Principles for understanding, encouraging, and rewarding voluntary tax compliance

D.Phil. (Taxation)Any modern economy depends largely on taxation as a source of revenue and governments therefore realise the importance of having a willing taxpayer base. Many tax authorities use a compliance model to engage with taxpayers, in terms of which different strategies are used to encourage compliance, ranging from enforcement strategies on the one hand, to strategies of assisting taxpayers to comply, on the other. It is widely recognised in the literature that the majority of taxpayers are voluntarily tax compliant, but it appears that tax authorities place more emphasis on how they can enforce compliance than on how they can recognise those who are voluntarily compliant. The concept of voluntary compliance is not well defined in the literature and is commonly used in the sense of “compliance in the absence of an external enforcement action.” By means of an in-depth review of the literature from a socio-economic viewpoint, the present thesis aimed to define principles and also construct a framework for understanding voluntary tax compliance. It was found that voluntary tax compliance means the acceptance of a tax obligation by a taxpayer without having to be forced, driven by personal and internalised social norms, within a climate of trust between the taxpayer and tax authority. The framework for voluntary compliance was shown to consist of three dimensions: strong personal norms; internalised social norms; and a climate of high trust. Each dimension encompasses its own variables that also influence one another. Strategies used by tax authorities to encourage voluntary tax compliance were analysed with the aim of identifying strategies based on a power orientation, a service orientation, or a norm orientation. It was shown that different strategies influence different variables of the voluntary ii compliance framework, such as tax knowledge, fairness, trust, and ethical values. Through this analysis, principles for building a voluntary tax climate could be identified..