1 Ethical Aspects of Tax Administration

2 Ethics – What is it? A standard of behavior that instructs human beings on their action in different situations. These standards are important for relationships between the individual and the society at large including: Family (spouse, parents, children); Church; Business (clients, employer, employee; suppliers, government agencies)

3 Ethical Aspects of Tax Administration Ethics are commonly mistaken for: 1.Law – the law can guide or impose ethical action, but the law is not always ‘ethical’. In cases where the law serves the interest of a few or provides ultimate power (Apartheid, communism); 2.Culturally accepted norms – Some cultural practices are not ethical such as honour killing, slavery, caste system. Some cultural practices have evolved into ethical standards and law.

4 Ethical Aspects of Tax Administration How are ethical standards established? Five approaches have been suggested ( Adapted from Santa Clara University ); 1.Utilitarian Approach Balances good or harm; Ethical action creates greatest good over harm. 2.The Rights Approach Ethical action respects and protects an individual’s rights. 3.The Justice Approach Ethical action treats all humans fairly. 4.The Common Good Approach Ethical Action should contribute to the common good of society. 5.The Virtues Approach Ethical action

5 Ethical Aspects of Tax Administration The different approaches may not answer “what is ethical” – however each approach gives us important information to determine what is ethical in a particular situation, more often than not the different approaches lead to similar answer.

6 Ethical Aspects of Tax Administration Tax Administrators are in a powerful position –the law gives them the authority to: Asses taxes (including Best of Judgment); Collect Revenue; Seize Property; Garnish Bank A/cs; Commence legal (criminal/civil) proceedings against the taxpayer.

7 Ethical Aspects of Tax Administration Exercise of that power can result in the following against the taxpayer: Loss of property and income; Imprisonment;

8 Ethical Aspects of Tax Administration As with all professions and field of business that require human interaction and judgment, there are ethical issues facing tax administration. These issues must be identified and dealt with, particularly as we have noted that Tax Administrators have considerable power and that the exercise of that power can result in the loss of some of the fundamental human rights of the taxpayer.

9 Ethical Aspects of Tax Administration It has been widely written about and agreed that the pillars of tax administration are: 1.Fairness; 2.Transparency 3.Equity; 4.Accountability. And these are what should guide the tax administration and its relationship with public/stakeholders. Ethical aspects of tax administration largely surround this four pillars.

10 Ethical Aspects of Tax Administration Examining the Pillars Fairness; Equity;

11 Ethical Aspects of Tax Administration Examining the Pillars Transparency Accountability

12 Ethical Aspects of Tax Administration Under the four pillars, some of the ethical issues facing TA: 1.Acceptance of gifts; 2.Conflict of Interest; 3.Selective application of the law/ or inconsistency is applying the law; 4.Political influence; 5.Confidentiality/secrecy; 6.Discretion; 7.Corruption; 8.Lack of Autonomy

13 Ethical Aspects of Tax Administration Tools for Balancing the Pillars and dealing with the ethical aspects of Tax Administration. 1.Ethical Standards and Principles; 2.Code of Conduct; 3.An Effective Enforcement System; 4.An Effective Tax Appeal System

14 Ethical Aspects of Tax Administration Code of Conduct: The Standard of behavior expected of the employee of the TA in the performance of their duties. The code provides guidance to employees as they make decisions both personal and professional. Code of Ethics: Statements of principles meant to influence behavior. Codes of conduct and ethics have become the order of business as organizations and businesses seek to assure their stakeholders that their organizational/business practices are ethical. The codes aim to: 1.Standardize behavior; 2.Establish minimal standard of conduct; 3.Formalize existing practices Enforcement System; It does not make sense implementing codes of standard and ethics without a system to monitor and enforce the rules and guidelines. An effective enforcement system should have the following characteristics: 1.Written and (legally) enforceable code; 2.Clearly defined penalties for infractions; -minor offenses (administrative discipline and punishment); -fraud and corruption (prosecution); 3.Obligation to Report (Protection of Whistleblower); 4.A continuous education system that creates awareness of responsibility for both the taxpayer and the public; 5.An independent monitoring system/mechanism to ensure compliance.

15 Ethical Aspects of Tax Administration Appeal System An appeal system is fundamental to an effective tax system.

16 Ethical Aspects of Tax Administration Ethical Standards for Tax Administrators (Adapted from the Institute for Supply Management) 1.Avoid the intent and appearance of unethical and compromising practices; 2.Avoid any professional or business activity that creates a conflict between personal interest and the Tax Authority; 3.Avoid soliciting or accepting loans, money, credit or preferential discounts and the acceptance of gifts, entertainment, favors or services; 4.Handle confidential information with due care and proper consideration of ethical and legal ramifications to the tax authority; 5.Be knowledgeable of the law and apply it impartially, consistently and in the spirit intended.

17 Ethical Aspects of Tax Administration Code of Conduct for TA: (Louisiana Association of Tax Administrators): Tax Administrators shall: 1.Obey all laws relating to taxation and grant no exemptions, credit or advantage to any taxpayer that is not provided by the law; 2.Be dedicated to the highest ideal of honesty and integrity in all matters in order to maintain the respect and confidence of the government and taxpayers; 3.Strive to be impartial, fair, neutral and consistent in administering the law without regard to race, social or economic circumstance; 4.Provide prompt, efficient and quality service to all stakeholders in an effort to exceed their expectation; 5.Refrain from actively participating in partisan political activities; 6.Accurately record proceedings and maintain taxpayer information in the strictest confidence and highest level of security; 7.Refrain from soliciting gifts for actions and non-actions; 8.Make reasonable effort to collect the proper amount of tax revenue due at the lowest possible cost to the state, and in a manner that warrants the highest degree of confidence in our integrity, efficiency, effectiveness and fairness; 9.Respond to valid taxpayer refund claims with the same diligence as employed in collection of taxes; 10.Educate taxpayers on their rights and responsibilities to ensure the highest possible levels of voluntary compliance to the laws.

18 Ethical Aspects of Tax Administration Other Administrative Practices to encourage adherence to the standards ( Adapted from the Anti-Corruption Resource Centre Standardization of procedures and forms 1.Reduce discretion of officials and limits number of approvals; 2.Limit one-one/out of office contact with the taxpayer; 3.Internal controls; 4.Performance Standards. Simplification of the Tax System 1.Simple and clear rules; 2.Few exemptions; 3.Concerted effort to remove ambiguities/loopholes. Professionalism 1.No political appointments; 2.Recruitment/promotion on merit; 3.Responsibilities clearly defined (job description manuals); 4.Segregation of duties; 5.Staff rotation and continuous training schemes.