Deutsche Berufsschule Hong Kong

Finalist for the region International

Re-Tax – Together win in the fight of tax evasion!

Tax Compliance – a states or morality’s task?

Every state or government has a lot of different streams of income. Nevertheless, most revenue is derived from tax income, so that tax compliance plays an essential role in ensuring that every government and state runs correctly.

Insufficient tax revenue prevents the state from making necessary investments into sectors such as infrastructure but at some point becomes a thread to the political system. Therefore, we – the team from the Deutsche Berufsschule Hongkong – asked ourselves the question how we could increase the tax compliance of each citizen by appealing to their morality with the help from the state.

After assessing different tax systems and different ways to evade taxes we decided to focus on the Value Added Tax (VAT) which makes up for the largest amount from the total tax revenue in Germany.

Our approach to increase the tax compliance is called “Re-Tax”. Re-Tax is an app-based receipt lottery which aims to prevent tax fraud and tax evasion in relation to purchases that include VAT. In addition, it should increase the tax awareness by providing the customer with a variety of different information on the use of taxes. Once Re-Tax has been implemented every adolescent German citizen or person with the right of residing in Germany will be able to register in the application and will receive a personalized QR-Code. Before the next purchase the customer will present the personalized QR-Code to the cashier who will scan the QR-Code. In addition to the legally required information there will then also be a QR-Code printed or shown on the receipt. The customer can scan this QR-Code and will automatically participate in a lottery. For each Euro spent, the customer will receive one lot with a maximum of 1000 lots per purchase. With all the collected lots the customer will have a chance to win cash prizes in weekly, monthly and annual draws. This should set an incentive that the customers request the receipt after every purchase which will prevent the cashier from not registering a purchase in the cash register. After scanning the QR-Code the customer will get a pop-up notification that shows an equivalent to the VAT contribution from this particular purchase, for instance „Your VAT contribution is equivalent to one hourly wage of a police officer“. Therefore, each time a person enters the lottery they will be confronted with the use of taxes and thus will gain knowledge about taxes.

All in All, Re-Tax is the missing aspect to connect tax-compliance with the customer which is automatically leading to a rise in tax-awareness and a decrease in tax-fraud.

Their YES! topic

Tax compliance – the task of the state or morality?

by Dominika Langenmayr and Philipp Krug

Taxes are levied by public authorities to generate revenue without the payer receiving anything directly in return. As a result, members of a society have varying degrees of willingness to comply with tax regulations, so-called „tax compliance“.

Tax evasion was modelled as a decision under uncertainty by economists Michael G. Allingham and Agnar Sandmo in a seminal 1972 theory. Taxpayers must decide to comply with the law – and thus fulfil the tax obligation in full – or evade taxes with the risk of being discovered and punished. The state sets the penalty amount and decides how much effort will be made to detect tax evasion.

However, current research literature also discusses tax morale as another factor influencing tax compliance. Tax morale is understood as the extrinsic and intrinsic motivation to pay taxes. This motivation can have its origin in social norms or the personal sense of justice but can also be promoted by specific legislation. Legislation may, for example, provide for the publication of lists of tax evaders or for the public praise of persons with an exceptionally high tax burden. In addition, the state has the task of financing public goods (such as schools and transport infrastructure). For this, it needs tax revenues. Therefore, the tax compliance of the members of a society must be provided To ensure a fair and lawful distribution of the tax burden.

How can this goal be achieved? For what reasons do individuals evade taxes? For which types of taxes is it particularly easy or difficult to avoid? What means has the state used to date to combat tax evasion, and how effective are they? How does the approach differ in different countries (e.g. Scandinavia)? Which potential tools have not been used so far? What non-financial incentives can reduce tax evasion? What could a path to higher tax morale look like?