Enhancing Tax Compliance through Coercive and Legitimate Power of Tax Authorities by Concurrently Diminishing or Facilitating Trust in Tax Authorities

Tax compliance represents a social dilemma in which the short-term self-interest to minimize tax payments is at odds with the collective long-term interest to provide sufficient tax funds for public goods. According to the Slippery Slope Framework, the social dilemma can be solved and tax compliance can be guaranteed by power of tax authorities and trust in tax authorities. The framework, however, remains silent on the dynamics between power and trust. The aim of the present theoretical paper is to conceptualize the dynamics between power and trust by differentiating coercive and legitimate power and reason-based and implicit trust. Insights into this dynamic are derived from an integration of a wide range of literature such as on organizational behavior and social influence. Conclusions on the effect of the dynamics between power and trust on the interaction climate between authorities and individuals and subsequent individual motivation of cooperation in social dilemmas such as tax contributions are drawn. Practically, the assumptions on the dynamics can be utilized by authorities to increase cooperation and to change the interaction climate from an antagonistic climate to a service and confidence climate.

To trust is to believe that another person will cooperate for your benefit and will not take advantage of you if an opportunity to do so arises. Trust is valued as a relational variable providing the base for voluntary cooperation. This article aims to determine, by reviewing studies on the effect of trust in tax authorities on tax compliance, the determinants, effect and measurement of trust in this context. Findings from a number of studies indicated that trust in tax authorities is positively related to tax compliance, and it was found that perceptions of fairness, treatment by authorities, norms and attitudes, and subjective tax knowledge are the main factors determining trust in tax authorities. However, many studies use very limited descriptors when measuring perceptions of trust in authorities, and it is suggested that a standardised survey instrument could be developed to measure such perceptions.

This systematic review emphasizes the importance of expanding and deepening the theoretical framework of research on individual taxpayer compliance, particularly through integrated models. The main objective of this article is to systematically review the literature on tax compliance based on three determinants: coercive power, trust in tax authorities and transparency; and provide a direction for future research. There are three review questions in this paper, namely: (1) What is the present situation of the literature on the connection between coercive power and tax compliance; (2) What is the present situation of the literature on the connection between trust in tax authorities and tax compliance; (3) What is the present situation of the literature on the connection between “relationship transparency” and tax compliance. A systematic review of the literature was used to perform this review, considering 66 studies published in several suggested databases. The results are a call for a more sophisticated understanding of not only how suggested factors (Coercive Power; Trust; Transparency) affect tax compliance, but also how they interact and change each other and then, influence tax compliance. This review implies that enhancing tax service, transparency, and government trust is more successful and relatively easier to proceed than encouraging positive behaviour among taxpayers. This review is the first to systematically analyse the literature on tax compliance based on three determinants (coercive power, trust and transparency), as found, no synthesis studies have comprehensively covered the issue. This results in unique, motivating, and relevant discoveries that may be used to direct future studies and serve as a tool for academics, practitioners, and policymakers. Furthermore, this study would aid governments and tax authorities to understand the motives and perceptions of taxpayers into taxes.

Strict enforcement and supportive procedures by tax authorities are often discussed as means of enhancing tax compliance. However, it is still not clear how these strategies influence tax compliance. The extended “slippery-slope framework” postulates that coercive power and legitimate power lead to tax compliance, albeit by leading the taxpayer along different motivational paths. The exercising of coercive power reduces citizens’ implicit trust in the authorities and increases the need for enforced compliance and perceptions of an antagonistic climate between tax authorities and taxpayers. Legitimate power is assumed to increase reason-based trust, voluntary cooperation and perceptions of a service climate. Two experimental studies that have manipulated qualities of power either separately or simultaneously have suggested that legitimate power affects intended tax compliance in line with theoretical predictions, whereas the effect of coercive power is less clear.

Developing countries are characterized by a low level of tax compliance arising from weaknesses in tax administration and trust deficits. This poses a critical challenge toward the attainment of developmental goals. This paper aims to examine the moderating role of trust in tax authorities for the relationship between tax administration and personal income tax compliance in Nigeria. The study used a survey design to obtain data through a structured questionnaire administered to randomly selected individual taxpayers from Nigeria; 365 responses were collected. The OLS results revealed that tax administration significantly influences personal income tax compliance (β = 0.301, t = 4.068, and p-value = 0.000). Trust in tax authorities significantly influences personal income tax compliance (β = 0.183, t-value = 3.650, and p-value = 0.000). Furthermore, the result showed that trust in tax authorities positively moderates the relationship between tax administration and personal income tax compliance (β = 0.323, t = 4.098, and p-value = 0.000). This study concludes that tax administration significantly affects personal income tax compliance, and trust in tax authorities moderates this relationship in Nigeria.

This study aims to investigate whether attitude towards e-tax systems, trust in tax authority, and adoption of e-tax systems could influence voluntary tax compliance and whether adoption of e-tax systems and the isomorphic forces could increase enforced tax compliance. The sample was taken from 152 SMEs taxpayer registered in KPP Pratama Medan Petisah and processed using IBM SPSS Statistics 25, then it was analyzed by using multiple regression tests. The findings showed that attitude towards electronic tax system, trust in the tax authority, and adoption of electronic tax systems have a positive significant influence on voluntary tax compliance. The adoption of e-tax systems and isomorphic forces also has a positive significant influence on enforced tax compliance.

This study aims to analyze the role of tax literacy and religiosity in building trust in tax authorities, with tax compliance as a mediating variable. Using a quantitative approach, data were collected from 100 individual taxpayers through a Likert-scale questionnaire and analyzed using SPSS v.27. The results indicate that tax literacy and religiosity have a positive effect on tax compliance and trust in tax authorities. Tax compliance also has a significant effect on trust and acts as a partial mediator in both relationships. These findings support the Slippery Slope Framework and the Theory of Planned Behavior, and imply the importance of integrating educational and moral-spiritual approaches in trust-based tax reform

According to the Slippery Slope Framework (SSF; Kirchler, Hoelzl, and Wahl, 2008), tax compliance depends on power of tax authorities and trust in tax authorities. The framework, however, remains silent on the dynamics between power and trust and how these affect the interaction climate between authorities and taxpayers. The aim of the present paper is to differentiate between coercive and legitimate power and between reason-based and implicit trust in order to clarify the dynamics between power and trust. Insights into these dynamics may be utilized to change the interaction climate from an antagonistic climate into a service or confidence climate.

This research used a combined approach between economic and behavioral approaches to analyze tax compliance, known as Slippery Slope Framework. This framework stated that there are two important factors that affect tax compliance in paying taxes and carrying out their tax obligations, those two factors are taxpayer trust on tax authority and the power of tax authority. The “slippery slope” framework assumes that economic determinants of tax behavior represent authorities’ power, which leads to enforced tax compliance. On the other hand, psychological determinants lead to trust in authorities and also to voluntary tax compliance. The purpose of this research is to analyze the level of compliance of individual taxpayers when it is associated with factors that affect the level of tax compliance based on the slippery slope framework approach. The data set of the research was obtained from the survey to individual taxpayers using accidental sampling technique. The results of this research indicate that taxpayers have very good trust in the tax authorities and most taxpayers agree with the statement that trust in tax authorities affects taxpayer compliance. Based on that trust, taxpayers carry out their tax obligation voluntarily. Meanwhile, the results on the power of the tax authority show that the power of the tax authority has a neutral influence on taxpayer compliance. Based on these results, it can be concluded that the taxpayer trust factor is a factor that greatly influences taxpayer compliance in carrying out their tax obligations.

Existing literature stresses the importance of socio-economic factors when aiming to increase the willingness of taxpayers to pay their tax obligations. There have been insufficient studies on socio-psychological factors in tax morale research. This study focuses on trust in tax authorities and tax fairness factors that may explain the reasons why people pay taxes. The purpose of this conceptual review is to analyze and synthesize the theoretical and conceptual frameworks of trust in tax authorities and tax fairness in the tax morale context. Trust in tax authorities refers to the level of confidence taxpayers put in tax authorities based on how well they perform their duties. Tax fairness refers to taxpayers who perceive paying taxes as a fair process in terms of the treatments and benefits they receive for the taxes paid. Tax morale is defined as the intrinsic motivation of taxpayers to pay their fair share of taxes. Using the Social Psychology of Taxation (SPT) and Ibnu Khaldun's Theory of Taxation (IKTK), the interrelationships between trust in tax authorities, tax fairness, and tax morale are critically evaluated and analyzed. The review of relevant tax morale literature is conducted to identify any research gaps, inconsistencies, or ambiguities. It is interesting to note that there were mixed findings in terms of the effect of tax fairness on tax morale. Some studies have demonstrated positive relationships, while others have found negative ones. It has been discovered that taxpayers’ trust in tax administrations would increase if tax authorities treated taxpayers with consideration and respect, applied clear and fair procedures to all taxpayers, and assisted them in meeting their tax obligations. A psychological contract aptly captures the interaction between tax authorities and taxpayers, which will manifest in a willingness to pay taxes. Further investigation needs to be carried out in order to statistically validate the direct and indirect relationships between trust in tax authorities, tax fairness, and tax morale.

This study investigates how tax fairness perception and trust in tax authorities influence the tax compliance behavior of Moroccan taxpayers regarding overall taxes, focusing on the moderating effect of increased tax pressure in a post-Covid-19 context. A survey with professionals was analyzed using Structural Equation Modeling (SEM). The results show that tax fairness perception, trust in tax authorities, and tax pressure significantly enhance tax compliance. Trust also positively influences perceptions of tax fairness. Under heightened tax pressure, trust plays a critical role in maintaining compliance, while the effect of tax fairness on compliance remains stable.

The improvement of tax compliance in Indonesia has not resulted in increase of tax ratio of the same year. From this perspective, the researchers conducted a study on voluntary tax compliance using theory of slippery slope. This study aims to provide an empirical evidence on the potential influence of tax audits, tax rewards, and trust in tax authority towards voluntary tax compliance. The study was conducted on Corporate Taxpayers who were registered as PKP (Taxable Enterprise). Structural Equation Modeling-Partial Least Square (SEM-PLS) was employed as the analytical tool in the study. Our empirical findings show that tax audits could influence voluntary tax compliance and trust in tax authority was proven successful to reduce the influence of tax audit towards voluntary tax compliance. However, other findings also show that rewards were not proven successful in influencing voluntary tax compliance.

Trust is based on the taxpayer�s belief that the tax authority is competent, pursues relevant goals, and give support to the taxpayers. Trust leads to good perception of service climate and voluntary cooperation. This study aims to examine the effect of trust in tax authority on voluntary cooperation mediated by perception of service climate. This research used survey as the technique of collecting data with a total sample of 120 taxpayers consist of Millennials and X generations. The type of business of respondents were retail/production and services/profession. The survey was conducted in 2019 in five major cities in Indonesia (Jakarta, Semarang, Surabaya, Bandung, and Denpasar). This study uses quota and convenience sampling. The analysis used is Partial Least Square with Wrap-PLS as a statistical tool. The results of this study found that the trust in tax authority affects voluntary cooperation through perception of service climate as mediation. We also find trust in tax authority affects the perception of service climate and voluntary cooperation directly.

This study is done against a background of perennial negative variances between the projected and actual tax collections in Zimbabwe. Studies that look at the influence of mental accounting, perceived trust and power of tax authorities on tax compliance seem to be lacking in Africa. The target population comprise of self-employed tax payers because these currently comprise the highest form of employment among Zimbabweans. Their compliance depends to some extent on their mental accounting practices, perceived trust and power of the tax authorities. The study objectives are therefore to i) examine the influence of mental accounting on tax compliance ii) examine the influence of trust in revenue authorities on tax compliance and iii) examine the influence of perceived authority of revenue officers on tax compliance. This study used mental accounting theory, slippery slope framework, perceived trust and perceived power of tax authorities to explain tax compliance behaviour among SME owners in Harare, Zimbabwe. A questionnaire is used as the data collection tool, with constructs adopted from some scholars. Self-employed tax payers registered under the Small to Medium Enterprises Association of Zimbabwe (SMEAZ). Those which are based in Harare are selected using simple random selection method. The STATA software package is used to analysis data. The nature of relationships that exist among the variables under study are established and reported on. It is on the basis of these findings which include that there was a strong positive relationship between perceived trust in tax authorities and voluntary compliance that recommendations are made. Key words: Mental accounting, mental accounting theory, slippery slope framework, perceived trust, perceived power of tax authorities, tax compliance, ZIMRA.

This study examines the role of trust to moderate the relationship between deterrence factors and taxpayer compliance behavior. Their compalince on tax regulation is hypothesized to be determined by three factors i.e. tax audit, tax fine and trust in tax authorities. Economics-of-crime approach predicts that the higher probability of tax audit and tax fine will enhance tax compliance. According to slippery slope theory, the positive relation of tax compliance and its deterrence factors might be stronger if tax payer has a higher trust in legal and taxation system. The field experiment is designed by 2x2x2 between subjects. The participants comprise of 80 personal tax payers in Semarang City. Using ANOVA as statistical analysis, this reseach suggested that tax compliance is more likey to be effectively affected by trust in tax authorities rather than deterrence factor. However, according to univariate analysis, tax audit and tax fine are still important determinants of tax compliance.