Improving tax governance in EU Member States: Criteria for successful policies

This paper discusses how the efficiency of the tax administration can be improved and analyses specific ways to combat tax evasion and the shadow economy. It presents operational criteria to assess the adequacy of policy responses in the area of tax governance.

An efficient and effective tax collection is a prerequisite for financing European welfare states. While aiming at collecting the full amount of taxes payable in accordance with the law, tax administrations also have to pay due attention to their collection costs and the administrative costs businesses and individuals face when paying taxes. Achieving a high share of voluntary compliance among taxpayers allows the tax administration to concentrate its efforts on those taxpayers who try to evade taxes. The paper analyses what characterises efficient tax administrations. They implement an overall compliance strategy and focus audit efforts on the largest revenue risks. They distinguish between providing service to those who voluntarily comply and control for those who don't. They use third-party information comprehensively and provide pre-filled tax returns to taxpayers to both make it easy to pay taxes and at the same time limit the taxpayers' ability to evade. The paper shows that it has proven important to underpin tax morale and to benefit from tracking possibilities of electronic means of payments to successfully fight the shadow economy.