Rohit Finalppt

7/27/2019 Rohit Finalppt

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It is time to change the current tax

administration in India and to move to a

new approach based on Trust ratherthan enforcement.

It is time for us to accept that whileTaxes are the price we pay for civilization,

civilization cannot sustain itself without trust.


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Presentation by-

Rohit Gulabwani4rd semester

B-Tech (EC)

Nirma University-Institute Of Technology


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Today we feel proud to be a part of the

largest democracy, and trust is that

valuable social asset that forms the basis ofdemocracy.

But Trust seems to have become a rare

commodity today.

Introduction


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A very obvious question that arises in our mind, is

why one would pay tax, lightening up his own

pocket?

Might be fear of being caught???

For example, a taxpayers choice is between

compliance and tax evasion. By complying, thetaxpayer incurs a loss in the form of taxes paid, but

by evading tax there is the chance of a relative gain

if the evasion is undetected.


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Alternatively, there is the chance of an even

greater loss if the evasion is detected and

penalized.

According to the traditional thinking, taxpayers

calculate these risks when deciding whether ornot to comply.

Advocates therefore believe that individuals orfirms will comply with an authoritys rules and

decisions only when confronted with harsh

sanctions and penalties.


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But the key to above puzzle is tax morale, the

collective name for all the non-rational factors and

motivationssuch as social norms, personalvalues and various cognitive processes that

strongly affects an individuals

voluntary compliance with laws.

Over the past decade, the specific importance of

trust in a countrys administration has been

increasingly recognized.


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So too has the role that trust plays in influencing

compliance with an countrys decisions and

regulations.

In fact, Trust actually nurtures Compliance.

Trust play an important role in nurturing

compliance with an authoritys rules and decisions.

Not only does this appear to be the case among

individuals, but it also appears to be the case in the

corporate sector.


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There are two kinds of governance regarding the tax

governance:-

In the enforced based compliance there is a pull-

based mechanism from the regulator: it involves anactive role of auditors to gather compliance

information increasing the administrative burden.

Types of governance regarding

tax administration


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Whereas in trust based compliance forming a

horizontal governance employees the push-

based mechanism in which company receives

more responsibilities and is expected to interpret

the legislation and implement appropriate

measures, and to provide evidence of its

progress.


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The regulator must enforce compliance, by guiding

the company and monitoring progress. Only when

progress is inadequate, a sanction may be imposed.

Studies have reveal that in countries where trust-

based compliance is adopted, there is a greater

willingness to pay tax because everybody knows that

money paid today ultimately comes back to them.


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A trust enhancing approach to improving the

payment of local taxes and fees might be based

on the proposition that citizens are morelikely to perceive the local government as

reciprocating their trust when they feel they are

being treated with respect.

Aggressive and demeaning approaches whencollecting taxes and fees may actually contribute

to increasing taxpayers resistance to pay.


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It is therefore imperative to establish mechanisms for

improving the relationships between local revenue

administrators and citizens; such as: improved billingand accounting systems, establishing convenient

and transparent payment facilities, and strengthening

the capacity to follow up cases of non-payment.

Citizens should be further encouraged to report

misappropriation of revenues and inadequatedelivery of services. Prompt action on such

complaints may help convince people that the local

authority means business.


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Furthermore, citizens involvement in identifying

problems and setting priorities may promote agreater sense of community involvement.

Finally, the co-operation between local

government officials, councilors and community

leaders in setting common development andmanagement goals could be a crucial trust

enhancing device.


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It would decrease Corruption If the trust-based compliance is implemented in

India it would initiate people of India to be honestto themselves and motivate them to pay the actual

amount of taxes to the government.

It would put a pause on making fake documents

in order to evade tax.

Effects:


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This is very clear that government alone

cannot stop corruption. Each and every citizen

must be committed to that. If the Trust-based

compliance is implemented in India peoplewould get motivated towards their nation and

hence would result in corruption.


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In countries where trust based compliance

is adopted studies reveal that there is a

greater willingness to pay tax because

everybody knows that money paid today

ultimately comes back to you and your kin.

Citizens would be motivated to pay tax rather than

evading hence would result in increase in revenue.


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It would encourage tax payers to

disclose their income and pay high tax

In the Trust based taxation regimecountries, people trust each other that

encourage them to be loyal with themselves

and for the nation because they know thatwhat they are paying today would return to

them in form of better services.


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It would increase the transparency in the

system and definitely then be a matter of

pride to pay higher amount of tax as a

matter of social status standing in the

society disclosing their income.


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As the system would reduce corruption and

increase revenue a much greater amountcould be invested in empowering the

common man.

In Denmark its citizens know that most ofthe money will be paid out as social

security for the old, the unemployed,

Medicare, etc.


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The various reforms that were introduced

to empower the common man but were not

carried out efficiently because of lack of fundcould now be implemented effectively

strengthening the aam aadmi.


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This would enthuse respect for the

authorities in the eyes of common man

This relationship between taxpayers and taxauthorities can be modeled as an implicit or

relational contract, which involves strongemotional ties and loyalties.


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The norm of reciprocity, like procedural

justice, improves tax morale. Acting underthis norm, an individual will respond to

anothers act in the same way in which that

person treated him.

If another person is generous or honest,

for example, the individual feels obligated

to respond in kind and is more likely to do so.


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However, if the other person acts negatively

such as cheats or shirksthe individual will

respond in a similarly negative fashion.

Strong norms of reciprocity, therefore,

increase cooperative behavior. Reciprocityand cooperation increase when people

trust that others will indeed reciprocate.

Therefore if the Trust-based compliance is

implemented, more respect for the authorities

is developed in the eyes of common man.


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If a government distrusts its people, people are

likely to reciprocate by distrusting thegovernment. For a trust based taxation regime, it

is imperative that the DTC guarantees each

taxpayer certain basic rights.

These taxpayer rights, which are internationally

recognized, include:

(i) Enforcement of tax laws in a fair, equitable and

non-arbitrary manner;

(ii) Non-retroactive imposition of taxes;

Supporting Views


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(iii) Certainty and stability;

(iv) Guarantee against double taxation and goodfaith interpretation and enforcement of tax

treaty provisions;

(v) Efficient redressal of tax disputes within a

reasonable time frame.


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In has been found that people who feel they have

been treated fairly by an organization will bemore likely to trust that organization and be more

inclined to accept its decisions and follow its

directions.

It has also been found that people are most likely

to challenge a situation collectively when theybelieve that the procedures are unfair.


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If people believe that an authority is trying to be

fair and treats its citizens fairly, they trust themotives of that authority and develop a long-term

commitment to accepting its decisions.

Being treated politely, with dignity and respect,

and having genuine respect shown for ones rights

and social status, have also been shown toenhance feelings of fairness.

Taking an example of Netherlands:


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Taking an example of Netherlands:

earlier they were also following the same

traditional way of tax administration in which the

laws were made and imposed which wasincreasing their administrative burden.

Then they investigated the new governance

models that was build on the responsibility andparticipation of companies is a form of

enforcement that is based on mutual cooperation

and trust between taxpayer and taxadministration. The aim was to enhance

compliance of the taxpayer while at the same time

achieving a more effective allocation of the

resources.


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I feel that the trust based taxation

compliance is more

effective in bringing a reformationconcerning the tax administration in India.

A regulatory strategy that initially places trust inthe foreground of any encounter may therefore

prove to be particularly effective in gaining

individual and corporate compliance.


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This would not only have a increase the

tax-GDP ratio but also promote a e

environment of cooperative behavior andtrust in everyone eyes for each an every

citizen of the nation.

However, a strategy based purely on trust fails to

recognize that there are some people who would

take advantage of being presumed to be

trustworthy. A regulatory strategy that combinesa preference for trust with an ability to switch to a

policy of distrust is therefore likely to be the most

effective.


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References


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References

The role of trust in nurturing compliance: A study of accused tax avoiders

by Kristina Murphy

Braithwaite, J., & Makkai, T. (1994). Trust and compliance. Policing and Society

Article by lawyer Nishith Desai, International Tax & Corporate Lawyer

Theres Need for a Trust Based Taxation Regime

Whats trust got to do with it ? Non-payment of service chargesin local authorities in South Africa Odd-Helge Fjeldstad

The Role of Trust in Government Control of Businesses

Yao-Hua Tan

Tax Compliance as the Result of a Psychological Tax Contract: The Roleof Incentives and Responsive Regulation

LARS P. FELD and BRUNO S. FREY

Normative and Cognitive Aspects of Tax Compliance:

Marjorie E. Kornhauser


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