UNDERSTANDING THE EFFECTS OF COERCIVE AND PERSUASIVE TAX COMPLIANCE TOOLS ON LARGE CORPORATE TAXPAYERS
By Zakir Akhand
Coercion and persuasion are the two main approaches to increase tax compliance. The former attempts to promote tax compliance mainly by using penalty and tax audits, while the latter focuses on increased taxpayer services, simplified tax law and enhanced mutual understanding. There has been little attempt to provide a contextual explanation as to why an instrument fails or succeeds in boosting tax compliance of large corporations – a gap this paper attempts to fill. Using an empirical analysis, this research found that factors underlying the power of the coercive approach are the rationality and regularity of its application, along with its legal and financial imperatives. Reasons contributing to the appeal of the persuasive approach are a reduction in tax compliance costs, an improvement in accountability and a reduction in knowledge gaps, and coordination of the various tax laws. The research found that the explanation of tax compliance patterns is not straightforward, and in countries with different taxation and institutional systems, instruments tested would not be expected to yield similar outcomes. Therefore, verification of the study results in different contexts is essential.