Tuesday, September 30, 2008

Why Australians do not comply with their tax obligations

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Continuing on from our discussion based on my readings of “An examination of taxpayers’ attitudes towards the Australian tax system: Findings from a survey of tax scheme investors” (Nov 2004) by Kristina Murphy.
The tax office wants to apparently understand why taxpayers do not comply with their tax obligations. I can think of several reasons:
1. It is contrary to human nature – we have the faculty of rationality which means the capacity for choice. We take pride in exercising our choice, not in avoiding slavery (taxation). With arbitrary law, its no challenge to beat the law, and who would want to invest in such an unproductive activities. Perhaps those who really hate how the government spends the money.
2. It is not an efficient system – tax is inefficiently collected
3. It is poorly spent. Just look at the poor state of public utilities. This is because there is no accountability and poor service

Early research into tax compliance, evasion and avoidance was based upon a deterrence theory framework to explain their behaviour (refer to Jackson & Milliron, 1986; Roth, Scholz & Witte, 1989). Such theories portray people as ‘amoral profit-seekers whose actions motivated solely by rational analysis of the rewards and costs’ (Kagan & Scholz, 1984, p. 69; see also Kirchler & Maciejovsky, 2001). According to the deterrence view, people carefully assess opportunities and risks, and disobey the law when the anticipated fine and probability of being caught are small in relation to the profits to be made through non-compliance.
These assertions however assume that service to society is moral and pursuit of self-interest is necessarily at the expense of others. The capitalism concept of a small government based upon self-interest and user-pays public revenues is not ‘amoral’, its just a different ethical construct, but more importantly, it’s a logical one, and its consonant with human nature. The current system perverts taxpayers, undermining their motivation, values and thought process.
Research into tax evasion grew in the 1960s. Researchers reported an inverse correlation between the threat of legal punishment and crime (Gibbs, 1968; Jensen, 1969; Tittle, 1969). Yes, Hitler was able to embrace the same concept to its logical conclusion. One has to understand that we are not talking about ‘crime’ as defined by common (rational) law, but rather the arbitrary whim of government and the Australian Tax Office. We are talking about people who resent paying tax. I can cite a lot of reasons why the law is wrong because I have studied philosophy/ethics, but there are a lot of people who resent taxation, but they don’t have the intellectual skills to oppose it. There are still more who repress any resentment and just comply with it.
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Andrew Sheldon www.sheldonthinks.com
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