Enhancing tax morale in Sri Lanka: Path to sustainable compliance

THIS timeless quote encapsulates the essence of tax morale-the belief that paying taxes is not merely a legal obligation, but a civic duty that upholds the social contract between citizens and the state. In Sri Lanka, where economic recovery and institutional trust are at a critical juncture, enhancing tax morale is not just desirableit is imperative.

- By Rifka Ziyard

Understanding tax morale

Tax morale refers to the intrinsic motivation of individuals and businesses to comply with tax laws, beyond the deterrent effect of audits or penalties. Tax morale is fundamentally rooted in trust in the Government. While it is also shaped by perceived fairness, transparency, and civic responsibility, it is the confidence that citizens place in the Government that most strongly influences their willingness to comply with tax laws voluntarily.

When tax morale is high, it leads to an increase in voluntary compliance. When it is low, evasion and resistance become more prevalent, weakening the fiscal foundation of the state. Tax morale reflects how citizens perceive the legitimacy of the tax system and their role within it-it is a mirror of the broader relationship between the State and the public.

Why tax morale matters

Tax morale is a cornerstone of a resilient and equitable tax system and revolves around the willingness of citizens to pay taxes. It reflects public trust in the Government, perceptions of fairness, and the belief that tax revenues are used responsibly. In Sri Lanka's current context, where economic recovery hinges on both revenue generation and social equity, strengthening tax morale is essential. When people feel the system is just and transparent, compliance improves, tax revenues rise, and the tax burden can be shared more fairly.

Its significance lies in several key areas:

Boosts voluntary compliance: When citizens believe the tax system is fair and transparent, they are more likely to comply willingly. This reduces the need for costly enforcement measures such as audits, penalties, and legal proceedings. A high level of voluntary compliance also improves efficiency within tax administration and fosters a culture of civic responsibility.