Tax Cheating Research Articles

Corruption spills over on citizens: The case of self‐reported motivation to cheat on tax

AbstractCorruption poses a significant threat to societies’ social and economic fabric, eroding trust and contractual relationships between governments and citizens. This study investigates the repercussions of corruption spillover on individuals and explores how they adjust their motivation to engage in tax cheating by exploiting two distinct types of corruption heterogeneities at both individual and national levels. Leveraging newly collected individual corruption experiences locally from the World Value Survey alongside national‐level corruption data from Transparency International, we employ multilevel hierarchical modeling to estimate the effects of corruption on individual tax behavior. Our findings reveal that corruption negatively impacts people's willingness to comply with tax laws, with individuals who have personally experienced corruption exhibiting a more pronounced erosion of tax morale compared to those who have not. By shedding light on the intricate dynamics of corruption's influence on tax compliance, this paper contributes to our understanding of the broader implications of corruption for people and society. This paper can also inform policymakers and stakeholders in designing targeted interventions to mitigate the adverse consequences of corruption and restore citizens’ trust in their government.

Outgroup Bias and the Unacceptability of Tax Fraud

In countries with well-developed welfare state systems, it is often claimed that racial or ethnic minorities impose a heavy burden on social assistance programs without contributing to public goods. In this study, we consider the attitudinal effects of anecdotal reports of tax cheating by minorities. We conduct survey experiments in France and the United States to assess if people react more harshly to tax fraud perpetrated by members of a minority group rather than the majority group. We find no evidence that minority status affects judgments and perceptions about tax fraud, including among those on the right end of the political spectrum. Tax fraud is considered unacceptable regardless of the culprit’s origin.

What determines the justifiability for accepting bribes and cheating on taxes?

PurposeCorruption prevails in societies and systems, but it is because of the individuals and officials who practice it. It is individuals’ characteristics, attitudes, views and choices that spur them to act ethically or not. This study aims to investigate whether beliefs, values and behavior vary across countries in perspective of bribery and tax cheating.Design/methodology/approachThis study used Order Logistic Regression on microlevel data from World Values Survey wave VI (2010–2014) for 58 countries to find factors of tax cheating and accepting bribes.FindingsThis study revealed some interesting findings while comparing upper-income countries and lower- and middle-income countries. Justifiability for accepting bribe is negatively affected by age, patriotism, interest in politics, university education while positively affected by employment and income. Justifiability for cheating on taxes is negatively affected by confidence in justice system, interest in politics and marital status while positively affected by income, patriotism, confidence in political parties and good health. This study finds some valuable insights to the policymakers to device policy to overcome financial corruption and its acceptability in the masses.Originality/valueThis paper fills the literature gap by adding a wide range of variables related to demography, socioeconomic status, trust on political, judicial and government institutes, well-being, patriotism and religiosity. Moreover, this paper compares the behaviors of a wide range of countries that include both developed and developing economies.

Effect of Tax Evasion on Revenue Collected at Customs, Border and Control Department of Kenya Revenue Authority

Efforts to curb tax cheating have not yet yielded 100% rewards. The taxpayers are daily devising new mechanisms of evading taxes. Tax comes in different ways and has been reported to cause indirect harm to the economy. The purpose of this study was therefore to investigate the effect of tax evasion on revenue collected at the customs, border, and control department of Kenya Revenue Authority. The study applied a descriptive research design. The study through purposeful sampling sampled 120 businesses from 7,431 businesses that are active in the export or importation of goods and clearing agents. The study applied the Taro Yamane formula to sample 162 respondents from a population of 1788 staff of KRA at the customs and border control department. Secondary data was collected using a secondary data sheet and covered a period between 2001 and 2022. Data for the study was analyzed through quantitative techniques (descriptive and inferential analysis). The results of the study were presented in tables. The study revealed that among the causes of tax evasion at the border included: High Tax Rates levied on goods and services, perception of high compliance costs, the complexity of the process of filing for duties and other fees, inadequacy of taxation services/support, ambiguity in tax laws and policies and low tax education among taxpayers. the study further revealed that among the ways through which taxes were evaded at the border included: misdeclaration, undervaluation of goods smuggling of goods, classification of imported goods as raw materials, and tariff misclassification. The study concluded that tax evasion significantly and negatively affected the tax revenues collected at the customs, border, and control departments. The study recommended the hiring and development of staff working at the customs border and control department to be able to carry out frequent tax audits and inspections of goods that are imported or exported to curb tax evasion. The study recommended that the KRA allocate resources to acquiring the latest information communication and technology gadgets including scanners to help in curbing tax evasion because it had a negative effect on the tax collected. In addition, the tax department should invest in educating the taxpayers on the importance of paying taxes, how to file for taxes, and when to file to reduce tax evasion. The study also recommended a strengthened one-stop-border post policy to help in reducing tax administration costs.

Does culture influence whether a society justifies tax cheating?

PurposeThis paper aims to investigate whether culture has an impact on justifications for tax cheating, and if there is, indeed, a rationale for justifying this behavior.Design/methodology/approachWorld surveys (V201) were used to measure justifications for tax cheating in 39 countries. Hofstede’s culture dimensions were used as a measurement scale for the relevant cultural aspects that could have an impact on tax cheating.FindingsThe results show that individualism and power distance increase the justification, while masculinity and uncertainty avoidance decrease the justification for tax cheating. Accordingly, when budgeting for tax revenues, governments need to consider the cultural dimension in their risk assessments for tax evasion.Originality/valueThe findings of this research provide some implications for legislators and policymakers. For example, they need to give more consideration to their respective society’s cultural dimensions and to the structure of their communities when they are imposing taxes. Legislators need to put more effort toward convincing people why it is necessary to impose and/or increase certain taxes, how society benefits directly and indirectly and why action needs to be taken when these taxes are not paid.

Tax Avoidance: Meaning, History & Rational

Tax avoidance is probably the most misunderstood and misused word in the field of tax. It is reckoned that scholars, practitioners and authorities rarely use the word but highly prefer words like ‘tax cheating’ or ‘tax dodging’ or ‘escaping tax’ instead. These words are preferred mainly because of the context they are used and a general lack of understanding of the meaning and concept of tax avoidance. Tax avoidance has, and it seems, will continue to remain a thorny issue globally because of the far reaching consequences its effects has on both the developing and developed countries, though on a different scale. To grasp the weight of the consequences of what has been described as tax avoidance can be witnessed through various researches by leading organization, but non so impactful as “Stealing Africa - Why Poverty?” and “Backlight Talks: Attiya Waris” . However, it’s important that before an honest discussion over the consequences of tax avoidance is engaged, the true meaning, or what can be a globally accepted definition and description of tax avoidance is provided. This essay shall delve into the definition, meaning history and the rational of tax avoidance. This research shall also highlight steps taken by Kenya to stem tax avoidance.

A Study on Impact of Demonetization of Currency in Indian Banking Scenario

The aim behind the government’s action was to combat tax cheating, counterfeiting and corruption. Eliminating large denominations makes it harder to hide large amounts of cash.The government’s demonetisation of Rs 500 and Rs 1000 notes is a contentious issue, but is understandable. Such schemes may have not worked in the past, but a political commitment had to be honoured. The question is not whether the government is right for demonetising the currency; instead, the concerns are centred on why they adopted this chaotic and surreptitious approach.It is a radical financial step in which a currency unit's status as a legal tender is declared invalid. This move is usually executed when old currencies have to be replaced by new one's or whenever there is a change of national currency. However, given the extent to which the project has to be executed, the move has to be well planned in advance.

Kenneth S. Rogoff's The Curse of Cash

In his recent book, The Curse of Cash, Ken Rogoff makes the case for getting rid of hand-to-hand currency. The argument is relatively straightforward. Cash, according to Rogoff, is largely used to buy and sell illegal goods and services and evade taxes. It also places a lower bound on interest rates, thereby limiting the extent to which the monetary authority can prevent recessions. As such, he argues, we’d be better off without it. Rogoff’s work is subtle and sophisticated. He anticipates many counterarguments and heads them off to the extent possible. Nonetheless, I find three major shortcomings in the work: the evidence on the extent to which cash is employed by criminals and tax cheats is flimsy, the net benefits of eliminating crime and tax evasion are overstated, and it is not clear that cash prevents the central bank from conducting effective monetary policy.

The Offshore Tax Enforcement Dragnet

Taxpayers who hide assets abroad to evade taxes present a serious enforcement challenge for the United States. In response, the United States has developed a family of initiatives that punish and rehabilitate non-compliant taxpayers, raise revenues, and require widespread reporting of offshore financial information by financial institutions and taxpayers. Yet, while these initiatives help catch willful tax cheats, they have also adversely affected immigrants, Americans living abroad, and “accidental Americans.” This Article critiques the United States’ offshore tax enforcement initiatives, such as the Foreign Account Tax Compliant Act and the Internal Revenue Service’s offshore voluntary disclosure programs. It argues that the United States has been overly focused on two policy priorities in designing enforcement at the expense of competing considerations: First, the United States has attempted to equalize enforcement against taxpayers with solely domestic holdings and those with harder-to-detect offshore holdings by imposing harsher reporting requirements and penalties on the latter. But in doing so, it has failed to appropriately distinguish among differently situated taxpayers with offshore holdings. Second, the United States has focused on revenue and enforcement, paying less attention to the significant compliance costs and potential social harms that its initiatives create. The confluence of these two policy priorities risks creating high costs for the wrong taxpayers. While offshore tax enforcement may have been designed to catch high-net-worth tax cheats, it may instead impose disproportionate burdens on those immigrants and expatriates who have less ability to complain, comply, or “substitute out” of the law’s grasp. This Article argues that the United States should redesign its enforcement approach to minimize these risks and suggests reforms to this end.

Editor's Letter

Editor's Letter

Leak-Driven Law

Over the past decade, a number of well-publicized data leaks have revealed the secret offshore holdings of high-net-worth individuals and multinational taxpayers, leading to a sea change in cross-border tax enforcement. Spurred by leaked data, tax authorities have prosecuted offshore tax cheats, attempted to recoup lost revenues, enacted new laws, and signed international agreements that promote “sunshine” and exchange of financial information between countries. The conventional wisdom is that data leaks enable tax authorities to detect and punish offshore tax evasion more effectively, and that leaks are therefore socially beneficial from an economic welfare perspective. This Article argues, however, that the conventional wisdom is too simplistic. In certain circumstances, leak-driven lawmaking may in fact produce negative social welfare outcomes. Agenda-setting behaviors of leakers and media organizations, inefficiencies in data transmission, suboptimally designed legislation, and unanticipated behavioral responses by enforcement-elastic taxpayers are all factors that may reduce social welfare in the aftermath of a tax leak. This Article examines the potential welfare outcomes of leak-driven lawmaking and identifies predictable drivers that may affect those outcomes. It provides suggestions and cautions for making tax law, after a leak, in order to best tap into the benefits of leaks while managing their pitfalls.

TAX FRAUD: ASPECTS CHALLENGING LAW ENFORCEMENT AGENCIES AT THE STAGE OF INSTITUTING AN ACTION OF PROSECUTION

The paper considered some aspects challenging experts at the stages of bringing a criminal action to court upon facts of tax cheating, i.e. fraud committed in the domain of taxation. The study reviewed for this purpose the weak points of the current legislation, arrangement and information aspects of the matter and contributed suggestions aimed at improving respective law enforcement procedures. On the basis of study carried, the author suggested stressing the position of relevant tax audit records that shall be binding for establishing circumstances being subject to evidencing because this is the matter of occupationspecific knowledge required to apply for inquiry upon every individual tax fraud. Moreover, the study has drawn attention to an urgent issue yet not solved while related to ability of tax-collecting bodies themselves to bring to light evidence specific for tax frauds.

TAX FRAUD: ASPECTS CHALLENGING LAW ENFORCEMENT AGENCIES AT THE STAGE OF INSTITUTING AN ACTION OF PROSECUTION

The paper considered some aspects challenging experts at the stages of bringing a criminal action to court upon facts of tax cheating, i.e. fraud committed in the domain of taxation. The study reviewed for this purpose the weak points of the current legislation, arrangement and information aspects of the matter and contributed suggestions aimed at improving respective law enforcement procedures. On the basis of study carried, the author suggested stressing the position of relevant tax audit records that shall be binding for establishing circumstances being subject to evidencing because this is the matter of occupationspecific knowledge required to apply for inquiry upon every individual tax fraud. Moreover, the study has drawn attention to an urgent issue yet not solved while related to ability of tax-collecting bodies themselves to bring to light evidence specific for tax frauds.

Banks, Marijuana, and Federalism

Although marijuana is illegal under federal law, twenty-three states have legalized some marijuana use. The state-legal marijuana industry is flourishing, but marijuana-related businesses report difficulty accessing banking services. Because financial institutions will not allow marijuana-related businesses to open accounts, the marijuana industry largely operates on a cash-only basis — a situation that attracts thieves and tax cheats. This Article explores the root of the marijuana banking problem as well as possible solutions. It explains that although the United States’ dual banking system comprises of both federal- and state-chartered institutions, when it comes to marijuana banking, federal regulation is pervasive and controlling. Marijuana banking access cannot be solved by the states acting alone for two reasons. First, marijuana is illegal under federal law. Second, federal law enforcement and federal financial regulators have significant power to punish institutions that do not comply with federal law. Unless Congress acts to remove one or both of these barriers, most financial institutions will not provide services to the marijuana industry. But marijuana banking requires more than just congressional action. It requires that federal financial regulators set clear and achievable due diligence requirements for institutions with marijuana-business customers. As long as financial institutions risk federal punishment for any marijuana business customer’s misstep, institutions will not provide marijuana banking.

The Future of Digital Money Laundering

Banks got networked, and money laundering went digital. This is as close to cause and effect as you can get. In the future, successful money launderers will demonstrate a closer affinity to tax cheats than bank robbers.

Submission to Finance Department on Implementation of FATCA in Canada

The United States enacted a tax reform in 2010 known as the Foreign Account Tax Compliance Act (FATCA), which will impose an extensive third-party monitoring and disclosure regime on financial institutions around the world in an effort to “smoke out” American tax cheats and expose their undeclared foreign assets to the U.S. Internal Revenue Service (IRS). The flow of information from Canadian financial institutions directly to the IRS that is required by FATCA would violate a number of laws in Canada. Accordingly, the United States has requested changes to these laws. The Canadian government now seeks to accommodate these requests in the form of an “intergovernmental agreement” (IGA) with the United States, which will be enacted into law as the Canada–United States Enhanced Tax Information Exchange Agreement Implementation Act (the Implementation Act) pursuant to a proposal released for comment by the Department of Finance. The Department of Finance invited public comments on these documents. We examined the proposed Implementation Act and the IGA and we find that they raise a number of serious issues ranging from likely constitutional violations to violations of international law. We submit these comments in the hope that they will help lawmakers and the public understand that FATCA, while intended to catch tax evaders, is poised instead to impose serious and unjustified harms on people who live around the world as non-resident U.S. citizens and green card holders, as well as their family members and business associates.

Tax cheating: illegal--but is it immoral?

Tax cheating: illegal--but is it immoral?

FATCA and Schedule UTP: Are these Unilateral US Actions Doomed Unless Adopted by Other Countries?

In the past two years, the US has unilaterally adopted two, very controversial transparency initiatives: •FATCA - Imposes a 30% withholding tax on a foreign financial institution (FFI) that desires to access the US financial market unless the FFI agrees to report information about its US customers. •Schedule UTP - Requires large corporations to disclose uncertain tax positions (UTPs) for which a tax reserve has been recorded in audited financial statements. While a senior US government tax official, the author was heavily involved in developing both FATCA and Schedule UTP. The primary purpose of this article is to discuss certain of the global considerations of these two ground-breaking initiatives. For example: Does the US need multilateral action to accomplish its goals with respect to either FATCA or Schedule UTP, and if so, what form might such action take? The paper concludes the following: •The US likely needs multilateral action to successfully implement FATCA, but it does not for Schedule UTP. •Foreign countries would benefit greatly from using the US’s leverage to effectively force financial institutions to join a multilateral FATCA system. The US would benefit from reducing the number of viable investment options available to US tax cheats. •A successful multilateral FATCA system could incorporate multiple design features. For example, it could accommodate both a reporting and withholding model. However, if this option is selected, a “punitive withholding model” should be adopted that has a relatively high tax rate and applies to both investment income and new money. The failure to apply withholding tax to new money is a major deficiency of the recent withholding agreements between Switzerland and the UK/Germany. •Schedule UTP requires a corporation to link a tax reserve with a specific tax issue. If tax reserves are recorded on an aggregate basis, the link between a tax reserve and a specific tax issue may be more difficult to establish. This issue had been resolved by FIN 48 in US GAAP, but it still exists for IFRS. Fortunately, there is a solution.

Tax morale and public spending inefficiency

Tax evasion is a widespread phenomenon and encouraging tax compliance is an important and debated policy issue. Many studies have shown that tax cheating has to be attributed to a considerable extent to the tax morale of taxpayers. The aim of the present paper is to shed light on the relationship between the taxpayer and the public sector; specifically, we investigate whether public spending inefficiency shapes individual tax morale. Combining data from Italian municipalities’ balance sheets with individual data from a properly designed survey on tax morale, we find that the attitude towards paying taxes is better when resources are spent more efficiently. This evidence seems not to be driven by some confounding factor at the municipality level or by spatial sorting of citizens and proves robust to accounting for alternative measures of both inefficiency and tax morale. We also find that the negative effect of inefficiency is larger if the level of public spending is lower and/or the degree of fiscal autonomy is higher.

Tax Morale and Public Spending Inefficiency

Tax evasion is a widespread phenomenon and encouraging tax compliance is an important and much debated policy issue. Many studies have shown that tax cheating has to be attributed to a considerable extent to the tax morale of taxpayers. The aim of the present paper is to shed light on the relationship between the taxpayer and the public sector. Specifically, we investigate whether public spending inefficiency shapes individual tax morale. Combining data from Italian municipalities’ balance sheets with individual data from a properly designed survey on tax morale, we find that the attitude towards paying taxes is better when resources are spent more efficiently. This does not appear to be due to some confounding factors at the municipality level or to spatial sorting of citizens. It is also robust to alternative measures of both inefficiency and tax morale.