Tax amnesty : how can policymakers design the most effective model

Abstract

Purpose: The principal purpose of this dissertation is to identify what are the main characteristics that a tax amnesty scheme should include for it to achieve the desired objectives. Furthermore, aspects such as the compliance effects of tax amnesty schemes were also reviewed to establish the post-amnesty behaviour of taxpayers after the termination of a tax amnesty scheme. Design: Different branches of research were explored to arrive at the objectives of the study. Tax amnesty schemes from different countries in Europe were analysed with the intention of drawing out their characteristics and determining which helped achieve the desired goals. Subsequently, the post-amnesty compliance behaviour was analysed through a detailed analysis of a particular scheme implemented in Malta together with data collected from a survey distributed to tax officials, taxpayers and tax representatives. Furthermore, data was also collected through a database, created for the purpose of these studies, on tax amnesty schemes implemented in Malta between 2009 and 2020. Findings: From the research conducted, it was established that a tax amnesty scheme should be a one-time policy. Furthermore, other important characteristics include the duration of the scheme and pardoning from legal and criminal prosecution. It was also determined that no anonymity should be granted to participants as this would hinder the tax authority’s ability to carefully monitor previously non-compliant taxpayers in the future. The importance of exchange of information with various institutions was also deemed to be a key characteristic that should accompany the implementation of such a scheme. Furthermore, to the post-amnesty compliance behaviour of taxpayers, it was established that this is primarily related to the reoccurrences of tax amnesty schemes. If tax amnesty schemes are implemented repeatedly the compliance rate of both previously compliant and non-compliant taxpayers is influenced in a negative manner. Conclusions: It was therefore recommended that a tax amnesty scheme should only be implemented as a one-time policy. Suggestions were made as to how the same results can be achieved through alternative policies. Ultimately, it was also recommended that tax authorities should seek to focus their ability on the source of the problem of any tax arrears, that is, weak compliance by strengthening the legal framework. Value: The established characteristics should help promote a tax amnesty that achieves its goals whilst taking into consideration factors of future compliance and equity. Furthermore, a detailed overview of tax amnesties implemented in Malta serves as my contribution to this dissertation gathering tax amnesty schemes implemented in Malta in the past ten years into one study, data which is not currently available in any other literature.