Voluntary tax compliance. Knowledge. Cooperation between DIAN and Skatteverket / Anders Stridh & Lennart Wittberg - Swedish Tax Agency

1. Voluntary tax compliance
Cooperation between DIAN and Skatteverket
Anders Stridh & Lennart Wittberg, 1 – 5 June 2015

2. Knowledge

4. Know the enemy and know yourself, and in a
hundred battles you will never be defeated. If
you know only yourself, not the enemy, your
chances of winning and losing are equal. If you
are ignorant of either the enemy or yourself,
you will surely be defeated in every battle.
Sun Tzu
P.S. The taxpayer is not the enemy

5. More knowledge from research has changed
the view on human behaviour…
Homo Economicus
Knows everything and
is completely rational
Homo Sapiens
Limitied knowledge and
makes mistakes

6. …which affects tax compliance strategies
Homo Economicus
Knows everything and
is completely rational
Homo Sapiens
Limitied knowledge and
makes mistakes
Influencing
behaviour is a
math problem and
mostly about
deterrence
Influencing
behaviour is a
complex problem
and mostly about
the environment

7. Two important insights from behavioural
economics
Small changes in the taxpayers
environment can have great impact on
behaviour
We tend to underestimate the importance of
external factors and overestimate the
importance of personal character

8. Two different offers to subscribe to a
magazine
Offer no 1
$59 Only digital
$125 Paper + digital
8
68%
32%
Offer no 2
$59 Only digital
$125 Paper + digital
$125 Only paper
16%
84%
0%
Source: Dan Ariely

9. 9
I give you €1 if you help me
with these boxes
I give you €100 if you help me
with these boxes
Could you please help me
with these boxes?
No
Yes
Yes

10. Behavioural Insight Team (BIT)
aka ”The Nudge Team”
Examples:
• 83 % instead of 67 %
reacted to a reminder to
pay when the wordings
were changed
• Survey responses
increased from 36 % to
76 % when a post-it note
was used

11. 11
Group 1
Writing an essay that is anti-
Castro
Group 2
Writing an essay that is pro-
Castro
Fundamental attribution error

12. We do the opposite regarding ourselves
If you are late for a meeting then it is because you
are lazy. If I am late for a meeting it is because the
bus was late.

13. How much of the behaviour is based on morale and
character and how much is based on circumstances
and context?
• “Risky” taxpayers
• Treatments towards target groups
• We want to influence the behaviour of the taxpayers
– does this mean that it is something wrong with the
taxpayers?

14. The right tool used in the right
way will be the cheapest
solution in the long run

24. Risk Management

25. Working with
everything
Going through
the pile
Working with
something
Just auditing
selected cases
Working with
compliance
Choosing activities within
a compliance strategy
1980 1990 2000
Risk Management help us
chose activities
The Swedish story

26. What is Risk Management?
Decision making tool
The purpose is to enable a Tax Administration to
accomplish its strategic objectives by facilitating
management to make better decisions.

27. Risk is always connected to an objective
- Bad things are happening
- Things are not occuring as expected
- Good things are not happening
Risk is the threat or probability that an action or
event will adversely affect an organisations ability
to achieve its objectives.

28. Identifying based
on objectives
Implementation
Evaluation The Swedish
Risk
Management
Model
Assessment
and
prioritization
Analysis

29. Organizational requirements
Two things are important
What we
want to
achieve?
Capabilities
Now and in the future

30. Keep it as simple
as possible,
but not any simpler

31. Benefits and challenges
• Decision based on knowledge and according to goals
and strategy
– Tool for management
• Better use of resources
– Decide in advance on prioritizations
• From freedom to freedom with constraints
More control Less freedom for auditors

32. Lessons we learned in Sweden
• It takes time
• It is a journey with many changes
• Biggest problem: too complicated planning structure
with a lot of internal administration and long planning
cycles
• It is difficult to link analysis and prioritization
• It is a risk that we dress the old way of thinking in
new words and do things in a more complicated way

33. Major benefits
Experience from Sweden
• Holistic view
– We know what is happening in the organisation
• Planning in cooperation with regions
• More focus on the correct form of treatment
• More focus on the “right” risks
• Coordination of support and training

34. The tax gap

35. Voluntary compliance
Enforcement
Tax gap
+
+
Theoretical correct tax
90%
1-2%
8-9% Lost taxes
Expensive taxes
Cheap taxes
Voluntary compliance is the goal

36. How much tax should be paid in one year in Sweden?
Total tax level
Tax determined
Tax gap about
8-9 %
Result of tax
checks and audits
about 1-2 %
Total tax level
– Theoretical sum of taxes
that should be paid in one
year.
Tax determined
– Total of all taxes
determined by Tax Agency
after examining tax
returns, compliance
checks etc.

37. Tax gap map
International
SEK 46 bn
Illicit work
SEK 66 bn
Other
national
SEK 21 bn
Private
individuals 22 10 9 3
Micro
companies 52 7 43 2
Small/medium-
sized companies
26 14 5 7
Large
companies 25 15 2 8
Public sector,
organizations etc.
2 < 1 1 < 1
Undistributed,
other groups
6 — 6 —
Total tax gap approx. SEK 133 bn
Compliance checks
approx. SEK 22 bn
Tax gap per
group SEK 22 bn

38. Tax gap per category
Informal economy
50 %
Other national
16%
International
34 %

39. Why Tax gap map?
• A pedagogic picture for the dialogue with the government
• A pedagogic picture for the dialogue with other internal and
external stakeholders, e.g.
– media
– cooperating partners against tax fraud and economic crime
– industry organisations and labor unions
– managers
• Input to the planning process
– risk management and risk analysis
– identifying our need of knowledge

40. Shift happens!
• Preventive measures
• Cooperation
• Increasing audits on severe tax
evasion
• Tax haven investigations
• Tax treaties and voluntary
disclosures
• Propose legislation
• Support and make it easy
• Automate the process

41. How to measure the tax gap
• It is difficult!
Top down approach
Based on national accounts
Bottom up approach
Based on audits and surveys
Estimation of the tax gap

42. Discussion
• Does it represent the amount of money, that in
theory, the government is missing?
• Is it a good idea to reduce the tax gap with methods
that could reduce economic activity?

43. Unintentional non-compliance

44. Opportunities
matter

45. Opportunity
• Important predictor for tax evasion
• Tax evasion is more common when there are
opportunities for evasion
– E.g. self employed versus private individuals
• But it is also about opportunities for making
mistakes

46. … leads to uncertainty…
Complexity…
Have I paid the right
amount?
… leads to
perception of
unfairness…
… leads to non-compliance

47. The road of compliance The road of non-compliance
??
Lazy non-compliance

48. The road of compliance The road of non-compliance
??
Lazy compliance

49. Practical implications
• Reduce opportunities for evasion
– Loophole in the law?
– Low risk of detection?
• Increase opportunities for compliance
– Make it easy to comply
– Simplifications and increased support
– e-filing
– Pre-filled tax return
• More third party reporting and withholding

50. Crime and punishment

51. Why do people commit crime?
• Social norms?
• It is easier than not to?
• They gain something?
• It is easy to rationalize?
Are criminals bad people?

52. What is the purpose of punishment?
• Payback (revenge or like paying a debt)?
• Change the behaviour of the criminal?
• Change behaviour of other people?
• Fairness – it just feels right?

53. Should the
punishment
be adjusted to
the criminal or
to the crime?
If adjusted to the criminal: Better individual preventive effect, but decreased
general preventive effect due to perceptions of unfairness and lack of
predictability.
If adjusted to the crime: Better general preventive effect, but decreased
individual preventive effect due to perceptions of unfairness.

54. Regardless of how the punishment is adjusted it
should be directed towards the crime, not the individual
Don’t send the
message “You are a
bad person”
Send the message
”What you did was
wrong”
Reintegrative shaming, John Braithwaite

55. How to prevent crime
• Support social norms
• Make it easy to do the right thing
• Reduce gains from crime
• Make rationalizing crime more difficult
Do not treat criminals as bad people

56. Fairshare culture

57. Cops and robbers
Interesting object to
study Partners
Taxpayer
perspective not
of any interest
Taxpayers are
interesting from
our perspective
We need to
understand the
taxpayer
perspective
If the taxpayers are not the problem – they can be part
of the solution
1970 1990 2010

58. 5
9
Cooperation with others important

59. Co-operation with trade - Large contractors
 Cooperate with actors who may come in contact
with underground economy
– Contractors infrastructure and labour-intense services
– Support tender process, Code of conduct
– E-service for tender information
– More than 500 partners covering € 40 Bn

60. Enhanced relationship (Cooperative
compliance)
Large taxpayers
• On-going pilot project
• Based on the Dutch model
• Agreements with large taxpayers
• Transparency in exchange for certainty
• Criticised in media
– Perceived as threat to equal treatment
• A review is going on
• We don’t know the result yet

61. A case study
Is it possible to influence attitudes?
A practical case from The Swedish Tax Agency

62. “I personally think its OK for people to cheat on their taxes
if they get the chance”
Age 18-24 All ages
1998 7% 7%
2001 12% 7%
Percent that agree:
63

63. Problem
• Young people have a more positive
attitude towards tax evasion
• Will they pay tax when they get older?
64

64. Solution
A campaign to influence the attitudes
of young people
65

65. Campaign strategy
• Target group
– 500 000 young people aged 16-20
• Build knowledge
– What are taxes used for?
• Communicate on young people’s terms
• No lecturing
66

66. Activities 2002
• Short film in cinemas and on TV
• Website
• Mass media debate
• Letter from the Director-General
• Informative tray-cloths in schools
67

67. 68

68. Results
• 90 % noticed the campaign
• 50 % had discussed taxes with
friends or parents
69

69. Activities 2003
• A new commercial spot in cinemas
• Stickers put on to objects paid for by taxes
70

70. 10 cm
71

71. 72

72. 73

73. Activity for 2004
The Black Box. A box distributed to the schools containing:
• A film about young people during their summer holiday trying to earn
money for a trip to Florida.
• A role play with accessories from the characters in the film for a role-play
and debate about taxes.
• Support and instructions to the teacher how to lead the role-play and the
debate.
74

74. ”I personally think its OK for people to cheat on their
taxes if they get the chance”
Age 18-24 All ages
1998 7 % 7 %
2001 12 % 7 %
2002 7 % 7 %
2004 5 % 5 %
Percent that agree:
75

75. 0%
5%
10%
15%
20%
25%
30%
2002 2003 2004 2005
Before the
campaign
After the
campaign
During the
campaign
“It is OK that people work in the informal sector”
Percent that
agree:
Age 16-20
76

76. Not like this
77

77. “If possible, I would hide income from taxation”
78
Private individuals 2012
I would
Neither
I would not
No opinion

78. ”The tax agency is good at combating tax evasion”
Private individuals 2012
No
Yes
No opinion
Neither

79. Discussions
• How is the fair share culture in Colombia?
• What can you do in order to improve it?