari. (1994). Tax evasion, concealment and the optimal linear income tax. Scandinavian Journal of Economics, Vol. 96, No.2, pp. 219-240.

Cuccia, A. D. (1994). The effects of increased sanctions on paid tax preparers; integrating economic and psychological factors. Journal of the American Taxation Association, Vol. 16, No. 1, pp. 41-66.

Dubin, J. A. & Wilde, L. L. (1989). An empirical analysis of federal income tax auditing and compliance. National Tax Journal, Vol. 41, No.1, pp.61-75.

Erard, B., & Feinstein, J. S. (1994a). The role of moral sentiments and audit perceptions in tax compliance. Supplement to Public Finance, Vol. 49, pp. 70-89.

Erard, B., & Feinstein, J. S. (1994b). Honesty and evasion in the tax compliance game. Rand Journal of Economics, Vol. 25, No. 1, pp. 1-20.

Etzioni, A. (1988). The Moral Dimension: Toward a New Economics. New York, Free Press.

Falkinger, J., & Walther, W. (1991). Rewards versus penalties: on a new policy against tax evasion. Public Finance Quarterly, Vol. 19, No. 1, pp. 67-79.

Fischer, C.M., Wartick, M., & Mark, M. (1992). Detection probability and taxpayer compliance: a review of the literature. Journal of Accounting Literature, Vol. 11, pp. 1-46.

Gordon, J. P.F. (1989). Individual morality and reputation costs as deterrents to tax evasion. European Economic Review, Vol. 33, pp. 797-805.

Graetz, M.J., & Wilde, L.L. (1985). The economics of tax compliance: facts and fantasy. National Tax Journal, Vol. 38. No.3, pp.355-364.

Hasseldine, D.J., & Kaplan, S.E. (1992). The effect of different sanction communications on hypothetical taxpayer compliance: policy implications from New Zealand. Public Finance, Vol. 47, pp. 45-60.

Hill, P., Crawford, G., & Shewan, J. (1998). New Zealand Binding Rulings. Wellington, Brookers.

Hite, P.A. (1989). A positive approach to taxpayer compliance. Public Finance, Vol. 44.

Hite, P.A. (1997). An investigation of moral suasion and vertical equity arguments on intended taxpayer non-compliance. Law and Policy, Vol. 19, No. 1.

Horowitz, I., & Horowitz, A.R. (2000). Tax audit uncertainty and the work-versus-leisure decision. Public Finance Review, Vol. 28, No. 6, pp. 491-521.

Inland Revenue Department [Online]. Available: http://www.ird.govt.nz/

Inland Revenue Department. (1997), Electronic Commerce, para. 1.2.

Inland Revenue Department. (1995, April). Taxpayer Compliance Standards and Penalties 2: Detailed Proposals and Draft Legislation: A Government Discussion Document. Wellington, New Zealand. Inland Revenue Department. (1996, Aug). Tax Information Bulletin, Vol. 8, No. 3.

Inland Revenue Department. (1996, October). Tax Information Bulletin, Vol. 8, No. 7.

Inland Revenue Department. (1998, June). Tax Information Bulletin, Vol. 10, No. 6.

Internal Revenue Service. (1996). Federal Tax Compliance Research: Individual Income Tax Gap Estimates for 1985, 1988, and 1992, Publication 1415 (Rev. 4-96) Washington, DC: Author.

Internal Revenue Service. (1997). Reinventing Service at the IRS, Report of the Customer Service Task Force, Department of the Treasury, Washington, DC, US Government Printing Office.

Internal Revenue Service. (2000). Compliance 2000, Report of the Commissioner of Internal Revenues. Washington DC, Author.

Irving, I.J., & Sims, W.A. (1993). The Welfare Effects of Alcohol Taxation. Journal of Public Economics, Vol. 52, pp. 83-100.

Jackson, B.R., & Milliron, V.C. (1986). Tax Compliance Research: Findings, Problems and Prospects. Journal of Accounting Literature, 5, pp. 125-165.

James, S. (1995). Self-Assessment and the UK Tax System, London, Research Board of the Institute of Chartered Accountants in England and Wales.

James, S. (1999). The future international tax environment. International Tax Journal, Vol. 25, No. 1, pp.1-10.

James, S., & Wallschutzky, I. (1995). Considerations Concerning the Design of an Appropriate System of Tax Rulings. Revenue Law Journal, 175.

James, S., Lewis, A., & Allison, F. (1987). The Comprehensibility of Taxation: A Study of Taxation and Communications. Aldershot, Avebury.

James, S., Sawyer, A., & Wallschutzky, I. (1998). The complexities of tax simplification: progress in Australia, New Zealand and the United Kingdom. Australian Tax Forum, Vol. 14, No. 1, pp. 29-68.

Jevons, S. (1871) Theory of Political Economy, Preface to the first edition.

Lewis, A. (1982). Psychology of Taxation. Oxford, Basil Blackwell.

Linster, B.G. (1997). Income tax compliance and evasion: a graphical approach. Southern Economic Journal, Vol. 63, No. 3, pp. 788-797.

Mansbridge, J.J. (1990). Beyond Self-Interest. Chicago, University of Chicago Press.

Meier, R.F., & Johnson, W.T. (1977). Deterrence as Social Control: The Legal and Extralegal Production of Conformity. American Sociological Review, 42, Pp. 292-304.

Montesquieu, Baron de. (1748). The Spirit of the Laws, Book VI.

Musgrave, R.A. (1959). The Theory of Public Finance: A Study in Political Economy. New York, McGraw-Hill.

Oates, W.E. (1995). Green Taxes, Can We Protect the Environment and Improve the Tax System at the Same Time? Southern Economic Journal, Vol. 6, pp. 915-922.

Payne, J.L. (1993). Costly Returns: The Burdens of the U.S. Tax System. San Francisco, ICS Press, p. 72.

Polinsky, A.M. and Shavell, S. (2000). The economic theory of public enforcement of law. Journal of Economic Literature, Vol. 38, No.1, pp.45-76.

Pommerehne, W.W., Hart, A., & Frey, B.S. (1994). Tax morale, tax evasion and the choice of policy instruments in different political systems. Supplement to Public Finance, Vol. 49, pp. 52-69.

Porcano, T.M. (1988). Correlates of tax evasion. Journal of Economic Psychology, Vol. 9, No. 1, pp.47-68.

Prebble, J. (1996). Can Income Tax Law be Simplified? New Zealand Journal of Taxation Law and Policy, 2 pp. 187-200.

Richardson, M., & Sawyer, A. (1998). Complexity in the Expression of New Zealand’s Tax Laws: An Empirical Analysis. Australian Tax Forum, Vol. 14, No. 3, pp. 325-360.

Roberts, M. L. (1994). An experimental approach to changing taxpayers’ attitudes towards fairness and compliance via television. Journal of the American Taxation Association, Vol. 16, No. 1, pp. 67-86.

Sandford, C., & Wallschutzkty, I.G. (1994). Self-Assessment of Income Tax: Lessons from Australia. British Tax Review, No. 3.

Sandler, D. (1994). A Request for Rulings. London, Institute of Taxation and the Institute for Fiscal Studies.

Sawyer, A. (1996). Blurring the Distinction between Avoidance and Evasion: The Abusive Tax Position. British Tax Review, pp. 483-504.

Sawyer, A. (1997a). A Guide to Binding Rulings. TAXBASE 3. Wellington, Butterworths, p.93.

Sawyer, A. (1997b). Binding Tax Rulings: The New Zealand Experience. Australian Tax Review, 26, pp. 11-27.

Sawyer, A.J. (1996). Taxpayer Compliance, Penalties and Disputes Resolution Bill Encapsulates Earlier Proposals – An Update. Bulletin for International Fiscal Documentation, 50, pp. 72-78.

Schmölders, G. (1959). Fiscal Psychology: A New Branch of Public Finance. National Tax Journal, 12, pp. 340-345.

Schmölders, G. (1970). Survey Research in Public Finance - A Behavioural Approach to Fiscal Theory. Public Finance 25, pp. 300 at 302.

Seldon, A. (Ed.). (1979). Tax Avoision: The Economic, Legal and Moral Inter-relationships between Avoidance and Evasion. London, Institute of Economic Affairs.

Skinner, J., & Slemrod, J. (1985). An economic perspective on tax evasion. National Tax Journal, Vol. 38, No. 3, pp.345-354.

Smith, K.W. & Kinsey, K.A. (1987). Understanding taxpayer behaviour: a conceptual framework with implications for research. Law and Society Review, Vol. 21.

Smith, S. (1992). Taxation and the Environment: A Survey. Fiscal Studies, Vol. 15, pp.19-43.

Symonds, E., Proops, J., & Gay, P. (1994). Carbon Taxes, Consumer Demand and Carbon Dioxide Emissions: A Simulation Analysis for the UK. Fiscal Studies, Vol.15, pp.19.

Tran-Nam, B.; Evans, C., Walpole, M., & Ritchie, K. (2000, June). “Tax compliance costs: Research methodology and empirical evidence from Australia. National Tax Journal, p.5.

Tzur, J., & Kraizberg, E. (1995). Tax evasion and the risk averse tax collector. Public Finance, Vol. 50, pp. 153-165.

Viscusi, W.K. (1994). Promoting Smokers’ Welfare with Responsible Taxation. National Tax Journal, 47, 547.

Wallschutzky, I. G. (1984). Possible causes of tax evasion. Journal of Economic Psychology, Vol. 5, No.4, pp.371-385.

Wallschutzky, I.G. (1993, January). Achieving Compliance. Proceedings of the Australasian Tax Teachers’ Association, Christchurch, New Zealand.