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Presentations – Keith Walsh

Presentations – Keith Walsh. Understanding and Influencing Taxpayer Behaviour. Keith Walsh, Economist, Research & Analytics Branch, Revenue 19 th June 2013. Outline. Role of Revenue Why does understanding behaviour matter? Why do people pay tax? Irish evidence on taxpayer behaviour

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Presentations – Keith Walsh

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  1. Presentations – Keith Walsh

  2. Understanding and Influencing Taxpayer Behaviour Keith Walsh, Economist, Research & Analytics Branch, Revenue 19th June 2013

  3. Outline • Role of Revenue • Why does understanding behaviour matter? • Why do people pay tax? • Irish evidence on taxpayer behaviour • Putting theory into practice

  4. Revenue’s Role • Administration of the tax and customs regimes • Assessment • Collection • Debt management • Audit and other interventions • Anti-smuggling and other customs controls • Anti-avoidance • Policy advice and legislative support • EU tax policy, treaty networks and international liaisons • Constantly reviewing these functions and the environment in which they operate • Strong contribution to the formulation and design of administrable tax policy

  5. Behavioural Economics and Taxation • Behavioural economics • Brings insights from psychology into economics to better understand how people make decisions • Application to taxation? • Most of the tax related literature focuses on policy areas • But has great potential to improve tax administration

  6. Behavioural Economics and Taxation • Why does it matter? • Taxation in Ireland is largely based on voluntary compliance and self-assessment • Tools like audit are effective but expensive • Targeted treatments based on behavioural insights may be more efficient • Prevention of errors allows tax administration to focus on deliberate non-compliance • Potential gains go beyond improving the efficiency of the tax administration • Lowering administrative and compliance costs

  7. Tax Compliance • Compliance is the key objective of tax administration • Filing compliance (filing returns on time) • Reporting compliance (reporting the correct income) • Payment compliance (paying amounts due on time) • Key behavioural research question • Why are taxpayers compliant?

  8. Why are Taxpayers Compliant? • Deterrence 2. Norms (personal and social) 3. Fairness & trust 4. Simplicity / complexity 5. Broader economic, political and social issues • Influence of the tax administration?

  9. Attitudes and Behaviour in Ireland • What do we know about the determinants of taxpayer behaviour in Ireland? • Revenue surveys • Two surveys of SMEs (2006, 2008) • Two surveys of employees (2007, 2009/10) • All published on www.revenue.ie • Information on contacts, satisfaction and factors that influence compliance

  10. Survey Conclusions • Deterrence remains important, as does fairness • Personal norm related responses are strong from a compliance perspective • Many respondents have positive personal beliefs but the level that say the same beliefs are widespread in society is lower • Suggestions that tax avoidance and customs / excise issues are seen are less unacceptable than tax evasion to some respondents • Some categories of taxpayer have only limited opportunities for evasion (e.g., PAYE)

  11. Changing Culture in Tax Administration • Seeking to influence taxpayer behaviour is not a new concept for tax administrations • What is new? • An increased focus on the links between understanding taxpayer behaviour and developing risk treatment strategies • Tax administrations are putting behavioural insights into practice • OECD Forum on Tax Administration • Sweden “Right from the Start” • Netherlands “Horizontal Monitoring” • UK Behavioural Insights Team

  12. Direct Interventions • Evidence-Based Experiments • Coleman (1996, 2007) in Minnesota • Wording of letters to taxpayers before return deadline • Wenzel (2001a, 2001b) in Australia • Impacts of norms and perceptions on compliance • Hasseldineet al. (2007) in the UK • Wording of letters to taxpayers before return deadline • Appelgren (2008) in Sweden • Wording of letters to taxpayers before return deadline • Ariel (2012) in Israel • Wording of letters to companies before return deadline • Chetty and Saez (2009) in the US • Effect of personalised information on tax credit entitlements • Behavioural Insight Team (2011, 2012) in the UK

  13. What is Revenue Doing? • Constantly reviewing compliance burden on business • Burden reduction lowers costs for business • €85m savings in administration costs • Reduced filing frequencies for VAT, Employers’ PAYE/PRSI and Relevant Contracts Tax • An increase in the VAT registration threshold • Pre-population of IT and CT return forms • Revenue’s new electronic Relevant Contracts Tax system

  14. What is Revenue Doing? • Building on academic behavioural research • Building our knowledge of taxpayer behaviour • Past Revenue experience • Continuing taxpayer surveys • Segmentation of taxpayer population(s) • Experiences from other countries

  15. What is Revenue Doing? • Wide use of withholding arrangements and increasing sources of third party data • Behavioural insights have informed new communications strategy • Testing different approaches to how we communicate and intervene with taxpayers • Evaluation using experimental or semi-experimental methods where possible • Two examples of randomised controlled trials

  16. Publican Licences • Renewal letters to all publicans issue in September • Treatment group (400) • Randomly selected to receive a revised renewal letter • Small changes to the letter and a message included on social norms of behaviour among publicans • Control group (7,800) • Remainder of publicans received standard renewal letter • Target: improve renewal rates and timing

  17. Publican Licences Renewal rates 1st Oct: Control 29.4%, Treatment: 35.5%

  18. Publican Licences • September / October 2011 • Only difference between the groups is the treatment letter • Post October 2011 • Series of further interventions on treatment group • Statistical testing • October and post-October differences are significant • Only 6 percentage point increase? • September 2012 • Revised letter for all publican’s licence holders • Licence renewal rate on 1st October 2012 is 38%

  19. Tax Arrears • Cases with small arrears, recently incurred • Random selection of 500 debt management cases • 200 in treatment group 1 – standard letter • 200 in treatment group 2 – softer letter • 100 in control group – no letter (until after project) • Target: improve management of arrears • Payment, part-payment, liability reduced or instalment arrangement agreed

  20. Tax Arrears VAT cases with arrears

  21. Tax Arrears Income tax cases with arrears

  22. Conclusion • Increasing focus on behavioural insights for tax administration • Testing, measuring, learning from experience • Even small changes in communications do influence compliance behaviour • Benefits from improvements in tax administration go beyond just efficiency and effectiveness gains

  23. Thank you keithw@revenue.ie “Understanding Taxpayer Behaviour – New Opportunities for Tax Administration”, Economic & Social Review, Vol. 43(3) www.esr.ie

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