Morality, conscience, and tax discipline: their role in tax compliance.

A multiplicity of factors influences tax compliance, but it is important to highlight the main ones, in order to generate the actions leading to its strengthening.

Faced with scarce resources, both human and material, any tax administrator of LAC would love to operate in a country where there is a high voluntary compliance (e.g. US, Austria, Switzerland, Scandinavian countries, etc.). It is obvious that this would significantly simplify the task and would have a better remuneration. But the reality is different, and we have to adjust to it.

The question is: How and why do taxpayers comply voluntarily?

In LAC countries in the past century, the level of tax consciousness of taxpayers was considered as the essential cause of compliance . It was defined as “the responsible and personal knowledge that taxpayers have about tax duties”[1].

In developed countries, on the other hand, the basic concept of compliance was tax moral. It had begun to be studied at the School of Fiscal Psychology in Cologne, Germany, in 1960 with Schomolders. It is defined as a set of existing and accepted norms, values and beliefs in a society that serve as a model of conduct for determining the proper tax compliance.

As Alarcon Garcia (2018) argues, [2]moral and tax consciousness have been mentioned as similar concepts[3], but have differentiating elements.[4]

Surveys as a basic input of tax sociology are often flimsy because what is said openly may be  very different from what is thought and done. A proof of this is the result of a survey made in Argentina by Giarrizo and Chelala (2012)[5] , in which 9 of every 10 argentines argued that not paying taxes was wrong, while there was a very high level of evasion, which led the authors to define them ironically as “the moralistic evaders”.

TORGLER (2007)[6] based on a survey by Latinbarometer, indicates as causes of non-compliance:

  • high tax burden,
  • dishonesty of taxpayers,
  • corruption of officials,
  • lack of civic consciousness,
  • useless Public Expenditure,
  • lack of perceived benefits from paying taxes,
  • feeling that the competitors are evading taxes and
  • lack of sanctions for evaders.

In this subject, reality often contrasts with theory. That is why we will evoke the Swedish and US cases, which show us that tax discipline is the main cause of compliance based on risk perception.

The case of the Swedish TA (Skatteverket)[7], is paradigmatic in this sense. Scandinavian countries are considered to have the healthiest factors for voluntary tax compliance (high honesty, transparency of spending, welfare state, high compliance, efficient TA, taxpayer services, etc.). However, the Swedes varied their behaviour from compliant to non-compliant and vice versa in income tax, depending on their perceived risk over time. When the country did not have information exchange agreements with other European countries, most of their citizens did not declare their financial income from other countries, while they declared their income for their activities in the country. When the agreements were signed, they began to declare their foreign income because they knew that such information would become available to the TA. While the other conditions remained “ceteris paribus”, they modified their behavior according to the perception of risk they had and not by tax morals.

This case is replicated in the tax compliance of the New Yorker, which was very high with respect to the IRS for Income Tax, but at the same time was lower  in regard to the local taxes of New York City, because the local control was perceived as weaker than the central one.

Other causes of compliance include political consensus with the government. In this sense, one can observe the Argentine, the Swiss, and the Spanish case.

In Argentina, a study of tax compliance by the Economic Studies area of the TA was conducted in the 1980s, and although other variables intervened, the most significant one influencing the behavior of taxpayers was the public opinion of government management.

In the swiss cantons,  which have strong taxing powers due the confederal configuration of the country, taxpayers were more evaders in those jurisdictions where democratic participation of citizens was lower in the budgetary decision-making, as well as the acceptance of the management system of local government according to POMMEREHNE and WECK-HANNEMANN (1996) and TORGLER (2005).

In Spain, in the research carried out by GIACHI (2014)[8], showed that tax morals varied with respect to central taxes according to residents of the autonomous communities. The tax behavior of the taxpayer could be affected by those values characteristic of a given territory, such as the assumption of regional nationalism that fostered the delegitimization of the central State.

Another cause is tax compliance in the taxpayer’s environment. An environment of compliance socially implies an effect of imitation or contagion of positive behaviors. In this case, social control and reputation play an important role.

On the contrary, the impact of the shadow economy and the high levels of evasion in LAC countries have negative effects on the taxpayers’ behaviors. For many taxpayers, to comply in this framework would represent an unfair competition from the non-compliant, and their possible exit from the market.

Tax morale, understood as the ethics of compliance, is the autonomous cause that motivates a positive tax behavior, and is observed more clearly when those who follow it do so in a context where there is no perception of risk, or acceptance of the government, or tax compliance environment. In LAC, unlike in developed countries, this aspect unfortunately has little impact. Defining in this region the “tax morality ” as the central cause of compliance as does TORGLER (2007), seems far away from reality.

From the above, we can conclude:

  • Tax discipline is the main cause of voluntary compliance in LAC countries.
  • Tax discipline is defined as the ability of taxpayers to meet their obligations on a recurring and correct basis, induced by the perception of risk.
  • Other prominent factors are the political consensus of the citizenry with the government and the tax compliance of the taxpayer’s environment.
  • In the end, tax morals appear to be an insignificant factor.

[1] PABLOS ESCOBAR Laura de, ALARCON Garcia Gloria (2007) ” Tax consciousness and tax fraud: factors that influence tolerance against fraud”. Complutense University. Madrid.
[2] ” Tax fraud in Spain”, ALARCON Garcia, Gloria (2018). Aranzadi. Madrid.
[3] As the set of behaviors and attitudes that taxpayers have regarding their tax obligations.
[4] Tax consciousness has its essence in knowledge and responsibility, i.e. in civic duty, while tax morality lies in tax ethics.
[5] Victoria Giarrizzo, Chelala Santiago (2012) “the economy of evasion”” Edicon. Professional Council of Economic Sciences. Buenos Aires.
[6] TORGLER Benno (2007), “La Moral Tributaria en América Latina”, Revista del Instituto AFIP 02, Buenos Aires.
[7] GONZÁLEZ Darío (2009), “la Disciplina Fiscal”, Pto 4.6 of Chapter IV la Política Tributaria en los País de América Latina, from the book Sistemas Tributarios de América Latina, Eurosocial/ IEF, Madrid.
[8] GIACHI, Sandro (2014), “Dimensiones sociales del fraude fiscal: confianza y moral fiscal en la España contemporánea”, Revista Española de Investigaciones Sociológicas. Madrid.

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