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It is often argued that tax evasion is widespread. The problem is that a high level of tax evasion reduces government’s ability to implement important reforms and provide adequate public goods. Thus, revenue needs are an important issue. Many discussions of tax specialists have shown that tax morale, the intrinsic motivation to pay taxes, is a key determinant to explain the level of tax evasion.It is important to have social capital in terms of mutual trust and honesty in the transitional deregulation and privatization process. It is interesting to analyze tax morale as individual often is not aware of taxes before or had no perceptions regarding the tax burden. Thus, it might be useful not to focus on tax evasion alone but to go a step back and to analyze tax morale as a dependent variable. Tax specialists argued that it is not surprising to see taxpayers’ resistance movements in the reform process when they are taxed for the first time. The undeveloped tax administrations like us, mostly engaged in cash management, are not prepared to do their work in a modern income tax system. A main problem is the lack of managerial skills and experience of the tax administration with market-oriented taxes. Furthermore, as tax collectors are not salaried well, no quality personnel can be attracted. Thus, civil servants may not be motivated adequately, but may instead willingly go for opportunities for corruption. Anyway, an increase in civil service salaries in relation to the private sector reduces corruption. The wage is highly correlated with measures of rule of law and the quality of bureaucracy.Furthermore, much greater problems result from the fact that with an increasing number of taxpayers it becomes much more difficult to detect tax evasion or avoidance. In this context it might be interesting to see what shapes tax morale.Tax morale and trust on governmentWe’ve seen a decay of tax morale over time between all those years of transition. This result is in line with the registered enhancing of the corruption. This effect is much stronger for the latest years than the earliest.As in many developing countries we might observe that our country is in a situation of “over-government” and “under-government”. There is a combination of interventionism and bureaucracy. On the other hand, property rights are not sufficiently secured and there is a high degree of uncertainty, reducing thus the incentive for investment. In this situation, yet it is difficult to find the right equilibrium of state activity. A frequent use of the exit option in form of tax evasion or tax avoidance by entering the informal economy has the negative effect of reducing the state’s tax collection, affecting thus the revenues governments need to provide public goods and to build trustworthy institutions. Many peoples might react with the problematic strategy of increasing taxes. This enlarges the informal economy, as the incentive for enterprises to evade taxes increases; they just will pay more bribes to protect themselves.Trust is a key factor that influences tax morale. Governments have a leading role in the transition process. Institutional changes are connected to uncertainty.
Institutions reduce uncertainty by designing the structure of interaction. As a consequence, greater certainty in the political process is gained. If rules are not formalized, “the players” may spend too much time arguing over the rules and less time competing in productive activities. Strong institutional controls and accountability are required to control deeply rooted agent opportunism in people’s conscience. The rule of law has to be imposed on all government agents.In the tax compliance literature economists have recently started to pay attention to the trust. Trust in public officials might tend to increase taxpayers’ positive attitudes and commitment to the tax system and tax-payment, which has finally a positive effect on tax compliance. Institutions taxpayers perceive as fair and efficient have a positive effect on tax morale. Taxes can be seen as a price paid for government’s positive actions. If the government acts trustworthily, taxpayers might be more willing to comply with the taxes. Similar to the tax administration, the relationship between taxpayers and government can be seen as a moral contract, which involves strong emotional ties and loyalties.If the government tries to generate trust with well functioning institutions, co-operation can be initiated or increased. Furthermore, when taxpayers are satisfied with the way they are treated, the co-operation is enhanced. If the outcome received from the government is judged to be fair in relation to the taxes paid, no distress arises.Weakness of the legal system is the biggest problem of the transition process. Although, it’s been 15 years since the collapse of socialism, judicial weakness left a legal vacuum that remains yet unfilled. Tax morale depends on how satisfied taxpayers are with their public employees and the political system. A higher satisfaction in both cases is significantly correlated with higher tax morale.Tax administration and government are forced to drastically change their structures and their relationship with taxpayers in the current political process. Thus, anticorruption strategies, such as creating high transparency and standards in the conduct of public business, limiting the discretion of public officials and government members might be key instruments to enhance tax morale. It seems that government has to work strongly on that goal.Which instruments improve tax morale?Trust might be increased when sub-national governments get more fiscal autonomy. A higher fiscal decentralization (local tax autonomy) would have the advantage that citizens’ preferences can be better met. Decentralization moves the government closer to the people. Thus, political and fiscal autonomy are among the most important elements for the national transition process.Certainly, caution should be used when implementing experiences from totally different countries. Furthermore, such an implementation of instruments needs time.Such institutions might however help increase transparency regarding the government’s spending of the tax revenue and help build a tax system respecting the taxpayers’ rights.
If the taxpayers are not actively integrated in the transition process, tax morale might decrease.The income tax is a good instrument for a local structure.
Interestingly the literature shows that socio-demographic factors influence tax morale. Getting older has a positive effect on tax morale. Women also report significantly higher tax morale than men.Married people have the tendency to higher tax morale than singles. Self-employed have lower tax morale than full-time employees. This fact is not surprising, especially when self-employed individuals are confronted with and restricted by high transaction costs imposed by inefficient government activities.