Summary of JOIE article ( 03 May 2023) by Karnit Malka Tiv, Law School, Zefat Academic College, Zefat, Israel and Law School, Netanya Academic College, Netanya, Israel. The full article is available on the JOIE website.
Deterrence has always played an important part in court decisions pertaining to tax offenses. In this respect, many decisions suggest that tax offenders should be penalized severely by means including but not limited to imprisonment and significant fines. Economic theory, in turn, suggests that the probability of being caught and the severity of punishment are the main variables affecting tax evasion rates (Filippin et al., 2013).
Some have also argued that the aggravation of punishment for tax offenses would lead to social aversion (Weiss Ernst Ltd. et al. v. State of Israel, 1980).
However, it seems that the aggravation of punishment did not give rise to social aversion in fact. Moreover, the aggravation of penalties against certain tax offenders and the mitigation of penalties for others within the framework of alternative proceedings has borne the opposite result: The public’s social aversion to tax offenders has diminished and the public often justifies this in the way the authorities treat the citizen.
Measures that include the aggravation of penalties have also been taken by the Israeli Tax Authority but have not led to a reduction in tax offenses and an increase in the public willingness to pay taxes among the public.
Finding an individual’s internal motive for paying taxes is essential to a tax system since the basic assumption of any tax system, is that most of the population pays tax voluntarily. A better understanding of taxpayer behavior and the factors which affect tax law compliance would thus help tax authorities in designing better compliance strategies.
However, studies have shown that this issue has been relatively neglected and that Tax Authorities’ main emphasis has been placed on effective enforcement as well as on resolving international tax vulnerabilities at the that were exposed during the 2008 global economic crisis (Public Consultation Document, 2019) (note that the State of Israel was not examined in this study). In this respect, a study conducted among 48 countries (mainly European countries in addition to the USA, and Canada), shows that cultural perceptions affect tax compliance among individuals and that there is a positive relationship between individualism, femininity, and tax morals. The study also found that an unequal distribution of government power can undermine tax law compliance and that the complexity of a tax system and a lack of transparency in tax collection procedures can lead to tax evasion (Andriani et al., 2021).
There have also been studies that have analyzed the concept of stigma in the tax law context, and which have dealt with examining tax offenders’ attitudes towards the existence of such stigmas (Murphy, 2008). A study conducted by the in 2010 also indicates several variables that affect tax law compliance but notes that there are differences between countries that would affect the implementation of the study’s recommendations in each country and state (Forum on Tax Administration: Small/Medium Enterprise (SME), 2010).
Due to cultural differences, the country’s diverse population, the Israeli tax system (in which an employee is not required to submit an annual report as in about half of the OECD countries), and the fact that the OECD report is concerned with differences in motives between different populations and does not include data From Israel, it is important to examine the issue tax law compliance among Israelis. The questionnaire prepared by the present author to this end and used as a source for the present article was conducted in Israel among 189 participants and aimed to examine the motives for paying taxes and specifically the effect exerted on the willingness to pay tax by social stigmas. More specifically, the questionnaire seeks to examine tax offense stigmas from a public perspective, as well as the prevailing public perceptions of variables which may affect tax law compliance.
The study which made by the author, shows that the social response to tax evaders exerts a greater impact on increasing tax law compliance than the fear of punishment per se. Furthermore, a person who notes the importance of paying tax and the consequences of a lack of payment on the public coffers, tends to pay taxes and even maintain negative positions on tax offenders. In addition, education from an early age and attempts to exert an influence on individual and social consciences also exerts implications on tax compliance (Schneider, 2011)
Andriani L., Bruno R., Douarin E. and Stepien-Baig P. (2021) Is tax morale culturally driven?. Journal of Institutional Economics, 18, 67–84.
Filippin A., Fiorio C. and Viviano E. (2013) The effect of tax enforcement on tax morales. European Journal of Political Economy 32, 320–331.
Murphy K. (2008) Enforcing tax compliance: to punish or persuade? Economic Analysis and Policy 38(1), 113–135.
Schneider F. (2011) The Shadow Economy and Shadow Economy Labor Force: What Do We (Not) Know? IZA Discussion Paper No. 5769, P.15.
Forum on Tax Administration: Small/Medium Enterprise (SME) Compliance Subgroup Information Note Understanding and Influencing Taxpayers ‘Compliance Behavior’ November 2010 (www.oecd.org/tax/forum-on-tax-administration/pub-
Public Consultation Document What Is Driving Tax Morale? 10 April–10 May 2019 (www.oecd.org/tax/tax-global/public-consultation-document-what-is-driving-tax-morale.pdf).
624/80, Weiss Ernst Ltd. et al. v. State of Israel, PDI 31 (3) 211, pp. 220–221.