This chapter introduces the concept of taxpayer education and shows how it can help raise tax morale, compliance and citizenship. It also presents the thematic approach followed in this sourcebook, built around categories and sub-categories of initiatives.
Building Tax Culture, Compliance and Citizenship
A Global Source Book on Taxpayer Education, Second Edition
1. The need for taxpayer education
Abstract
The 2015 report, Building Tax Culture, Compliance and Citizenship (OECD/FIIAPP, 2015[1]) noted that the global recession was slowing down developing countries' efforts to mobilise tax revenues in a sustainable manner and proposed tools to implement taxpayer education initiatives at a lower cost. Since then, many steps have been taken. A few months after the publication of the 2015 report, the Addis Ababa Action Agenda (United Nations, 2015[2]) was published, followed by the adoption of 17 Sustainable Development Goals (SDG) by the General Assembly of the United Nations, which highlighted the importance of mobilising tax revenues to support all other goals (United Nations, 2015[3]). During the same period, the base erosion and profit shifting (BEPS) package (OECD, 2016[4]), was released comprising 15 reports on reforming the international tax system and tackling tax avoidance. This was followed, in July 2016, by the launch of the Inclusive Framework on Base Erosion and Profit Shifting (OECD, 2016[5]).
The world is undergoing rapid political, economic and social changes, which are reflected in the transformations of the global tax order, in which most countries are working together on an equal footing to improve the international tax system and adapt it to the new realities they face. Co-operation among them has never been deeper, with automatic exchange of information, country-by-country reporting, emphasis on mutual agreement procedures, as well as less visible initiatives, such as Tax Inspectors Without Borders (TIWB), which allows senior auditors from one country to help another country develop skills in a spirit of learning-by-doing (OECD/UNDP, 2019[6]).
All these initiatives aim at tackling tax avoidance and building stronger tax administrations. Mobilising tax revenues remains essential in the current context, where official development assistance is no longer increasing and will not suffice to meet the international commitments (OECD, 2021[7]). As shown by the large number of countries joining the inclusive framework to improve the international tax system, securing or increasing tax revenues is essential to all countries.
Engaging with taxpayers around a culture of compliance is a shared goal between developed and developing countries. Taxpayer education programmes have never been so numerous and diverse, some spreading from country to country and others existing for many years. They enable taxpayers and tax administrations to act as allies in the fight against tax avoidance, corruption and fraud.
Educating taxpayers is a long-term undertaking to which tax administrations are resolutely committed. All but one of the initiatives presented in the 2015 report are still ongoing. The Nigerian “Binding Duty” soap opera reached its natural end before being replaced by many other initiatives, including a new TV broadcast about taxes.
The Covid-19 pandemic is unlikely to change this trend, although it may lead tax administrations to adapt, as priorities change. The pandemic has further increased the need for countries to mobilise resources, as they now need to fund ambitious health and economic recovery plans. The pandemic has also accelerated the movement toward e-administration and the improvement of the online experience of taxpayers.
1.1. What is taxpayer education?
A large number of countries have implemented taxpayer education initiatives in the past few years. The 2015 report (OECD/FIIAPP, 2015[1]) highlighted initiatives from 28 countries from all around the world to help tax administrations choose and implement the most appropriate ones in their countries. The present report is based on survey input from 59 developing and developed countries.
This new report goes further than our previous one and encompasses an even wider range of initiatives in both developed and developing countries. In our previous report, we highlighted the large number of activities and actors involved in taxpayer education programmes. The responses to our survey confirmed the wide variety of initiatives still being implemented around the world. While the previous report focused on the efforts undertaken by national tax administrations in developing countries to show citizens why and how to pay their taxes, the current one includes those of developed countries as well. This results in a more comprehensive study of taxpayer education initiatives.
Taxpayer education is intimately linked to local economic, social and cultural realities. There is no one definition that can fit all country practices and be applicable to all groups of taxpayers. The survey responses made it clear that what is common to all initiatives is their purpose: to transform the relationship among taxpayers, tax systems and tax administrations and to mutually benefit them and society as a whole.
Thus, in this report, taxpayer education includes initiatives aimed at building a culture of tax compliance by:
teaching taxpayers, providing in-depth tuition, building new knowledge and skills;
using communication tools to raise awareness in taxpayers of the different aspects of tax, including obligations, deadlines, taxpayer rights and how taxes are spent; and
providing taxpayers with practical assistance in tax compliance.
This list is not necessarily exhaustive and is not the only possible way to categorise taxpayer education initiatives. Nonetheless, by providing a framework that accounts for the range of initiatives identified, it provides a practical and concrete tool for policymakers and tax administrations wishing to launch or improve taxpayer education programmes.
1.2. How can taxpayer education help?
The mobilisation of domestic resources through taxation is essential to achieve the sustainable development goals as defined in the Addis Agenda, adopted on 16 July 2015. This implies building strong tax administrations and efficient tax systems, as well as tackling tax evasion; but it also calls for creating or strengthening a culture of compliance where the payment of a fair share of taxes is essential to social life and citizenship.
One of the most important changes in the recent past is the way tax administrations view their relationship with taxpayers, moving from coercion to partnership. Increasingly, taxpayers are seen as allies. Threats of penalties for not fulfilling their duties are increasingly being supplemented by the demonstration that by changing their behaviour, they can improve the society in which they live, contribute to its development and free it from external funding.
Paying taxes is a civic duty and taxpayer education is a means to empower taxpayers and to improve tax morale. Several studies have shown that improved tax morale increases tax compliance in a given country (Clifford and Jairus, 2013[8]; Richardson, 2006[9]). Each initiative is unique and is deployed within the specific context of a particular country at a specific moment. It is important to consider the complex characteristics of this context when designing a specific action. For instance, Ritsema et al. (2003[10]) showed that responses to a given initiative vary between groups of taxpayers within the same country.
Tax audits, as opposed to taxpayer education, may not be sufficient to tackle the informal economy, as targeting many taxpayers who owe only a negligible amount of tax requires a significant amount of resources. This is of paramount importance in countries where a significant part of the economy is informal, characterised by the existence of many actors outside established structures, many of whom generate only low incomes. It can be much more effective to mobilise these actors and their clients by strengthening their sense of responsibility and belonging to the community to improve their tax compliance.
In the current research (Mascagni and Santoro, 2018[11]), taxpayer education is often presented together with deterrence and tax morale as the three components of tax compliance:
Tax deterrence is linked to penalties and other risks for those who do not comply with their obligations.
Tax morale is generally defined as “the intrinsic motivation to pay taxes” (OECD, 2019[12]), or as “capturing nonpecuniary motivations for tax compliance as well as factors that fall outside the standard, expected utility framework” (Luttmer and Singhal, 2014[13]).
Taxpayer education is often seen as a sharing of knowledge regarding the tax system with taxpayers.
Some research emphasises that taxpayer education can reduce taxpayer lack of knowledge, which has been identified as barrier to compliance. Lack of knowledge is one of the major challenges faced by many tax administrations, but simply telling taxpayers they have to pay taxes is not enough (Moore, 2019[14]). Administrations should try to bridge the knowledge gap through taxpayer education in order to convey to taxpayers the capacity (Ligomeka, 2019[15]) and habit (Mascagni, Santoro and Mukama, 2019[16]) of fulfilling their obligations. However, taxpayers’ willingness to pay may not be sufficient. A study by Aiko and Logan (2014[17]) showed that among 62% of the African citizens surveyed, it was difficult to know what taxes they owed. It is thus of major importance to spread tax knowledge across the society, thereby enabling taxpayers to understand how to pay taxes and helping them in doing so.
1.3. The relation between taxpayer education, morale and compliance
One way to grasp this complexity is to further explore the relation between taxpayer education, tax morale and tax compliance. The work of Erzo Luttmer and Monica Singhal (2014[13]) is especially interesting in this regard. They identify five categories of mechanisms that contribute to improving tax morale. The first is "intrinsic motivation", which may be associated with pride, or a good self-image linked to honesty or participation in the public good. The second is "reciprocity", which includes "public goods provided by the state or perceptions of the fairness of the tax system". The third is "peer effect and social influences", which depends on how tax payment is valued in society and how others act towards it. "Long-run cultural factors" is the fourth category of mechanisms they identified and "information imperfections and deviations from utility maximisation" the fifth. The latter mechanism is related to the fact that taxpayers with inaccurate or too little information about the tax system may not comply with obligations they do not understand or may make irrational decisions.
Different forms of taxpayer education may affect different aspects of the relation. For example, taxpayer days or festivals affect three mechanisms (intrinsic motivation, peer effect and long-run cultural factors) while programs designed to help a specific category of the population meet its tax obligations, such as the Special Taxpayer Assistance Program (STAP) in Jamaica, focus more on the latter mechanism, namely “reducing information imperfections”.
The countries surveyed were asked to provide an estimate of the impact of each initiative on tax morale: 83% of initiatives were considered to generate a very large or a great increase in tax morale (see Figure 1.1). However, the effects of taxpayer education on tax compliance seem to be more indirect than direct, increasing tax morale, which in turns increases tax compliance.
Figure 1.1. Impact of taxpayer education initiatives on tax morale
Note: Answers were received for 104 of the 140 initiatives.
Source: OECD Survey on Taxpayer Education Initiatives.
While there is no single definition of taxpayer education, it is a means of empowering taxpayers, giving them knowledge and tools to be able to better understand the tax system, increase their tax morale and finally, increase tax compliance. Nevertheless, it is not a magical tool; initiatives need to be carefully designed to achieve these goals. Despite being cost effective (Mascagni, Santoro and Mukama, 2019[16]), taxpayer education programmes are not free and tax administrations need to invest resources, which may be scarce, especially in developing economies. It is important to understand what kind of initiative will produce the desired result. In that spirit, a few recent studies aimed to measure the effectiveness of specific projects (Casey and Castro, 2015[18]; Mascagni, Nell and Monkam, 2017[19]; Mascagni, Santoro and Mukama, 2019[16]). The present report is part of this trend and aims to provide policymakers, tax administrations and scholars with an overview of existing initiatives and the means to implement them.
1.4. The benefits of taxpayer education
Taxpayer education benefits taxpayers themselves at the scale of the society. The more taxpayers pay their fair share of taxes, the more resources are available to develop the country, build infrastructure and offer services to them. These resources improve taxpayer’s daily life and that of their children. The question for taxpayers is no longer, whether they have to pay taxes or not, but rather what they pay taxes for. In a democratic system, taxpayer education can also encourage citizens to support and elect officials who will implement tax policies that will benefit the country.
Moreover, taxpayer education also benefits taxpayers more directly. Tax literacy can help people save money. They may learn, for example, about tax provisions that will legitimately lower their tax bills, or how to avoid filing late or other pitfalls that might cause them to incur fines or penalties. Knowing these benefits exist provides people with an incentive to engage in taxpayer education. It can also increase tax compliance in the long term by increasing tax morale, because tax literacy decreases the time people spend preparing taxes and makes them less threatening. The more taxpayers know about the tax system and the crucial role taxes play in their daily life, the more they can support it.
Tax administrations also benefit from taxpayer education initiatives. It is much easier for them to deal with educated taxpayers because they make fewer mistakes. This allows administrations to redirect their resources to help others or to tackle tax evasion and avoidance.
Educated taxpayers are also better citizens. They not only pay their correct share of taxes on time but they also tend to participate more actively in local debates about taxation. Each educated taxpayer can in turn pass on his or her knowledge and become an agent for the dissemination of tax knowledge in the country.
Taxpayer education leads to increased tax compliance. Ideally, taxpayer education should begin at an early age and continue into adulthood. The aim is for tax administrations to give citizens the opportunity to understand how the tax system works and benefits society as a whole, thus developing a culture of voluntary compliance. In addition, taxpayers must also be continuously and clearly informed of their rights and obligations, of approaching deadlines and of legislative developments to be able to act accordingly. This can be done through information campaigns and awareness-raising activities of the tax administration, such as television and radio broadcasts, publications on taxation or outreach campaigns. Finally, assisting taxpayers in completing their tax returns and encouraging them to use the online services available to them can make their lives easier, save them time, and thus improve their compliance.
A range of well-designed taxpayer initiatives can be complementary. Tax administrations often use different types of programmes concurrently to give taxpayers the appropriate knowledge and tools to understand taxation, their rights, their obligations, and how to comply with them. While many of them use a mix of the three approaches – teaching, raising awareness and assisting – some appear to focus their resources on one category instead. This may be very effective in focusing attention on a particular sector of the population. Nevertheless, by diversifying taxpayer education approaches, tax administrations can benefit from synergies between them and reach a wider population. The best mix will depend on the specific local priorities.
All countries tend to focus their efforts on educating taxpayers at a young age. Non-OECD countries appear to rely more on information campaigns to communicate about taxes. Creating a positive relationship with taxpayers also seems to be more of a concern for non-OECD countries.
Figure 1.2. A global learning experience
By using different taxpayer education initiatives, tax administrations can offer a comprehensive learning experience on tax, giving taxpayers a better knowledge of their rights and obligations and of the way the system works, as well as helping them develop new skills. In return, taxpayer education may improve the image of tax administrations, give them valuable information to adapt their services, and enhance tax morale and tax compliance. Tax administrations can use this report as a source of inspiration for designing new taxpayer initiatives. To help with this endeavour, the report proposes a step-by-step approach (Box 1.1).
Box 1.1. How to use this report to design taxpayer education initiatives
The present report may be used to foster ideas from all over the world on designing initiatives, identify what kind of initiative is more likely to produce the desired effect and understand the potential challenges faced by implementing it. Prior to designing a taxpayer education initiative, it is important to devote time to defining the objective of the new initiative and the available resources. To assist designers in this task, we propose the following stepwise approach:
Step 1 – Defining a clear objective
The first step is to set the objective in a clear way, as this will help to understand the type of initiative required, narrowing the possible options.
Key questions to help with this process include:
What is the problem/issue the initiative is expected to address?
What are the already existing initiatives?
What kind of information should be communicated to taxpayers and how complex should it be?
Who is the target audience?
What are the available resources?
Once these questions are answered it should be easier to clarify the objective, and hence the type of initiative required.
Step 2 – Checking the available resources
Not all initiatives need the same kind of resources. Some are heavily reliant on human resources (tax officials, teachers, etc.) while others may need important funding (to organise a large event). It is essential to have a clear picture of the available resources, as this will be an important element in the choice of the appropriate initiative.
Step 3 – Identifying potential initiatives
The classification provided in this report can offer a guide to identifying the type, or types, of taxpayer initiatives required. While it is not possible to provide an exhaustive guide that covers all possible objectives for taxpayer education, the three broad categories – teaching, raising awareness and assisting – can form the starting point to help gather inspiration from the examples featured in this report.
Teaching tax initiatives (Chapter 3) use more traditional teaching techniques, often to provide more complex information, address issues around the principles and functioning of the tax system, and apply different approaches to different audiences. Awareness-raising initiatives (Chapter 4) use communication tools to provide basic information on the tax system, or to change perceptions of tax/tax administration, while assisting initiatives (Chapter 5) focus on more practical aspects of compliance, either new tools, or lending help to specific groups who have been identified as struggling to comply. In many cases, it will also be possible to identify the relevant sub-category, which can provide further inspiration.
Step 4 – Designing the most appropriate initiative
The following questions may help in designing the most appropriate initiative:
What challenges may implementation raise?
Is there a way to overcome them that can be used locally?
Who are the potential partners (if needed)? Are they willing to participate to the initiative?
Who (what service, which people, etc.) can organise and manage this initiative?
The current report can provide an overview of potential challenges and partners (Chapters 3 to 5), with advice and recommendations for designing initiatives (Conclusion), as well as with a means of identifying which tax administrations are running similar initiatives (Annex A), allowing designers of new initiatives to contact them to gather more practical information.
1.5. Outline of the rest of the report
This volume builds on the 2015 report (OECD/FIIAPP, 2015[1]), taking a broader view of the whole landscape of taxpayer education to offer a comprehensive overview of what is being done today. What is presented here is not a catalogue of initiatives but a guide for those interested in designing, implementing or improving taxpayer education initiatives. Drawing on the large number of initiatives reviewed (140 initiatives in total – see Table 1.1 and Annex A), the report also serves as a useful resource for others researching or analysing taxpayer education.
Table 1.1. Distribution of taxpayer education initiatives by category
Note: While the survey features 140 initiatives, some, called Núcleos de Apoyo Contable y Fiscal (NAF, see Chapter 7) involve simultaneously teaching youth and offering direct assistance. They have been included in both categories.
Source: OECD Survey on Taxpayer Education Initiatives.
The large number of countries (59) which participated in the survey, representing all geographic regions and income levels, provides a truly global picture of taxpayer education initiatives, contributing to the richness of this report. In addition, returning to the countries featured in the 2015 report it appears that most had intensified their efforts, demonstrating the continuing and growing importance given to taxpayer education.
Chapter 2 presents the methodology of the survey as well as its main findings. Chapters 3-5 provide a more detailed look at the different types of initiatives, using specifics from the survey to illustrate the main features and key considerations of each type. While non-governmental actors were not surveyed for this report, Chapter 6 provides a brief overview of some of the roles different types of non-governmental actors can play in taxpayer education. Finally, the ways the Covid-19 pandemic affected taxpayer education initiatives will be discussed in the Conclusion together with recommendations on how to design sustainable taxpayer education initiatives.
References
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