When Compliance is not the Solution but the Problem: From Changes in Law to Changes in Attitude

Abstract

The task of the Centre for Tax System Integrity is to extend understanding of how and why cooperation and contestation occur within the tax system. This goal presupposes a clear distinction between cooperation and contestation. In practice, however, this distinction may be open to creative management, demonstrated clearly in the practice of ‘creative compliance’. Taxpayer compliance with tax law may seem to fall, by definition, into the category of cooperation with the tax system. Indeed, securing compliance with the law is the driving force behind the compliance model of enforcement (Ayres & Braithwaite, 1992) which has been adopted by the Australian Taxation Office (Tax Office) and other regulatory agencies (Hawkins, 1984). Securing compliance is seen as the key, as the solution to the regulatory problem of making policy effective in practice. Yet compliance with the law can in practice be used, and used very effectively, to frustrate tax policy. This working paper focuses on the issue of compliance, and on the Tax Office’s compliance model of enforcement. It asks: what happens to the compliance model when compliance is not the solution but the problem? When compliance is not the solution but the problem: From changes in law to changes in attitude Doreen McBarnet The Australian Taxation Office compliance model (ATO compliance model) focuses on the strategies adopted by those enforcing the law. They should be cooperative, understanding, focusing on fostering compliance rather than on leaping immediately to punishing non-compliance, with ‘big stick’ sanctions reserved for those recalcitrants who continue with non-compliance regardless (Ayres & Braithwaite, 1992). But choice of strategies is not the preserve of enforcement agencies. Different strategic responses can be adopted by those on the receiving end of the law too, and these translate into different approaches to compliance. Faced with a tax bill, people may choose to comply willingly. We might think of this as: • committed compliance. They may choose to comply unwillingly, complain but pay up nonetheless. We might think of this as: • capitulative compliance. They may invent false expenses, pack their cash in a suitcase and whisk it out of the country without declaring it, or simply operate in the cash economy, opting for: