Ethical Aspects of Tax Administration

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Ethical Aspects of Tax Administration
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Ethical Aspects of Tax Administration

• 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)

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Ethical Aspects of Tax Administration

• Ethics are commonly mistaken for
• 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)
• 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.

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Ethical Aspects of Tax Administration

• How are ethical standards established?
• Five approaches have been suggested (Adapted from
  Santa Clara University www.scu.edu)
• Utilitarian Approach
• Balances good or harm
• Ethical action creates greatest good over harm.
• The Rights Approach
• Ethical action respects and protects an
  individuals rights.
• The Justice Approach
• Ethical action treats all humans fairly.
• The Common Good Approach
• Ethical Action should contribute to the common
  good of society.
• The Virtues Approach
• Ethical action

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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.

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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.

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Ethical Aspects of Tax Administration

• Exercise of that power can result in the
  following against the taxpayer
• Loss of property and income
• Imprisonment

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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.

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Ethical Aspects of Tax Administration

• It has been widely written about and agreed that
  the pillars of tax administration are
• Fairness
• Transparency
• Equity
• 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.

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Ethical Aspects of Tax Administration

• Examining the Pillars
• Fairness
• Equity

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Ethical Aspects of Tax Administration

• Examining the Pillars
• Transparency
• Accountability

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Ethical Aspects of Tax Administration

• Under the four pillars, some of the ethical
  issues facing TA
• Acceptance of gifts
• Conflict of Interest
• Selective application of the law/ or
  inconsistency is applying the law
• Political influence
• Confidentiality/secrecy
• Discretion
• Corruption
• Lack of Autonomy

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Ethical Aspects of Tax Administration

• Tools for Balancing the Pillars and dealing with
  the ethical aspects of Tax Administration.
• Ethical Standards and Principles
• Code of Conduct
• An Effective Enforcement System
• An Effective Tax Appeal System

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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
• Standardize behavior
• Establish minimal standard of conduct
• 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
• Written and (legally) enforceable code
• Clearly defined penalties for infractions
• -minor offenses (administrative discipline
  and punishment)
• -fraud and corruption (prosecution)
• Obligation to Report (Protection of
  Whistleblower)

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Ethical Aspects of Tax Administration

• Appeal System
• An appeal system is fundamental to an effective
  tax system.

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Ethical Aspects of Tax Administration

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

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Ethical Aspects of Tax Administration

• Code of Conduct for TA (Louisiana Association of
  Tax Administrators)
• Tax Administrators shall
• Obey all laws relating to taxation and grant no
  exemptions, credit or advantage to any taxpayer
  that is not provided by the law
• 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
• Strive to be impartial, fair, neutral and
  consistent in administering the law without
  regard to race, social or economic circumstance
• Provide prompt, efficient and quality service to
  all stakeholders in an effort to exceed their
  expectation
• Refrain from actively participating in partisan
  political activities
• Accurately record proceedings and maintain
  taxpayer information in the strictest confidence
  and highest level of security
• Refrain from soliciting gifts for actions and
  non-actions
• 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
• Respond to valid taxpayer refund claims with the
  same diligence as employed in collection of
  taxes
• Educate taxpayers on their rights and
  responsibilities to ensure the highest possible
  levels of voluntary compliance to the laws.

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Ethical Aspects of Tax Administration

• Other Administrative Practices to encourage
  adherence to the standards (Adapted from the
  Anti-Corruption Resource Centre www.u4.no)
• Standardization of procedures and forms
• Reduce discretion of officials and limits number
  of approvals
• Limit one-one/out of office contact with the
  taxpayer
• Internal controls
• Performance Standards.
• Simplification of the Tax System
• Simple and clear rules
• Few exemptions
• Concerted effort to remove ambiguities/loopholes.
• Professionalism
• No political appointments
• Recruitment/promotion on merit
• Responsibilities clearly defined (job description
  manuals)
• Segregation of duties
• Staff rotation and continuous training schemes.