LUẬN văn THẠC sĩ (KINH tế) local property tax in ireland, can the critical success factors of the high compliance rate be applied to the introduction of future taxes

Title:LocalPropertyTax inIreland, canthe criticalsuccessfactorsofthehighcompliancerateb e appliedtotheintroductionoffuturetaxes Supervisor: MrStuartGarvie Wordcount:22,769 words... Roleo

LocalPropertyTaxinIreland, canthecriticalsuccessfactorsofthehighcomplianceratebeappl

iedtotheintroductionoffuturetaxes.

DissertationsubmittedinpartfulfilmentoftherequirementsfortheDegree ofExecutiveMastersinBusinessAdministration(EMBA)atDublinBusin

essSchool

SaraGooney

Title:LocalPropertyTax inIreland, canthe criticalsuccessfactorsofthehighcompliance

rateb e appliedtotheintroductionoffuturetaxes

Supervisor: MrStuartGarvie

Wordcount:22,769 words

1.0Declaration 11

2.0Acknowledgements 12

3.0Abstract 13

4.0Introduction 15

4.1 Background 16

4.2 ResearchObjectives 24

4.3 ResearchQuestion 25

4.4 ResearchHypothesis 27

4.5 RecipientsfortheResearch 27

4.6 SuitabilityoftheResearcher 28

5.0LiteratureReview 30

5.1 Introduction 31

5.2 TaxCompliance 32

5.2.1DeterrenceEffects 34

5.2.2 The Impactof NormsonBehaviour 36

5.2.3 FairnessandTrust (inthe taxadministration) 40

5.2.4 Complexityof the TaxSystem 43

5.2.5 RoleofGovernmentandBroaderEconomicEnvironment 46

5.3 TaxPlanningandDesigningtheSuiteofPropertyTaxes 49

5.3.1 HouseholdCharge 53

5.3.2 LocalPropertyTaxRationale 55

5.3.3 ThornhillReport 58

6.0ResearchMethodology 61

6.1 Introduction 62

6.2 Methodology 63

6.3 ResearchPhilosophy 65

6.4 Methodologyselection 69

6.5 ResearchApproach 71

6.6 ResearchStrategy 72

6.7 TimeHorizons 73

6.7.1 Cross-SectionalTimeHorizon 73

6.7.2 LongitudinalTimeHorizon 73

6.8 DataCollectionMethods 74

6.9 DataCollection,EditingandCoding 75

6.9.1 QualitativeData 75

6.9.2 QuantitativeData 76

Chapter7ResultsandFindings 78

7.1 QualitativeDataEditingandCoding 79

7.1.1 InterviewFindings 79

7.2 QuantitativeDataEditingandCoding 81

7.2.1 Questionnaire Findings 82

I GeneralbackgroundInformation 83

II HouseholdCharge levelsof awareness 86

III Localpropertytaxlevelsof awareness 91

IV Perceptionsof theusesofthe Taxcollected 96

V Influencingfactorsonbehaviour 98

VI Participantsperceptionsof taxandofRevenue 105

VII Indicatorsof futurecompliance 113

VIII Influencingfactorsonbehaviour 116

IX Backgroundpaymentinformation 121

X Necessityofassistance 123

XI Demographic snapshot 125

Chapter8 Analysis andDiscussions 128

8.1 Introduction 129

8.2 TaxComplianceandTaxDesign 129

8.2.1 Deterrence 132

8.2.2 Norms(bothpersonalandsocial) 134

8.2.3 Fairnessandtrust(inthe taxadministration) 134

8.2.4 Complexityofthe taxsystem 136

8.2.5 Roleofgovernmentandbroadereconomicenvironment 137

8.3 RevenuesDevelopments 138

Chapter9 Conclusionandrecommendations 144

9.1 Introduction 145

9.2 ResearchObjectivesAchieved 145

9.2.1 Commissionedreportsexplored 145

9.2.2 Identify thebroadfactorsthatdeterminecompliance 146

9.2.3 Identify thereasonsforthehighcompliancerates 148

9.2.4 Generatetheoreticalsuggestionsforfutureuse 149

9.3 ResearchHypothesisTesting 152

9.4 ResearchRecommendations 152

9.5 Limitationsofthe Research 153

9.6 TheFuturePoliciesforTaxImplementation 153

Chapter10ReflectionsonLearning 155

10.1 Introduction 156

10.2 LearningStyle 156

10.3 ReviewofLearning 159

10.3.1 ResearchSkills 162

10.4FutureApplicationsofLearning 164

Appendices 166

Appendix1:TableofAbbreviations 167

Appendix2:EurostotheRescue,WorldBank2012/EC 169

Appendix3:EurozoneBailouts-BBCEurostats2013 170

Appendix4:DissertationDataFlow 171

Appendix5:TheLiteratureReviewProcess 172

Appendix6 :Mind MapforLocalPropertyTax 173

Appendix7 :Timelinefordissertation 174

Appendix8:TheImplementationProcessofthePropertyTax 175

Appendix9:TermsofReference-InterdepartmentalGroup 176

Appendix10:InterdepartmentalGroupSpecificationofworkfortheESRI 177

Appendix11:ThePropertyValuationBandsforLocalPropertyTax 180

Appendix12 :TableofselectedInternationalPropertyTaxSystems 181

Appendix13 :Semi-structuredInterviewQuestionlist 185

Appendix14 :Semi-structuredInterviewRecordings 187

Appendix15 :QuestionnaireQuestion-Set 195

Appendix16 :HoneyandMumforddefinition(Mobbs,1982) 204

Appendix17 :LocalPropertyTaxProjectCostings 205

Bibliography 206

stofFigures

FIGURE1.PROPERTYTAXESSUMMARY 24

FIGURE2.TAXCOMPLIANCEMODELOFTHENEWZEALANDTAXAUTHORITY 34

FIGURE3.TAXCOMPLIANCEMODEL,CHAUANDLEUNG(2009) 37

FIGURE4.K I R C H L E R ’ S ‘SLIPPERYSLOPE’ 41

FIGURE5:THEHONEYCOMBOFRESEARCHMETHODOLOGY(WILSON2013) 64

FIGURE6:“THERESEARCHONION”(SAUNDERS,2009) 65

FIGURE7.A HIERARCHICALAPPROACHTOAPARADIGM(KYRÖ,2002) 67

FIGURE8.BASICPHILOSOPHICALCHOICESDERIVEDFROMBALLANTYNE,(1991) 69

FIGURE9.TABLEOFMETHODOLOGICALCHOICE,SAUNDERS(2012) 70

FIGURE10.INITIALAWARENESSOFTHEHOUSEHOLDCHARGE 83

FIGURE11.INITIALAWARENESSOFTHELOCALPROPERTYTAX 84

FIGURE12.OWNEROFARESIDENTIALPROPERTYWITHINTHESTATE 85

FIGURE13.OWNERSHIPTYPE 85

FIGURE14.CURRENTNON-OWNERSWOULDPAYTHETAXINTHEFUTURE 86

FIGURE15.INFORMEDLEVELFORTHEHOUSEHOLDCHARGE 87

FIGURE16.ADEQUATEINFORMATIONRECEIVEDFORTHEHOUSEHOLDCHARGE 87

FIGURE17.LEVELOFUNDERSTANDINGOFINFORMATIONRECEIVED 88

FIGURE18.FURTHERI N F O R M A T I O N SOUGHTFORHOUSEHOLDCHARGE 89

FIGURE19.BLANKET€100CHARGEFORHOUSEHOLDCHARGEFOR2012 90

FIGURE20.INFORMEDLEVELFORTHELOCALPROPERTYTAX 91

FIGURE21.ADEQUATEINFORMATIONRECEIVEDABOUTTHELOCALPROPERTYTAX 92

FIGURE22.LEVELOFUNDERSTANDINGOFINFORMATIONRECEIVED 93

FIGURE23.FURTHERINFORMATIONSOUGHTFORLOCALPROPERTYTAX 94

FIGURE24.BANDEDRATESFORTHE LOCALPROPERTYTAXFOR2013ONWARDS 95

FIGURE25.PUBLIC’SPERCEPTIONOFWHATUSEISMADEOUTOFTHEPROPERTYTAX 96

FIGURE26.PUBLICSOPINIONONWHICHAREASBENEFITANDWHICHDON’T 97

FIGURE27.PAYTAXDUETOFEAROFBEINGCAUGHTFORNON-PAYMENT 98

FIGURE28.PAYTAXDUETOHIGHRISKOFBEINGCAUGHTFORNON-PAYMENT 99

FIGURE29.PAYTAXTOAVOIDPUBLICATIONASATAXDEFAULTER 99

FIGURE30.PAYINGTHE TAXASITISABELIEVEDSOCIALNORM 100

FIGURE31.PAYTHETAXASTAXCOLLECTEDISPUTTOGOODUSE 101

FIGURE32.PAYTAXASRISKOFFINESANDPENALTIESAREHIGH 102

FIGURE33 PAYTAXASPERCEIVEDPERSONALDUTY 103

FIGURE34.PAYTAXASITIS ALEGALREQUIREMENTTOPAYIT 103

FIGURE35.PAYTAXTOAVOIDCHARGEBEINGPUTONPROPERTY 104

FIGURE36.PAYTAXASSTRONGMORALOBLIGATIONTO PAYIT 104

FIGURE37.TAXEVASIONISACCEPTEDIN IRISHSOCIETY 105

FIGURE38.TAXEVASIONISACRIME 106

FIGURE39.UNDERDECLARINGPROPERTYVALUES 106

FIGURE40.REVENUEDETECTINGUNDERDECLAREDPROPERTYVALUES 107

FIGURE41.REVENUECAPABLE OFADMINISTERINGTHETAX 108

FIGURE42.PERCEPTIONOFSOCIETYBEINGHONESTINDECLARINGTAXES 108

FIGURE43.OWNERSACCEPTINGREVENUE ESTIMATEDVALUATION 109

FIGURE44.CLAIMINGENTITLEDEXEMPTIONS 110

FIGURE45.CLAIMINGUNENTITLEDEXEMPTIONS 110

FIGURE46.REVENUESAPPROACHFULNESS 111

FIGURE47.USEFULNESS OFTHEONLINELPTFACILITY 111

FIGURE48 REVENUES’CONTACTABILITY 112

FIGURE49.BETTERCOMPLIANCEA S IMPROVEDUNDERSTANDINGOFTHETAXES 113

FIGURE50.BETTERCOMPLIANCEA S IMPROVEDUNDERSTANDINGOFTHESYSTEM 114

FIGURE51.BETTERCOMPLIANCEA S IMPROVEDUNDERSTANDINGOFOBLIGATIONS 114

FIGURE52.BETTERCOMPLIANCEA S TRUSTINCOLLECTIONPROCESSES 115

FIGURE53.BETTERCOMPLIANCEA S TRUSTINBEINGFAIRLYTREATED 115

FIGURE54.BETTERCOMPLIANCETOAVOIDCONTACTFROMREVENUE 116

FIGURE55.BETTERCOMPLIANCETOAVOIDLATECHARGES 117

FIGURE56.BETTERCOMPLIANCETOAVOIDAREVENUEAUDIT 117

FIGURE57.BETTERCOMPLIANCETOAVOIDINCOMEDEDUCTIONS 118

FIGURE58.REVENUEACCEPTSSELF-ASSESSEDVALUATIONS 118

FIGURE59.BETTERCOMPLIANCEASOTHERSAREDECLARINGHONESTLY 119

FIGURE60.BETTERCOMPLIANCE ASEVASIONISIMPOSSIBLE 120

FIGURE61.BETTERCOMPLIANCEBECAUSE THETAXISPERCEIVEDFAIR 120

FIGURE62.BETTERCOMPLIANCEFACILITATEDBYAHOSTOFPAYMENTOPTIONS 121

FIGURE63.ABREAKDOWNOFWHOPAIDTHETAXONTHEOWNERSBEHALF 122

FIGURE64.ABREAKDOWNONWHO’SBEHALFTHETAXWASPAID 122

FIGURE65.WASTHEPAYERREIMBURSEDFOR PAYINGTHETAX 123

FIGURE66.INRELATIONTOPROPERTYTAXTHEPARTICIPANTPROVIDEDASSISTANCE 124

FIGURE67.INRELATIONTOPROPERTYTAXTHEPARTICIPANTRECEIVEDASSISTANCE 124

FIGURE68.INFORMEDLEVELOFYOURTAXATIONANDOBLIGATIONS 125

FIGURE68.GENDERBREAKDOWN OFTHEPARTICIPANTS 126

FIGURE69.AGEPROFILEOFTHEPARTICIPANTS 126

FIGURE70.OCCUPATIONPROFILEOFTHEPARTICIPANTS 127

FIGURE71.KOLBANDFRY’SLEARNINGCYCLE(BUSINESSBALLS.COM) 158

TABLE1.PERCENTAGEOFTOTALTAXREVENUE,SOURCEEC(2013) 17

TABLE2.THEBAILOUTINNUMBERS,SOURCEDIRISHINDEPENDENT23/10/2013 18

TABLE3.H I S T O R Y OFDOMESTICPROPERTYTAXESINIRELAND 20

TABLE4.OWNEROCCUPIERS–SOMERVILLE(2007) 21

TABLE5.COMMISSIONEDREPORTSBYTHEIRISHGOVERNMENTINTOTAXREFORM 23

TABLE6.ATTRIBUTESOFAGOODRESEARCHTOPIC,(SAUNDERS2 0 0 9 ) 26

TABLE7.ASUMMARYOFRECOMMENDATIONSFROMTHETHORNHILLREPORT 58

TABLE9.D I F F E R E N C E S INDEDUCTIVEANDINDUCTIVEAPPROACHESTORESEARCH 71

TABLE10.DIFFERENTTYPESOFRESEARCH(SAUNDERS2009) 72

TABLE11.K O L B ’ S FOURCATEGORIESOFLEARNERS(1982) 160

TABLE12.LEARNINGCYCLEBYSQUAREONE-LEARNING.COM 162

Thisprojectissolelytheworkoftheauthorandisproducedandsubmittedi n par tialfulfilmentoftheFinalYearDissertationProjectrequirementoftheExecutiveM astersin BusinessAdministration.

Ideclarethatnoportionoftheworkreferredtointhedissertationhasbeensubmi ttedinsupportofanapplicationforanotherdegreeorqualificationoft h i s

o r any otheruniversityorotherinstituteoflearning.

Further,thisresearchprojectexpressestheviewsoftheauthorsolelyanddon o t n ecessarilyrepresenttheviewsoftheRevenueCommissioners.Thea u t h o r alo neisresponsibleforanyomissionsorerrors.

Iwould like toexpressmygratitudetomyparents,TomandMaureenfortheir endl esss u p p o r t , myp a r t n e r M a r k w h o h i d e s h i s delightwhenI sayt h a t I amspen dingtheeveningstudyingashethenassumessolecustodyoftheTVremoteandthela ptop!.

FinallyI w o u l d liketothankmyt h r e e wonderfulchildren,Joy,LaurenandMarcus whohavemissedoutabitwhileIwasengrossedonthis“project”butyouwillhavemyful lconcentrationwhenthis hasbeensubmitted,Ipromiseyouthat.

SaraGooney August2014

LocalPropertyTaxinIreland,canthecriticalsuccessfactorsofthehighcompliancer atebeapplied to theintroductionoffuturetaxes

3.0Abstract

Taxcompliance,theoriesoncompliance andbehaviouraleconomicsare becomingm o r e frequentinthegrowingbodyofliteratureontaxpolicyandtheredesi gnoft a x policies.T h i s i s d u e to t h e factt h a t Irelandhasa v o l u n t a r y compliancet

a x systemandresearchhasbeenconductedtounderstandt h e motivesforcompliance.L ocalp r o p e r t y taxwasimplementedi n t o Irelandi n 2 0 1 3 ,1andhas

achievedsignificantc o m p l i a n c e rateso f 95 %f or 2 0 1 32,w h y andh o w d i d this happen?

Thisresearchwillinvestigatet he driversbehindt h e highcompliancerates fromt h e t axadministration‟spolicyandproceduresviewpointandbalancingthiswithananal ysisofwhatmotivatestaxpayersto becompliantin arecessionaryera.

1Local

PropertyTaxpredecessorwasHouseholdChargefortheyear2012-implementedbytheDepartmento f Environment,Communitya n d LocalG o v e r n m e n t andc o l l

e c t e d b y t h e LocalA u t h o r i t i e s from01/01/2012 – 30/06/2013andthereaftercollectionresponsibilitywasentrustedintheOfficeoftheRevenueCommissioners

compliancerateequates to1,766,518LocalPropertyTaxreturnsbeenfiledonRevenuessystemsasapercentageoftotalnumberofproperties.(Revenue2014c)

„ResearchinIrelandsuggeststhatdeterrence,themoretraditionaltooloftax administrations, isimportantbutnot sufficienttoexplaintheleveloft a x complianceinsociety.Otherfactorsareshowntobeimportant,p a r t i c u l a

r l y th e influenceof personaln o r m s a n d t h e levelo f t r u s t i n thet a x admini stration‟.Walsh (2012)

Behaviouralresearchandresearchintotrustinthepresentdaytaxadministrationw i l l beinvestigatedinthispaper,withtheviewofunderstandinganddecipheringt h e critic alsuccessfactorso f t h e localpropertyt a x projectimplementedi n t h e Irishstate.

Thispaperwillanalysethetaxstrategythatshapedthedesignofthesuiteoflocalp r o p e

r t y taxfromtheenactmentofthelegislationtotheimplementationofthetaxandactivecol lectionprogrammebytheRevenueCommissionersthatleadtothehighcompliancerate Thefalloutfromthisisdiscussedinadditiontotheadvantages,disadvantagesandobs taclestoimplementingsuchaframework.Thispaperalsohighlightsthepossibleexp ansionofRevenueseffectivetaxcollectionabilitiestoencompassfuturetaxes

andincreasedresponsibilities.

4.0Introduction

TheIrishtaxsystemandIrishcustomsregimearetheresponsibilityoftheOfficeo f t h e

R e v e n u e Commissionersw h o adviset h e DepartmentofFinanceo n t a x policy Inrecentyearstherehasbeenanincreasedfocusonthemotivesandattitudesoftaxpay erst o u n d e r s t a n d t h e i r b e h a v i o u r , t o i m p r o v e v o l u n t a r y compliancer a t e

s andincreasethetaxadministrationsefficiencies.

Thefocusofthis researchistolook atthis compliancer a t e throughthe introductiona ndapplicationoftheIrishpropertytaxes.Theresearchwillexaminetaxcompliance(seec hapter5),theeconomicreasonsfortheintroductionofthep r o p e r t y t a x e s , t h

Inhindsight,t h e challengem e n t i o n e d abovew a s g r o s s l y underestimatedatt h e

t i m e TheIrisheconomy was,upto 20 07 , a worldwidesuccessstory,but i t hasfa llenfartherthanmost sincetheglobalfinancialcrisis.

Between1990andAugust2007Irelandenjoyedagrowinglowtaxeconomy,itsgro wthencompassedl i v i n g s t a n d a r d s kerbedbyt h e recessioni n t h e 1 9 7 0 s andhars htimesduringthe1980s.Improvedlivingstandardsgaverisetoheightenedexp ectationsw i t h a s k i l l e d generationc o m p l e t e w i t h increasededucationalqualific ationscombinedw i t h favourabledemographics,anincreasedn u m b e r o f s k i l l e

d workersenteredthelabourmarket(Kinsella2012).TheEUsinglemarketcombined

w i t h o u r geographicalp o s i t i o n i n g , t a x ratesands k i l l e d workforcem a d

e Irelandattractiveforinwardinvestment,especiallyfromtheUScontributingt o i ncreasedIrishe x p o r t s (EuropeanC o m m u n i t y 2 0 1 3 ) T h e economicdyna micalteredfrom2002onwardswhererisingpropertypricesf u elleda„credit‟societ yandtheinherentdesireto„ownyourownhome‟fuelledmass-

Theriskylendingfromthe bankingsectorgrewdisproportionatelywith shorttermborrowingsfromabroads u p p o r t i n g themarket.T h e regulationinthis ar eawasp assiveand„ l ightt o u c h ‟ andh asb eencriticizedh arshlysincet he collapseas

a contributingfactor.Thegovernmentenactedlegislationfor€400billionguarantees chemeonthebanks‟liabilitieswithnationalisationofAnglo-IrishBankcosting

€35bn (3%of GDP)3.IrelandsoughtanEU/IMF/ECB4bailoutof€85bn in 2010.5

Table 2.TheBailout inNumbers,SourcedIrishIndependent23/10/2013

3Reaching

€40bnincludingAlliedIrishBankandIrishNationwideBuildingSociety

Union(E.U.)/InternationalMonetary Fund(I.M.F.)/European CentralBank(EC B) referredtoasIMFbailoutfromhereon

5Appendix

2EurostotheRescueandAppendix3EurozoneBailouts

Q4 – 20117 This was the commencement of the household charge Number 8 of

the Memorandum was an increase in the property tax by Q4 - 2012 which was the introduction of the local property tax as it currently stands.

The IMF conducted twelve reviews during this time8 and Ireland officially exited the bailout programme on the 15th of December 2013 when Ireland was formally

Althought h e governmentbegant o implementa u s t e r i t y measuresdesignedt o re

storesus ta in ab il i t y toi t s p u b l i c finances,t h e IMFbailoutcamew i t h stringentco

Irelandintroducedt h e p r o p e r t y t a x e s whenr e q u i r e d t o d o s o , b u t i t hadbe

endabblingi n ando u t ofd o m e s t i c p r o p e r t y t a x e s f o r o v e r f i f t y yearst o gene