In March and April 2013, a questionnaire research was conducted among two hundred business people (sole traders and partners in un-incorporated partnerships under Polish law: civil partnerships, general partnerships, professional partnerships) and sixty tax officials from tax offices in selected poviats (counties) in Mazowieckie Voivodship:
Siedlce, osice, Misk Mazowiecki, Wgrów and Sokoów. The re-search questionnaire was made available at accounting agencies ser-vicing the economic agents under review; also, links to the question-naire, with requests for completion, were sent to businesses in the database of Polskie Ksiki Telefoniczne (Polish Telephone Directo-ries). In respect of tax officials, the questionnaire was supplied in pa-per form to heads of tax offices, with a request to pass them on to the officials who deal directly with the shadow economy (i.e. those in inspection sections) and to those dealing with income tax.
The business people and the tax officials were asked the same questions, thus making it possible to conduct comparative procedure.
The programme Statistica 10.0 (StatSoft Inc., USA) was used for sta-tistical analysis. The findings were formatted as comparisons of per-centages for a given answer in both groups. Furthermore, the Mann–
Whitney U two-sample test was performed in order to check if the differences found are statistically significant. The test serves to verify the hypothesis that both samples under review come from different populations; it can be applied when the dependant variables are
ordi-nal. The null hypothesis (H0) here was this: the distributions of the two populations are identical; and the alternative hypothesis was: the distributions of both populations are not identical. The significance level was put as = 0.05. When the computed p-value (test probabil-ity) fell below that level (p < 0.05) the outcomes were found to be statistically significant (warranting rejection of H0 in favour of H1).
Figure 1. What is your perception of tax evaders?
Source: Authors’ own research.
Most tax officials (60%) declared a very negative view of tax evaders, with a further 33% professing a rather negative view. The business people, even if also condemning the shadow economy, were less cate-gorical, usually opting for a “rather negative” response (62%, against just 15% declaring “very negative” views, and 17.5% uncommitted).
As can be seen, the assessments from both groups are fairly different, with the tax officials being more critical than the business people.
The outcome of the MannWhitney U rank-sum test allows us to reject H0 and accept H1, which means that the observable differences between the groups under review, in terms of assessment of tax evad-ers, are statistically significant: U = 3108; p < 0.01 (asymptotic sig-nificance, two-tailed). The business people are less rigorous in as-sessment of tax evaders (Mrank1 = 144.96) than the tax officials are (Mrank2 = 82.30).
Figures 27 present findings of the authors.
Figure 2.
Source: Authors’ own research.
Figure 3. Perception of fines as an instrument to curtail the shadow economy
Source: Authors’ own research.
Figure 4. Assessment of income tax rate reduction as a method encouraging honest tax payment
Source: Authors’ own research.
Figure 5. Assessment of public economic education as a motivation to honest tax payment
Source: Authors’ own research.
Figure 6. Assessment of building good officials-business people relationships as a method of reducing the shadow economy (e.g. ranking lists of tax offices, the competition
“Business-friendly tax office”) Source: Authors’ own research.
Figure 7. Assessment of tax reforms towards streamlining the tax system
Source: Authors’ own research.
The respondents’ assessments of methods to promote honest tax payment (whether by compulsion or by encouragement) were ana-lysed using the Mann–Whitney U rank-sum test. The test outcomes for individual methods are presented in Table 1, alongside the relevant conclusions.
Table 1. Mann–Whitney U test of tax authorities’ methods to either force or encourage honest tax payments
Methods to curtail mo-tivating to honest tax payment is weaker among business people
Perception of fines as motivating to honest tax payment is weaker among business people (Mrank1 = 113.66), than among tax officials (Mrank2 = 186.63).
Perception of tax rate reduction as motivating to honest tax payment is stronger among business people (Mrank1 = 145.55), than among tax cam-paigns as motivating to honest tax payment is stronger among busi-ness people (Mrank1 = 146.38), than among tax officials (Mrank2 = 77.58). ness people relationships as mo- tivating to honest tax payment is stronger among business people (Mrank1 = 147.42), than among tax officials (Mrank2 = 74.1).
Tax reforms towards stream-line the tax system as motivating to honest tax payment is stronger among business people (Mrank1 = 141.68), than among tax officials (Mrank2 = 93.23).
Source: Authors’ own research.
The business people and the tax officials differ in their assessment of methods to reduce the size of the shadow economy. Tax inspections are found by the officials as strongly motivating (23%) and rather motivating (62%) taxpayers to honestly pay taxes, whereas the busi-ness people find them as rather not motivating (51%) or not motivat-ing at all (13%). It should be noted that none of the tax officials opined that inspections would not at all motivate taxpayers to honestly pay taxes. A very similar pattern can be seen with fines, as a means of cutting back the shadow economy. The officials see fines as (either rather or strongly) motivating, whereas the business people argue that scaring tactics (involving inspections and fines) are not motivating taxpayers.
The belief that income tax rate reduction may be instrumental in paring down the shadow economy was found much more frequently among the business people than the officials. Among the latter, 21%
think that taxpayers are not motivated by cuts in taxes, while only 13% business people share this view.
Differences of opinion can also be seen in the assessment of public education and good taxpayer-tax office relations as methods of shadow economy curtailment. For the business people, those methods may either fairly or strongly influence honest income-reporting by taxpayers, but the officials are not prepared to admit a linkage be-tween education or good relationships on the one hand and a retreat of the shadow economy on the other. The two groups agree only on one point, namely that the pursuit of this goal could be helped by reforms seeking to streamline the tax system.
A major difference emerges when it comes to assessments of flat tax. Among the officials, 56% are of the opinion that the introduction of flat tax had no connection with shadow economy reduction, and 22% believe that it rather contributed to scaling down the shadow economy. None of the tax officials sees the flat tax as having strongly
restricted the shadow economy. The picture is diametrically different among the business people, where 30% believe this (strong reduction) has indeed been the case, a half perceive the flat tax as rather having reduced the informal sector, and only 11% share the officials’ majority opinion, not noticing any connection between the launch of flat tax and shadow economy contraction. It should be noted that “no opinion”
responses came from 21.7% of the officials and 6% of the business people.
Figure 8. How, in your opinion, the flat-income-tax option impacted the shadow economy
Source: Authors’ own research.
The Mann–Whitney U rank-sum test demonstrated that the differ-ences between the two groups in their assessments of the impact of flat-tax option upon the shadow economy are statistically significant:
U = 4137.5; p < 0,01 (asymptotic significance, two-tailed).
5. Conclusions
The tax officials and the business people perceive their socio-economic environment differently, and have different views of why the shadow economy exists and how it can be cut down. A large portion of the
business people are of the opinion that tax rate reductions and the flat tax option helped reduce the shadow economy, in addition to stream-lining the tax system. More cautious pronouncements about the flat tax option come from the tax officials although they too believe, just like the business people, that it helped simplify the income tax system.
Both the business people and the tax officials opine, quite fre-quently, that a simplification of tax procedures (by eliminating tax breaks and deductions) will improve the propensity to pay taxes. Both groups believe that a reduction of income tax rates will bring about an increase in budget revenues and, also, that it will perceptibly con-tribute to reducing the size of the shadow economy.
On the other hand, there are wide differences in assessing the value of tax authorities’ methods as a motivation to honest tax payment. The tax officials assign much greater importance to administrative, repres-sive methods of combating the shadow economy, finding them to be more effective in a drive to restrict undeclared economic activity. But for the business people, the effectiveness of such methods is limited.
In their opinion, better results can be produced by moves to reform and streamline the tax system, by public-education campaigns (to bring home to the public the necessity of paying taxes), and by the building of good, friendly relations between tax officials and business people/taxpayers.
The differences between tax officials’ and business people’s opin-ions about why the shadow economy exists and how it can be restricted point to the need for dialogue and better understanding between those two groups, for overcoming the existing barriers and building a cli-mate of mutual trust.
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