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Role of Trust and Power in Tax Compliance
The interplay of power and trust in tax compliance in India is analysed by using the slippery slope framework. Its hypotheses are tested using survey data and by employing the ordered logit estimation methodology to determine the role of trust and power in voluntary and enforced compliance. Trust plays a positive, significant role in voluntary compliance; it is highest in a high trust, high power scenario.
Part of the work was completed when the author was associated with the National Institute of Public Finance and Policy (NIPFP), New Delhi. Support to carry out the survey to collect data for this research was provided by the NIPFP. The author gratefully acknowledges the very useful comments received from the anonymous reviewer; Shubham Kumar Verma for his assistance in entering data from questionnaire to the computer; and D P Sengupta, Hippu Salk Kristle Nathan, Sumanjeet, and Santosh Dash for their useful comments at different stages of this research work. The author is especially grateful to all the participants who volunteered to respond to the questionnaire.
Tax compliance can be voluntary or enforced. Voluntary tax compliance depends on the trust people have in their government. Enforced tax compliance depends on the power exercised by tax authorities. The early literature on the subject considered the audit rate, tax rate, and fines as instruments for improving tax compliance. Allingham and Sandmo (1972) and Srinivasan (1973) attempted to set the tax compliance problem within the general theory of criminal behaviour as proposed by Becker (1968). They treated tax evasion as purely an economic decision under risk; hence, they considered, tax compliance can be improved by fine-tuning these
instruments. The literature relying on this framework considers factors related to the tax authorities’ effectiveness in enforcing tax laws and emphasises their power in ensuring tax compliance. However, it is also observed that the decision to comply depends not only on the authorities’ enforcing power but also on motivational orientations, including trust in authorities. It is argued that as long as citizens trust that the government is using tax revenue sensibly, they will pay taxes voluntarily (Feld and Frey 2007). Thus, compliance depends on both tax authorities’ power and trust in government.
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