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A better understanding of what motivates taxpayers to participate in, and comply with, a tax system is valuable for all countries and stakeholders. Tax administrations can benefit from increased compliance and higher revenues, taxpayers (both businesses and individuals) are better served by tax systems that understand and are responsive to their needs, while increased data and discussion can help researchers deepen their understanding. In addition, such understanding can help organisations, such as civil society groups, improve communication on taxation, and development partners to maximise the impact of development assistance.

This report focuses on developing countries, where the importance of tax revenues for development has been highlighted by both the sustainable development goals (SDG) and the Addis Ababa action agenda (AAAA) on financing for development. Tax revenues are the largest source of financing for development, providing the funds governments need to invest, relieving poverty, delivering public services, and building the physical and social infrastructure for long-term development. Increasing tax revenues is therefore an essential goal for developing countries as they seek to raise the additional financing necessary to realise the SDGs.

Many developing countries face a range of challenges in increasing revenue domestically. These challenges may include a small tax base, a large informal sector, weak governance and administrative capacity, low per capita income, low levels of domestic savings and investment, and tax avoidance and evasion by firms and elites. As a result, two-thirds of least developed countries still struggle to raise taxes equivalent to more than 15% of GDP, the widely accepted minimum to enable an effective state. In comparison, OECD member countries raise taxes, on average, close to 35% of the gross domestic product (GDP).

There has been significant progress in recent years, especially in international taxation. Developing countries and development partners alike have been increasing their efforts to support domestic resource mobilisation (DRM). Most notably, signatories to the Addis Tax Initiative have committed to fostering DRM through increased transparency, fairness, effectiveness and efficiency of tax systems, while donors have committed to doubling the amount of support to DRM capacity building. At the international level, new tools, standards and approaches have been agreed, providing new options for all countries. By implementing the Base Erosion and Profit Shifting (BEPS) Actions, (15 measures to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment1) governments can enhance their ability to tax Multinational Enterprises (MNE), while improvements to exchange of information offer a range of benefits, especially in taxing high net worth individuals (HNWI).

There remains much to do in building a sustainable taxpaying culture. While the majority of individuals in developing countries will pay indirect, and perhaps informal, taxes, the number of registered taxpayers who file and pay taxes in most developing countries is very low. In addition, a proliferation of tax incentives to businesses, combined with opportunities for aggressive tax planning, have increased the challenge of raising tax revenues from businesses.

An increased focus on tax morale provides a route to increase voluntary compliance. Research shows a significant correlation between tax morale, generally defined as the intrinsic motivation to pay taxes (Torgler, 2005[24])2, and tax compliance in both developed and developing countries (Ali, Fjeldstad and Sjursen, 2014[1]; Cummings et al., 2009[2]). Thus, a better understanding of what drives differences in tax morale is a key element in explaining variations in tax compliance. It also offers an alternative, grassroots perspective on tax systems, to more traditional administrative and quantitative measures, such as tax-to-GDP ratios.

Tax morale is composed of several, interlinked, elements. One approach to understanding these interlinkages is proposed by the World Bank. The World Bank theory of change for tax compliance (See Figure 1) (World Bank, forthcoming) highlights the dynamic relationships between trust, facilitation, and enforcement, and their role in building tax morale. The theory posits that trust is driven by the degree to which the tax system, including the approach to facilitation and enforcement, is characterized as fair, equitable, reciprocal, and accountable. As such, strengthening tax compliance is not only about improving tax enforcement and “enforced compliance”, but also about pursuing “quasi-voluntary compliance” through building trust and facilitating payments – all underpinned by a credible, fair and equitable system of enforcement. For instance, a more service-oriented approach, rather than an enforcement approach, has helped the Swedish tax authorities to increase citizens’ trust in government, tax morale and thus tax compliance.

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Figure 1. World Bank theory of change for tax compliance
Figure 1. World Bank theory of change for tax compliance

Based on empirical analysis, this report seeks to further the debate on tax morale, including to identify potential policy responses and options for future research. It does not seek to provide definitive answers, but rather to identify a number of areas which may benefit from further consideration, either as part of the policy making process, or through further research. The report uses the latest available data samples to bring new evidence to the understanding of tax morale. It is structured in two chapters. Chapter 1 focuses on the tax morale of individuals, using micro-econometric analysis of public opinion surveys at the global (World Values Survey) and regional levels in Africa, Asia and Latin America (See Annex A). The analysis allows the identification of the socio-economic factors and institutional perceptions that may affect tax morale in developing countries, as well as the testing for evidence of the fiscal contract influencing tax morale. Chapter 2 looks at the tax morale of businesses. It reviews the limited existing literature on tax morale for businesses. It then uses tax certainty as a proxy for tax morale of MNEs relying on survey data from over 500 companies operating in over 80 developing countries to identify some of the potential drivers and impacts of tax morale in MNEs.

This report was written by Camila Olate (previously OECD Development Centre / Centre for Tax Policy and Administration), René Orozco (OECD Development Centre / Centre for Tax Policy and Administration) and Joseph Stead (Centre for Tax Policy and Administration) under the supervision of Ben Dickinson (Centre for Tax Policy and Administration). Sebastian Nieto-Parra (OECD Development Centre) and Angel Melguizo (previously OECD Development Centre) provided guidance and supervision of the early drafts. Valuable assistance was also provided by Frida Kvamme and Synnoeve Holstad (Centre for Tax Policy and Administration). It was revised following the discussions at the Task Force on Tax and Development Conference on Tax Morale held at the OECD in Paris on 25 January 2019, and a public consultation which ran 10/04/19 – 10/05/19.3


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← 2. Definition most commonly used and accepted in the literature.

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