Now that this year’s tax-filing season has come to an end, it occurs to me that for all the efforts to simplify this process, the ecosystem that supports a tax system must continually adapt to the changing elements in its environment. Whether it is the continual effort to simplify processes or the need to update the numerous forms that are impacted by changing regulations, the goal is to effectively collect taxes in a way that is fair, accurate and voluntary.
Higher voluntary compliance offsets the need for expensive enforcement actions. Government agencies that deal with assessing and collecting taxes are learning how to apply analytics, combined with behavioral science, to improve compliance up front.
Recently, I had the opportunity to speak with my CGI colleagues John Goodwin and Gordon Smith, who are delivering tax and revenue solutions around the globe, about the expanding role of behavioral science in this domain. Here are some of the global trends we’re seeing.
- Use of behavioral science is expanding. For the past few years, CGI has worked with government and commercial entities seeking to apply behavioral science techniques, such as behavioral intention and the social norms approach, to drive desired payment behaviors. Recently, we have seen agencies begin to apply behavioral science considerations before the taxpayer files. For example, behavioral science can inform the creation of targeted paper-based and online forms in ways that encourage greater compliance.
- More data exists to help define population segments (and target techniques to those population segments) than ever before. Historically, taxation authorities would focus on tax return data when engaged in activity within the tax/revenue domain, such as leveraging predictive analytics for audit and enforcement. With the emergence of social network analysis and the wealth of data available from third parties, revenue organizations can more directly influence voluntary compliance through behavioral segmentation, reducing the need for enforcement against those who owe taxes. However, these agencies need to consider various privacy laws that govern the use of expanded data sets in decision making.
- Social norming is generating significant returns for other industries and could be more broadly applied within the taxpayer compliance arena. With improved ability to appropriately segment populations, agencies can tailor messaging based on social norms—a concept that suggests that most people will do what others do and are strongly influenced by others like them. When consumers receive power bills that include a comparison of their usage to their community average or neighboring populations, the power company is using social norming to encourage reduced energy consumption.
That same approach of social norming can be used to drive voluntary tax compliance. Organizations can create studies and conduct A/B testing of various messages to increase timeliness of quarterly filing, for example, in order to ascertain the most effective messaging to improve voluntary compliance.
Expanding behavioral science techniques within the tax compliance toolkit has the potential for measurable return on investment in improving voluntary compliance. John and Gordon will have more to say about this in their own blog posts, coming soon.