Summary – Trust between the taxpayer and tax authority is a crucial two-way relationship; perception of a fair and just tax authority that is responsive to the taxpayer is essential for successful tax simplification.
The dialogue consensus was that trust is a key factor for success, across tax administration systems of the Commonwealth and that it is a two-way relationship. The taxpayer needs to feel that the tax authority will be just and fair, act in their favour and ease the process and cost of compliance for them.
Tax authorities need to build this trust amongst its taxpayers by treating them like a customer from whom they earn revenues. They must provide a level playing field for taxpayers by studying whether the impact of tax reforms is equal and just for all taxpayers and by making available proper mechanisms for dispute resolution. Data protection laws and communication strategies also help in establishing trust.
While digitising and simplifying tax systems due care should be taken to ensure a smooth transition for the taxpayer, re-assurance on safety of data is tied to trust. By using anonymised data for analysis and research ensures data protection, however for some island nations with smaller populations this may not be an option. While younger taxpayers have a greater willingness to share their data, older taxpayers may be reluctant to give away access to data.
Depending on variations in demographics, categories of taxpayers, country context and culture, there is no one size that fits all; this understanding of the differences in taxpayer views and circumstances should inform how simplification is approached.
For example – India allows its senior citizens who may not be tech savvy to file paper returns. India reduced the size of the form to 1-2 pages for salaried and self-employed taxpayers (PAYE) thus making compliance less onerous for these two major categories of taxpayers. Another good example of building trust is that India’s new tax regime which was first offered as an alternative for the taxpayer who could choose to fill returns under any of the two regimes old and new for a few years. This allowed taxpayers to fully appreciate the benefits and allow time for the transition into the new regime.
However, not all taxpayers are honest and compliant, and it is the role of the tax administrator to plug the loopholes to prevent tax-evasion and ensure strong enforcement for those that will take advantage of the system. Also, trust is difficult to build when there is a presence of large sections of informal economic actors that are not covered by existing taxation systems.
Channelling innovative technology such as AI and digitisation overall to target tax evasion in a non-intrusive way while using data effectively to service the compliant taxpayer is the way forward.
Awareness of the role of taxation as a social contract would help in support of simplification and revenue generation for public finance. Tax revenues are primary source of revenue for governments to finance expenditure on public infrastructure, welfare services. Enhanced revenue collections enable better income redistribution and a better standard of living for all. Thus, all government departments linked to public finance are key stakeholders. This awareness and communication of the larger role of taxation and how it links to the government, and citizens and private sector could be more emphasised.
“Tax simplification not just a technical exercise, but a matter of trust.”