Psychological motivation of tax payers
Tax compliance has been linked heavily with deterrence as the most important compliance-increasing factor but now a days importance of tax morale is being considered as intrinsic motivational toll for the honestly pay taxes. Tax morale , however, depends on the positive interaction of individual taxpayers and the taxing authority through fiscal exchange in a broader arena . Fiscal exchange, for example, may involve adequate provision of public services for the tax payers rather than purely monetary rewards which may be influenced by political decisions or by the way tax authorities treat tax payers in course assessment of the tax liability of an ...view middle of the document...
Is violation of tax regulations partly accepted as minor disobedience and if so to what extent? Is non compliance of tax regulations considered as undermining the function of a state in general? Is non compliance or violation of tax regulations is even accepted as kind of popular gaming activity in which the taxing authority sometimes loses, sometimes wins, all these issues matter for proper tax compliance.
Because of common human attitude. no body will like to pay tax even not least since it involves betterment of public facilities and at the same time there are incentives to free ride. Selfish individuals would be encouraged not to pay taxes, because the chance of being detected and the size of the fines are so low that it is advantageous to evade. Tax payment is considered to o be a ‘quasi-voluntary’ act and the tax authority must acknowledge that external interventions in the form of rewards or sanctions may crowd out the intrinsic motivation to pay taxes. The idea of intrinsic motivation is largely attached to psychology. It is identified that under particular conditions, monetary (external) rewards undermine intrinsic motivation. Giving of rewards for undertaking an activity has indirect negative consequences as rewards lead to the expectation of future rewards such that desired behavior is undertaken only if rewards are provided. The basic ides may be generalized three ways:
(a) All types of external interventions may negatively affect intrinsic motivation, i.e. not only
offering rewards but also issuing commands, imposing rules and regulations as well as
punishments. Thus, deterrence imposed by the tax authority, may undermine individuals’
intrinsic willingness to conform to tax laws.
(b) The intrinsic motivation affected by external intervention is broadly conceived. It comprises
actions undertaken for their own sake, i.e. without expectation of external reward,
as well as internalized norm guided behavior. The latter is the relevant concept as far as
taxpaying is concerned.
(c) External interventions undermine intrinsic motivation when they are perceived to be intrusive
by the individuals concerned (‘crowding out effect’), and they maintain or raise
intrinsic motivation when they are perceived to be supportive.
The underlying psychological processes depend on how self-determination and self-esteem are affected. Tax audits (reopening of assessments under Sec.93 or selecting returns filed under “Universal self assessment scheme”) as intrusion by tax authorities can undermine
tax morale more strongly if the taxpayers’ sense of self-determination is high.
Tax officials are assumed to be aware of the effects on taxpayers’ behavior. They know that a disrespectful treatment of taxpayers undermines their tax morale and therewith increases the cost of raising taxes. Tax authorities will only behave in a respectful way towards taxpayers when there is a substantial extent of tax morale to begin...