4.3 Nature of Taxpayer Responsibilities

In ancient times, living in a state was something to be endured rather than participated in. History and legend are full of examples of oppression and brutality. We have advanced much to the civilized world of today. On that journey, we adopted a feudal system, founded on the premise that everything was owned by a King, both personally and as a figurehead of the state. Personal assets and land needed to be redeemed generation by generation. This system paid no dues to universal human rights and violated the vast majority of them. It did, though, recognise the existence of a homogenous state within which individuals had rights directly related to their status within society and their revenue contributing abilities. In this regard, a balance existed between the interests of the state and the enfranchised individual as a taxpayer. And of course we have progressed a great deal from there to the modern day world in which our tax systems operate.

To consider the development of modern tax systems, we ask the question – how do you ensure compliance with a tax regime without a clearly defined moral imperative supporting compliance? The answer, to some extent, is that at its root it is not a moral question. Compliance behaviour is ensured by the fear of legal penalty for non compliance, be that civil for mild transgression or negligence, or criminal where a taxpayer has gone out of his/her way to evade a liability (including even the death penalty). But that is not the whole answer since an increasing number of taxpayers accept their duty to pay taxes as an essential part of contributing to the common good and the quality of life they enjoy within the society they inhabit. The moral driver for taxpaying is beginning to be part of civic ethics, with evasion of taxes viewed as self seeking and anti-social.

Ethics as applied to taxpayers encompasses not only the acceptance of the duty to pay one's dues as a concomitant of the right to live, work and thrive in a given location, but also consideration of the legitimacy of the taxes being levied on the individual from his/her standpoint.

In the United Kingdom in the 1970s, personal income tax reached levels which equated to confiscation – 83% on income and 98% on unearned income. This resulted in the rapid development of an industrial scale tax avoidance industry and the emergence of a black economy with participation regarded as a political statement and in no way a morally censurable crime. With no incentive to earn more than a specific amount, apathy replaced civic enthusiasm and contributed to a reduction in economic activity,  as well as emigration of many productive individuals and enterprises who or which otherwise would have been taxpayers. Despite rectification measures over the following decades, the United Kingdom still suffers from the attitudes and behaviours generated in this period. In common parlance, people vote with their feet if no other avenue is open to them and will only pay taxes with a positive attitude when they feel secure in the underlying equity and balance in the system.

In terms of a Taxpayer Charter, obligations are as important as rights. They match – a right to a 30 day submission period for a return is matched by an obligation to submit that return by the due date, a duty to be honest and open in recording and submitting details of one's income is matched by a right to acceptance of that information without a preconceived idea that it is false or incomplete. Moreover, the rights of the taxpayer are mirrored by the duties of the tax administration, a fact easily overlooked.

Our difficulty in matching rights and duties is the fact that tax laws are often enacted by a government which has little day to day correspondence with the fiscal administrative authority. Tax laws are rarely subjected in advance of enactment to a rigorous testing procedure to see how they will be accepted and in what way they will reflect the equitable balance. Margaret Thatcher, the British Prime Minister, nearly lost her government on the back of the poll tax (a property tax assessed on households based on the number of occupants), which, it should be noted, had already had a difficult trial run in Scotland. Foolhardy some would say. Even so, governments continue to introduce tax laws without due consideration, leaving tax administrations to do the best they can to implement and enforce them.

The perceived need for flexibility is one of the reasons tax authorities do not like committing themselves to the maintenance of benchmark standards. This is bad news for those wishing to see a widespread introduction of Tax Charters. "Flexibility", however, often means in reality departing from the rule of law and the obligation to treat taxpayers equally.

For tax administrations, the compliance duty of the taxpayer is necessary to ease their task in managing a revenue raising system. For the taxpayer, the duty of compliance is integral to the smooth running of the tax collection system. The correlating rights, though, are all too often seen by administrations as unnecessary cost laden obstacles best to be avoided. Small surprise therefore to find some tax administrations opposed to taxpayer charters even when expressed in unenforceable self serving statements and they are often wholly opposed to any that carry the force of law.

This does create an anomaly because it is a major impediment in the drive to establish and maintain a clear and balanced fiscal system. Administrative reticence threatens the fundamental right of the taxpayer to an equitable system and, therefore, tends to move the taxpayer in the direction of obligation denial or non compliance and away from civic obedience.

It is our view that the introduction of a Taxpayer Charter should be done not from any tax raising motive but as a necessary piece of legislation establishing once and for all the rights and duties of every taxpayer and what is expected and required of the tax authority. This is not a matter merely for a tax administration or an interested taxpayer or professional body. It is for governments to adopt as a matter of leadership. We believe that, once a charter is in place with the force of law, both taxpayers and tax administrations alike will have no doubt that they must abide by the duties set out therein and, as a result, all will benefit. For tax administrations, those rights will be the duties and obligations set down for taxpayers, and vice versa.

The costs of implementing and running a fiscal system under the umbrella of a Taxpayer Charter is the necessary price to pay and, if properly done, should begin the process of further fiscal evolution to the much desired objectives of transparency, simplicity and well thought out legislation.  Over time, far from being a cost, it will be a benefit.

The OECD report referred to above listed the corresponding duties expected of taxpayers by Governments as a set of behavioural norms. It stated

"...These expected behaviours are so fundamental to the successful operation of taxation systems that they are legal requirements in many, if not most, countries. Without this balance of taxpayers' rights and obligations taxation systems could not function effectively and efficiently. These taxpayer obligations are:

  • The obligation to be honest
  • The obligation to be co-operative
  • The obligation to provide accurate information and documents on time
  • The obligation to keep records
  • The obligation to pay taxes on time..."

We will refer to these in our proposal but, in this case, we would add that the OECD represents the establishment, in particular governments and tax administrations. There is nothing wrong in this but there is a need to maintain a balance. For this reason we add among other things

  • The obligation of government to consult on legislative proposals
  • The duty of tax administrations to challenge policy if defective or underfunded
  • The obligation of the tax administration to provide assistance to taxpayers
  • The obligation of the tax administration to follow the rule of law.

In stating a balance, we have, in Article 4, laid out 20 principles on which our Model Taxpayer Charter is based. There are many ways in which these principles could have been articulated and our choice is simply that.