4 methods of Influencing Taxpayers
Digital Tax Technologies
Trusted Global Tax Gap Advisor & Digital Solution Provider for Tax Administrations
By Anatoly Gaverdovskiy
Administration of taxpayers is like the life of a beehive or an anthill. The main difference is that the life of “natural states” presumes the personal responsibility of each link, while collaborating with taxpayers assumes continuous control and fear of the inevitability of punishment. How to increase the motivation of taxpayers so that they show more initiative in the performance of their duty?
Let us talk about methods of managing the behavior of taxpayers. The business environment is a complex structure where diverse types of connections tightly intertwine with the socius, business, and civil law. The task of a Tax Administration is to figure out how this environment works and determine what methods it should apply to achieve the required results.
The Psychological Attack
This is the simplest method based on intimidation. Tax Administrations, through social networks and loyal media, create the image of an “all-seeing eye”, which notices and controls everything, and has access to banking operations. The fear of the inevitability of punishment is growing up, and the rumors are spreading about the critical consequences for taxpayers who evade fulfilling their obligations. This method supposes that, due to fear, taxpayers begin to legalize themselves and pay taxes, because they will think that it is more profitable for them.
“The Eye of Sauron”
This is a precautionary method. The tax administration conducts an analysis of the offerings of the goods and services in social networks. After that they automatically sent messages to taxpayers via SMS or other electronic communication channels informing them about potential tax violations with the recommendation to register the business.
Our experiments with conducting informational SMS mailing to Instagram users who offer services and goods on the social network gave a conversion towards the new taxpayer registrations of up to 15% from each mailing. In addition, taxpayers will be widely discussing such communication in various social networks, which enhances the effectiveness of using this method.
This approach often causes denial from tax inspectors. Tax control identified a violation, but it does not entail any charges and fines. If digital information cannot provide a sufficient evidence base for tax authorities to have legal grounds for taking punitive measures, so why bother? But if the primary goal is to increase tax revenue, rather than control activities, then this method works very well.
The Affiliate Method
This method is useful with affiliate partners like marketplaces, bulletin boards and other digital platforms that provide self-employed with a main or additional source of income. By agreement with the tax authorities, they can create additional incentives for their clients who have legalized their activities on the site. For example, specify the priority right to receive orders or reduce the fee. This will create an additional incentive for site customers to move into the legal field and pay taxes. Through word of mouth, these benefits quickly spread to all market participants.
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The Industry Method
This method applies “demonstrative flogging” of the largest and most influential company in the selected industry, if authorities noticed that company took part in the tax evasion schemes. Tax administration charges fines on the violating legal entity. And then organizes a meeting with other large industry players to demonstrate that will be the case with every violator.
Further, the market leaders may sign a charter where they claim not to use tax optimization schemes. All market participants know each other very well. They are well-versed in pricing and understand that the obligation to pay taxes also affects the value of the street prices. That creates a “circle of trust”, and competitors begin to monitor each other.
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Digital Tax Technologies?is an international expert in tax gap minimization, a trusted global digital transformation advisor & solution provider for national tax administrations.
We help tax administrations around the world to reduce the tax gap, improve tax revenue collection and reduce the share of the shadow economy.
Our mission is to increase global fiscal transparency, improve tax compliance and administration, and ensuring fair competition and welfare.
Our team consists of experts with experience in digital tax administration advisory and implementation in various European, CIS, Middle East, and African countries.
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