Tax Authorities around the world are facing the challenge as to determine the policy which will be most effective for long term voluntary compliance from taxpayers. [1] The debate revolves around those who think that penalties and sanctions are necessary and those who think that gentle persuasion is enough.
Naming and Shaming is used widely in several countries as a measure of deterrence. In South Africa, water wasters are shamed. In Australia, those who speed are shamed. Several tax authorities have used public shaming as a measure to improve tax compliance. However, the impact of this approach is highly debatable. On one hand, shaming tax delinquents can influence their behaviour in being more compliant due to their social image being tarnished. On the other hand, it tends to backfire if taxpayers are informed that others are non-compliant as well.
A new policy was introduced in Slovenia in 2012, according to which taxpayers with debt exceeding €5,000 which has been due for more than 90 days were named and shamed. Their information such as name, address, tax identification number etc., were published on the internet. According to the empirical findings, corporations reduced their tax debt by 8% whereas individuals reduced their tax debt by 4.5% to avoid shaming. [2] The tax debt of corporations was further reduced upon actual shaming by 3.2%. However, it was noticed that those who featured in the first shaming list were also featured in the second list. As per the study by Nadja Denger and Lukas Treber of the University of Hohenheim, it was found out that the policy of shaming triggered huge response to the threat of being shamed as compared to the actual shaming. [3]
In India, the Central Board of Direct Taxes [CBDT] began the exercise of naming and shaming tax defaulters in 2015. As a part of this policy, the last known address and PAN of the tax defaulters are printed in newspapers and even online. Even in South Korea, names of tax dodgers are released every year. In Asian countries, “saving face” is so ingrained in the society that shaming and naming of tax dodgers as a policy measure is taken more seriously.[4]
Overall, the policy of naming and shaming is not only effective but also cheap for implementation purposes. However, as noticed in Slovenia, it is the threat of shaming which garners a response from tax delinquents rather than actual shaming. It is true that naming and shaming is used by several countries around the world to improve tax compliance, but, empirical studies are lacking in this regard. This policy also has certain negative aspects. Some tax delinquents may be unable to pay the tax debt instead of avoiding paying the debt. The policy will make them less desirable to other institutions like banks when they are approached for loans. This policy will lead to a decline in the reputation of individuals and corporations among their customers/partners. One suggestion is that once the tax delinquent pays their debt, they should be immediately removed the list. Their reputation takes a toll when they are a part of the list. They should be regenerated into society.
As to answer the question, to shame or not to shame, the threat of shaming does wonders, and some mechanism should be put in place whereby it does not lead to actual shaming. A notification prior to being shamed can be sent to the delinquents and a time period should be given for them to pay their debt before publishing the list publicly.
[1] Kristina Murphy, Enforcing Tax Compliance: To Punish or Persuade? 38 Economic Analysis and Policy, accessed from: https://reader.elsevier.com/reader/sd/pii/S0313592608500099?token=F4BAD2431201B7F9C921EDA78056C110F1E1DDF10A678B0F43AED099FD0162F17D7200F7CE6DE9FB7B8A9F4E6E1C58D8
[2] Nadja Dwenger & Lukas Treber, Shaming for tax enforcement: Evidence from a new policy, accessed from: https://www.econstor.eu/bitstream/10419/182441/1/1031664017.pdf
[3] Id.
[4] Tara Francis Chan, How South Korea names and shames tens of thousands of tax-dodgers every year, Business Insider, accessed from: https://www.businessinsider.in/How-South-Korea-names-and-shames-tens-of-thousands-of-tax-dodgers-every-year/articleshow/62076979.cms
Author Bio
good article