Tax Compliance

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  • Topic: Tax, Taxation, Tax avoidance and tax evasion
  • Pages : 14 (4781 words )
  • Download(s) : 50
  • Published : March 19, 2013
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Abstract

A psychological tax treatment goes beyond the traditional deterrence model and explains tax morale as a complicated interaction between taxpayers and the government. As a contractual relationship implies duties and rights for each contract party, tax compliance is increased by sticking to the fiscal exchange paradigm between the citizens and the state. Citizens are willing to honestly declare income even if they do not receive a full public good equivalent to tax payments as long as the political process is perceived to be fair and legitimate. Moreover, friendly treatment of taxpayers by the tax office in auditing processes increases tax compliance. In Bangladesh this kind of contractual relationship has not yet been established. Actually respectful treatment from the tax authority and incentives plays critical role in creating a psychological effect on the taxpayer mind. And it is the duty of the government to make proper utilize of the tax money. If the taxpayer realized that their earnings going out by the form of tax is properly used then the economic theory does not work in some places. We perform a sample survey for the purpose of assessing the viewpoint of Bangladeshi taxpayer towards their experience and concepts about whole tax payments systems and the role of tax authority in response of problem solving. But it is a matter of regret that majority hold a negative aspects about these. This result actually matches to the current scenario of our taxation. Actually respectful behavior from the tax authority and if meaningful contractual relationship be established then it is expected that the rate of noncompliance and tendency of tax avoidance and evasion will be reduced dramatically.

1. Introduction
The reason of tax compliance is a complex issue. It is often argued that citizens value the public goods financed by the money of other taxpayers, but that they themselves are reluctant to pay their own taxes. This reluctance to pay taxes is often explained by various theories, or “research paradigms”: by theories that emphasize individual self-interest, by alternative theories of individual motivation, by perspectives that focus on group interactions, by doubts concerning the responsible spending of the taxes by the government and its tax authorities, and the like. A strong tradition here is the economics-of-crime paradigm that views the decision to pay taxes as an individual’s choice between a sure option of paying all taxes honestly and a risky option of evading taxes. Depending on the audit and fine rates, the risky option may result in a higher or a lower payoff compared to the sure option. In this paradigm, tax compliance is understood mainly as the result of a rational “portfolio” decision by a single taxpayer. However, this research paradigm has been increasingly challenged as incomplete, both by economists but especially by psychologists, and especially under the premise that the complex decision to pay taxes cannot be understood solely by framing this decision as a decision under risk made by a single taxpayer. There are more “actors in the field” whose separate behaviors, whose different motivations, and whose dynamic interactions must all be considered as a way of explaining compliance. The consideration of these actors, their behaviors, and their interactions has given rise to other and emerging research paradigms for the analysis of tax compliance. In this paper we discuss a more recent research paradigm which is tax compliance as the result of a psychological tax contract. A psychological tax contract goes beyond the traditional deterrence model and explains tax morale as a complicated interaction between taxpayers and the government. It emphasizes that tax compliance behavior can be broadly viewed as a “psychological contract” between taxpayers, the tax authorities, and the government. Central to this contract is the broad notion of a “social...
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