Voluntary tax complianceCooperation between DIAN and SkatteverketAnders Stridh & Lennart Wittberg, 1 – 5 June 2015

Skatteverket and the Swedish culture

3

Skatteverket

RegionStockholm

RegionLarge

taxpayer

RegionWest

RegionEast

Commissioner

RegionSouth

RegionNorth

Advisory Council

Internal auditors

IT-department

Finance department

Administrative department

Legal department

Tax department

Communication department

RegionMiddle

10 500 employees170 billion Euros in total tax revenue

4

Steering structure

Parliament

Government

Ministry of finance

Skatteverket

Government agencies in Sweden have a high degree of autonomy

Generally speaking, would you say that most people can be trusted or that you need to be very careful in dealing with people?

Baserat på World Value Survey

Generally speaking, would you say that most people can be trusted or that you need to be very careful in dealing with people?

Baserat på World Value Survey

Edelman Trust Barometer 2008

8

The good society index

9

10

11

12

From cops against robbers to service for clients in 30 years

1970 19901980 2000

Enforcement Service Balance between enforcement and service

Right from the start

Trust

Taxpayer focus

2010

The development of the Swedish Tax Agency

Right from the start

Trust

Focus on environment

Strategic direction of the Swedish Tax AgencyImplemented 2006, updated 2012

• VisionA society where everyone is willing to do their fair share

• Contributions– We nurture the willingness to comply– We earn the trust of the taxpayers– We are working to ensure that all pay the right amount – We make it easier and smoother to comply

HelpfulTrustworthyActive

Voluntary compliance

Enforcement

Tax gap+

+

Theoretical correct tax

90%

1-2%

8-9% Lost taxes

Expensive taxes

Cheap taxes

Voluntary compliance is the goal

Strategy- main content

• Respect• Right from the start• Easy to comply and difficult not to comply• Prevent, support and automate• Cooperation• Attractive employer

Högsta ServiceScore 2012, 2013 och 2014”Skatteverket är den mest servicevänliga myndigheten

- i klass med de bästa privata företagen!”

The tax agency is successful in finding hidden income

Businesses love the tax man

Swedes love the tax agency even with the second highest tax burden in the world, how is that

possible?

The tax agency has the strongest brand

Trust in some mayor Swedish government agencies

Tax

Social insurance

Migration

Employment

21

Jag har förtroende för Skatteverket

1 2

6883

23

128 3

0%10%

20%30%

40%50%60%

70%80%

90%100%

2006 2012

Instämmer ej

Varken eller

Instämmer

Ingenuppfattning

Private individuals 2012

I trust the tax agency

Don’t agree

Neither

Agree

No opnion

Businesses 2013

I am treated well by the staff at the

tax agency

I am treated well by the staff at the

tax agency

Don’t agree

Neither

Agree

Don’t agree

Agree

“If possible, I would hide income from taxation”

23

Private individuals 2012

I would

Neither

I would not

No opinion

”The tax agency is good at combating tax evasion”

Private individuals 2012

No

Yes

No opinion

Neither

Right from the start

Business Bookkeeping Tax return Payment

Right from the start

The old focusThe new focus

Right from the start = early measures

Business Bookkeeping Tax return Payment

Right from the start

The old focusThe new focus

Certified cash registersStaff ledgers

Bookkeeping checks

Fewer comprehensive field audits

Cash register

• Introduced 2010

• Certified cash registers– All trade with cash for selling of goods and

services– Cards (Visa etc) equal cash

• Spot checks (unannounced)– Check if certified cash register is in place and

receipts given to customers– € 1000 fine if not

Staff ledgers- Restaurants and hair dressers

• Introduced 2007

• All traders must keep a ledger– Employees in/out

• Spot checks (unannounced)– Check if employees noted in ledger– € 1000 fine if not

Some milestones in OECD tax compliance work

Selection for audit

Understand and influence

behaviour

Right from the start

Involving and engaging

Dealing mostly with tax returns Dealing with taxpayers’ environment

Risk management

Right from the start is:

• A compliance approach

• About influencing taxpayers environment

• About what is happening before the tax return is filed

• Described in four dimensions:– Acting in real time and up-front– Focusing on end to end processes– Making it easy to comply– Involving taxpayers and other stakeholders

Compliance approach, summary

Early measures (more upstream)

More system

measures

One-to-one

One-to-many • Focus on increasing the willingness to comply

• Focus on building trust

• Focus on treating all taxpayers with respect

Before During After

Norms

NORMS • Personal norms• Social norms

• Descriptive social norms (what others do)

• Prescriptive social norms (what others think)

Put yourMoneyhere

Ice-cream in the office!

146

32

54

0

10

20

30

40

50

60

Clean Littered

Non-littering Littering%Passers-by

Environment

IngroupWe

Outgroup Them

Social normsof ingroup

Internalisedpersonal norms Behaviour

Possible to influence

Difficult to influence

Universal principles to influence norms (Cialdini)

Reciprocity: People tend to return a favor

Commitment: People that commit are more likely to follow through

Social proof: People will do things that they see others do

Authority: People tend to obey authority figures

Liking: People are easily persuaded by people they like

Reminder of towel use in regards tothe environment

Combined base message with „75% of guests in this hotel reuse their towels‟

Combined base message with „75% of guests in this room reused their towels‟

26% increase

33% increase

Base Message

What other people do

What other people 'like me' do

Hotel Re-use of towels

Example from researchUsing social norms to influence behaviour

42

How to use social norms?

Always be honest Describe the desired behaviour ('you should pay your

taxes on time') Tell what most people do ('most people comply')

If you can't use what most people do, then you can describe an increase in positive behaviour.

Tell what significant people do (’movie star X or athlete Y comply’)

Tell what 'people like you' do ('most people in Bogota comply')

44

Change in social norms in Sweden“I would evade tax if I had the opportunity”

YesMaybe

No

Don’t know

Why do people comply with rules? Because they want to or because they are forced

to?

We can, and should, influence the reason why people obey rules

Do we want it to be:

1. Because they believe it is the right thing to do (=personal norms)

2. Because they feel compelled to do it due to external incentives (= sanctions)

Some parents are coming too late

More parents are coming too late

Even more parents are coming too late

Penalty introduced

Penalty removed

Moral conviction

External pressure

Nothing

Kindergarten

Self interest Moral convictions

Exernal pressure Goes with the flow

Incentives No incentives

Want

Don’t want

Why do we obey rules?

Self interest works best

External pressure (incentives) can increase or decrease the individuals own moral

convictions.

• The moral conviction will decrease if the incentives are perceived to be controlling.

• The moral conviction will increase if the incentives are perceived to be supportive.

Cooperation is the best strategy

Each member of the group receives some money

The total sum are multiplied with 3

The new total sum are divided equal between the players

Each player invest in a pot (0 – 100 %)

How high will the investments be?

Enter punishment Each member of the group

receives some money

The total sum are multiplied with 3

The new total sum are divided equal between the players

Every player invest in a pot (0 – 100 %)

If each player has the possibility to punish free-riders

Conclusions

• It is important to increase the willingness to comply

• Willingness, own moral conviction, is often a stronger incentive than external sanctions

• Sanctions and punishment can, but no always, support the willingness to comply

• Influencing social norms is the best way of influencing peoples own moral convictions

Trust

Trust Fairness

Willingness tocomply

Voluntary compliance

Perceived fairness is crucial for voluntary compliance

• Distributive fairness. How taxes are paid and spent.

• Procedural fairness. The handling of cases, not the outcome.

• Retributive fairness. How non-compliers are being handled.

56

Why trust increases after an audit

ReasonsNumber of answers

0 10 20 30 40 50 60 70 80 90 100

Good dialogue

Treated with respect and politeness

Professional

Good cooperation

Good that audits are conducted

High level of competence

Correct and fair treatment

Correction errors

Procedure Outcome

Procedural justice

The perception of the procedure decides theperception of the outcome

Fairness, impartiality and respect are important

Rights, obligations and opportunities

Bas: Alla (1.002)Small business study

60

Rights, obligations and opportunities Correlation to trust

Bas: Alla (1.002)

Negative correlation Positive correlation

Small business study

61

Jag har förtroende för Skatteverket

1 2

6883

23

128 3

0%10%

20%30%

40%50%60%

70%80%

90%100%

2006 2012

Instämmer ej

Varken eller

Instämmer

Ingenuppfattning

Private individuals 2012

I trust the tax agency

Don’t agree

Neither

Agree

No opnion

Businesses 2013

I am treated well by the staff at the

tax agency

I am treated well by the staff at the

tax agency

Don’t agree

Neither

Agree

Don’t agree

Agree

How should the authority act?

An authority should treat citizens fairly and respectfully, listening to them and communicating explanations for different actions

If those being regulated are treated as trustworthy, they will repay this respect with voluntary compliance with fair rules

Reciprocity

Perception is everything

• Other peoples behaviour

• Other peoples values

• Behaviour of tax administration

• Fairness

• Trust in tax administration