Challenges faced by tax administrations with respect to the compliance behaviour of the taxpayers

Abstract

Many countries are concerned with the low tax compliance within their tax jurisdiction. Low compliance adversely affect the government’s capacity to raise revenues which is needed for developmental purposes. There are many factors which contribute to the weakness of the system. A very large informal sector, corruption, complexity and ambiguity in the tax laws, weak judicial systems, high marginal tax rates, information asymmetry with the tax authorities and system of accounting, non-compliant culture, and ineffectiveness of tax authorities. Although corruption is thought of as the biggest reason for low tax compliance, the relevant information and data to prove that it is an impediment for tax collection is not available and therefore, its role in the low compliance cannot be ascertained with certainty. This policy paper intends to develop a theoretical model of taxpayer compliance decisions regarding Direct Taxation, i.e., income tax. The paper also intends to find out what motivates taxpayer’s behaviour in society. This paper also discusses the specific policy intervention to increase tax compliance.