Psychological motivation of tax payers

Tax compliance has been linked heavily with deterrence as the most important compliance-increasing factor but now a days importance of tax morale is being considered as intrinsic motivational toll for the honestly pay taxes. Tax morale , however, depends on the positive interaction of individual taxpayers and the taxing authority through fiscal exchange in a broader arena . Fiscal exchange, for example, may involve adequate provision of public services for the tax payers rather than purely monetary rewards which may be influenced by political decisions or by the way tax authorities treat tax payers in course assessment of the tax liability of an assessee.

The relationship between the taxpayers and the taxing authority should be an as an implicit or “psychological tax contract”, under which the taxing authority must balance strategies of deterrence with those of responsive regulation.

Tax compliance has many facets. The wealthy tax payers refrain from declaring their income physically earned in foreign countries mostly earned through non declaration or less declaration of commission on foreign trade and the wealth legally in foreign countries in the name of “second home” which is far from providing a comprehensive picture of their income and wealth as well.

Tax non-compliance may also be generated through under reporting of income by relatively less wealthy tax payers when they work in shadow economy i.e. when they work in unorganized sector.

The corporate tax payers, on the other hand, adopt the technique of utilizing court verdicts in interpreting the provisions of taxing law, adopting sophisticated trading schemes which allow evading tax accruing out of commodity transaction. They also utilize their activities under CSR by supporting their self interested institutions.

Tax compliance, is there, mostly