The moral or personal compliance or fear of punishment may succeed in reduction of tax evasion only when tax department gain confidence of tax payers of strict compliance of law and rule by themselves in determination and collection of tax on the basis of law and rules. http://dailyasianage.com/…/regulatory-policy-and-taxpayers-… Image may contain: 1 person, text

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2. countries to deter taxpayers' non-compliance behavior. In general, most of the researches and
studies show a positive correlation between audit probability and compliance. However, the
impacts of audit probabilities on tax compliance are varied depending on the group of taxpayers.
For example, audit probabilities were found to have strong influences on tax compliance for sole
proprietors but only little effect on salaried taxpayers. Hence, tax audits that specifically target a
certain group of taxpayers seem to be more effective in increasing tax compliance rather than
random audits.
A fundamental difficulty in analyzing tax evasion is the lack of reliable information on taxpayer
compliance. Further, audit probabilities may only affect taxpayers who have the intention to
evade. It has been suggested that taxpayers may only abide by tax laws when they have definite
information about the possibilities of being audited.
On the moral side of evading tax is another view of complaint from inspiration from inside of
mind. A research study presented at the UK Royal Economic Society's 2015 annual conference
concludes that, offering tax evaders the opportunity to come clean voluntarily with reduced
penalties is the best way to maximize tax revenues - even though it increases tax evasion. The
study finds that although voluntary disclosure programs lead to an increase in evasion because
individuals know they are unlikely to be caught if they evade taxes and the penalty is small if
they decide to come clean later. On the other hand, tax collectors report that voluntary disclosure
decreases administration costs for collecting taxes up to 90%.
The research finds that voluntary disclosure increases evasion. Governments in almost all OECD
countries offer voluntary disclosure programs, under which people not yet under investigation
for tax evasion are treated leniently when they declare foreign assets. German whistleblower
evidence from 2010 implies that tax evaders come clean only after they think it is more likely
that they will be detected. Evaders disclose only when they have to do so. An empirical study of
US data in 2009 showed that individuals significantly increased their offshore deposits after the
introduction of the voluntary disclosure program. Voluntary disclosure encourages rule-breaking
but voluntary disclosure also maximizes tax revenues. The voluntary disclosure saves time and
money for the tax office. A disclosure includes all information necessary to assess taxes at a
lower cost than the government investigation.
German tax offices quantified the reduction in work time from 30% to 90%, with two thirds
citing a decrease in work time above 80%. This saving may maximize net revenue widening the
tax net. The author concludes that when there is a higher probability of detection, asking evaders
to come clean voluntarily can increase tax revenues without overburdening the tax
administration.
When tax evaders come clean voluntarily, many governments offer lower penalties. Such
voluntary disclosure programs promise to increase tax revenues. But one might fear that lenient
treatment to evaders encourages tax evasion, as the study of UK Royal Economic Society shows
in the study. Nevertheless, offering voluntary disclosure can be beneficial for governments, as it
saves administrative costs related to assessing the taxes of evaders.
To encourage tax evaders to come forward, governments in almost all OECD countries offer
'voluntary disclosure' programs. The UK, for example, offers a general voluntary disclosure
program and additional special programs such as the money whitening facilities in Bangladesh.

3. When individuals not yet under investigation for tax evasion come forward and declare all
foreign asset holdings, they are treated leniently?all income is taxed retroactively, but only a low
fine applies.
Voluntary disclosure increases incentives to evade taxes and research shows that such programs
increase the incentives to evade taxes. To understand why, note that many tax evaders come
clean only after they perceive an increase in the probability that they will be detected. This can
be the case, for example, because the government acquires whistleblower data from a tax haven
bank, as Germany did in early 2010.
These changes in detection probabilities explain why voluntary disclosure programs increase tax
evasion. When the detection probability remains low, the individual does not react. When the
detection probability increases, however, voluntary disclosure offers the option to come clean at
a relatively low cost. Thus, the individual evades taxes as if the detection probability was low for
sure, and we know that tax evasion is more attractive when the detection probability is lower.
Without the option of voluntary disclosure, everybody would take the potential increase in the
detection probability into account and would thus be less likely to evade taxes. Nevertheless,
almost all OECD countries have a voluntary disclosure program, because it allows the tax
authorities to save on administrative costs. Tax evaders themselves, who know where their
money was hidden, can prepare a voluntary disclosure which, like a tax return, needs to include
all information necessary to assess taxes at a lower cost than the government could assess the
evaded tax. A strong majority of German tax offices state that administrative costs are
significantly lower after a voluntary disclosure. When asked to quantify by how much working
time decreases, the answers range from 30% to 90%, with two thirds citing a decrease in work
time above 80%. The topic of voluntary disclosures is especially relevant today, as the detection
probability for tax evasion has gone up (for example, due to whistle-blowers or better
information exchange with tax havens). In this environment, a voluntary disclosure program is
attractive, as it can increase tax revenues without overburdening the tax administration. When
governments expect further increases in the detection probability, it may increase the fines after a
voluntary disclosure. Despite its negative effect on tax evasion, it is a good idea to offer
voluntary disclosure - at least as long as the main objective is to maximize tax revenues net of
administrative cost.
Scholars have recognized through research that taxpayers are likely driven by an internal
motivation to comply, arising out of one's innate sense of honesty, ethics, or civic obligation.
Taxpayers may be compliant considering the internal motivation, fear of legal sanction and
social costs. These intrinsic motivations, sometimes called "personal norms," have also been the
subject of a number of empirical studies. Another study surveyed individuals to compare the
effects of legal sanctions, social stigma, and guilt on tax compliance.
Personal versus social rationales for tax compliance are not necessarily alternative theories, nor
are they likely to be independent of one another. For example, a taxpayers' personal norms may
be influenced by her perceptions of social norms of tax compliance. Once those perceptions of
social norms have been internalized, however, violations of a taxpayer's personal norms are
associated with feelings of guilt and discomfort from acting outside of one's own moral code,
which should be distinguished from embarrassment or fear of social stigma.

4. A third external factor that appears to influence individuals' willingness to be dishonest is
whether the individual perceives that a victim will be harmed by her dishonesty. For example, an
individual might not feel guilty for telling a lie intended to make someone happy (e.g., "you look
nice today"), but might feel guilty for telling a lie that benefits the liar at the expense of the other
party or the society or the nation.
The moral or personal compliance or fear of punishment may succeed in reduction of tax evasion
only when tax department gain confidence of tax payers of strict compliance of law and rule by
themselves in determination and collection of tax on the basis of law and rules. It is argues for
the importance of differentiating between intrinsic motivation, under which taxpayers comply
with tax liabilities because of "civic virtue," and extrinsic motivation, in which they pay because
of threat of punishment.
The writer is a legal economist