The consistency rule concerns treating all individuals equally over time. The rule
prescribes that allocative resources should be distributed across persons and over time. Leventhal (1980) argues that individuals may believe that procedural fairness is being violated if the procedures appear to lack any consistency. Tyler (2007) adds that individuals would tend to seek a level playing field in which no one is disadvantaged, including them.
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Individuals would therefore expect the authorities to base their decisions on the consistent application of the rules and the objective facts.
In order for the taxpayer to accept any outcome from a disputes process, the tax authority must be seen to be consistent in their treatment of all individuals in disputes with the tax authority. Taxpayers who perceive that they are treated in a similar manner to others, and having the tax rules applied in a consistent manner, will tend to be more accepting of the outcome than if they perceive that the disputes process was being applied inconsistently across taxpayers.
3.5.2 Accuracy
The accuracy rule refers to the correctness and quality of the decision-making process. The accuracy rule prescribes that the allocative process should be based on good information and an informed opinion. Leventhal (1980) maintains that procedural fairness will be violated if inappropriate information was provided, or information required for the decision making was provided by incompetent observers. It is, therefore, important to ensure that accurate information is provided by competent observers in order to ensure that the procedural fairness of the process will not be perceived to be violated.
The accuracy rule requires the tax authority to ensure correct and accurate information is gathered and used in making decisions relating to the imposition of penalties. Further, the tax authority should ensure that the person who makes the decision (to impose penalties, or the quantum of penalties), must be properly qualified to undertake the task and make the correct decision.
3.5.3 Bias Suppression
The bias suppression rule refers to not allowing any favouritism or external bias to enter
into the disputes process. Leventhal (1980) maintains that procedural fairness may be perceived to be compromised when there is unrestrained self-interest or devotion to doctrine. Tyler (2007) adds that people are influenced by judgments about neutrality, and that individuals expect the authorities to deal honestly, impartially and objectively, and not to allow their personal values and biases to influence their decisions.
For the tax authority, the bias suppression rule means that any process carried out under the penalties regime, or any other disputes process, should be perceived to be free from any institutional bias, and bias from individual officers. Taxpayers would expect the tax authority to treat them fairly, impartially and objectively during any disputes process.
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3.5.4 Correctability
The correctability rule is concerned with the flexibility to amend unfair or inaccurate decisions made. Leventhal (1980) contends that the availability of formal or informal appeals procedures at various stages of the allocative process will increase the perceived level of fairness towards the procedure. Individuals are more likely to accept an unfavourable outcome if they perceive that there is an opportunity available for the individual to correct any incorrect decision that may have been made based on incorrect information or assumptions.
Consistent with the PJT, the availability of an appeals procedure in any tax disputes resolution process will enhance taxpayers‟ perception of the fairness of the process. The tax authority should therefore provide a process, whereby taxpayers can dispute the tax (or penalties) position adopted by the tax authority. Taxpayers‟ perceptions of procedural fairness will increase if the tax authority provides legitimate avenues for disputing the decisions made by the tax authority, such as, an independent appeals and review unit.65
3.5.5 Representation
The representation rule refers to the opportunity given to the disputant to be involved in
the disputes process. Leventhal (1980) contends that those who are affected by the proposed decisions should be represented in all phases of the disputes process. Leventhal (1980) adds that individuals will attribute greater fairness to allocative procedures when the individuals are involved in the decision-making process. Tyler (2007) adds that individuals will perceive a process to be fair if they are allowed to participate in the resolution of their problems and conflicts. Tyler (2007) maintains that the positive effects of giving respondents the opportunity to participate have been widely supported.
From a tax perspective, the representation rules should ensure that taxpayers‟ views are included in any tax disputes they may have with the tax authority. Further, the taxpayers‟ perception of procedural fairness will be compromised if the tax authority does not involve the taxpayer in the disputes process involving the individual.
3.5.6 Ethicality
The final justice rule, ethicality, prescribes that allocative procedures must be consistent with basic moral and ethical values of individuals. Leventhal (1980) contends that perceived fairness will be reduced when allocative procedures violate personal standards of ethics and
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The Adjudication Unit in the IRD, which operates impartially and independently, provides taxpayers with a legitimate platform to dispute the tax authority‟s decisions.
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morality. Leventhal (1980) further adds that another important aspect of ethicality is that the procedures used should also support individuals‟ self-respect. This suggests that the authorities should treat individuals politely and with respect. Support for the ethicality rule is provided by a number of researchers who considered the importance of recognising individuals‟ need to be treated politely and with respect (for example, Tyler & Folger, 1980; and Tyler, 2007).
The ethicality rule should also apply in any tax disputes process. Taxpayers will expect all aspects of any disputes process to be consistent with the taxpayers‟ moral and ethical values. If the disputes process adopted by the tax authority is perceived to violate the taxpayers‟ personal standards (which can differ for different taxpayers), perceived fairness of the procedure will be reduced. This will lead to taxpayers not accepting the outcome of the disputes process.
Whilst Thibaut and Walker‟s (1975) research focuses on judgments of process control, which are used to evaluate the fairness of procedures applied in resolving disputes, Leventhal‟s (1980) focus was on the use of justice rules to evaluate the fairness of allocative procedures. The six justice rules identified above posit that the relevant defined criteria must be satisfied for a procedure to be perceived as fair.
PJT suggests that the basic criteria used to evaluate the fairness of procedures may change with circumstances, so that an individual can apply procedural rules selectively and follow different rules at different times, based on circumstances (Leventhal, 1980). Leventhal (1980) adds that in some situations, one justice rule may be more relevant than others, resulting in judgments of procedural fairness being dominated by that particular rule. Conversely, in other situations, several justice rules may be relevant, which jointly influence the judgments of procedural fairness. Further, the influence of a justice rule on individual‟s judgments of procedural fairness is expressed as its weight. Justice rules with greater weights are considered to have greater impact on judgments of procedural fairness, and vice versa.
Murphy (2003) observes that concerns about fairness of procedures remain high, despite criticism from opponents of the theory, who suggest that individuals are more concerned about the favourability of their outcomes, and less concerned about the fairness of procedures (Casper et al., 1988; and Lind et al., 1993). Tyler and Smith (1998) maintain that most individuals‟ behaviours are strongly associated with perceptions about justice and injustice. Further, procedural justice literature provides evidence to support the view that individuals‟ experiences with the authorities influence their evaluations of the fairness of the procedures adopted by these authorities (Lind & Tyler, 1988; and Tyler, 2000; 2001). In a tax context, if
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individuals perceive a procedure adopted by the tax authority to be unfair, they are more likely to challenge the authority‟s decisions.
3.6 MOTIVATIONAL POSTURES (SOCIAL DISTANCE)
Motivational Posturing Theory (MPT) was derived from empirical analysis of regulatees and how they perceive those (authorities or regulators) who try to regulate them (Braithwaite and Job, 2003).66 MPT draws on three bodies of research; first Merton‟s (1968) Theory of Modes of Adaptation, which acknowledges that socially valued goals can be obstructed, and how individuals will use any means to achieve these goals. The second contributor is PJT and Distributive Justice Theory (DJT), which recognises the importance of social bonds in determining regulatory effectiveness. Finally, Attitude Theory (Lazarus & Folkman, 1984) and Stress Theory (Rokeach, 1973) links the goals and relationships together.
Arguably, anything that jeopardises an individual‟s sense of self (for example, an obstructed goal) will result in the evaluation of the threat, and the coping responses, in order to protect the self (Rokeach, 1973; and Lazarus & Folkman, 1984 – cited in Braithwaite and Job, 2003). The coping responses in MPT allows social distancing from the authority, so that any „pro-compliance messages‟ cannot be heard, or not processed in relation to the protection or promotion of one‟s sense of self-worth. The objective for those using response regulations is therefore to reduce the social distance between the regulator and the regulatees, in order to increase the regulator‟s ability to influence the regulatees.
Prior research has used motivational postures to capture the “way regulatees position themselves in relation to regulatory authority” (Braithwaite, 2003a, p.17). Braithwaite (2003a) contends that while authorities have legal legitimacy, they may not have psychological legitimacy. Authorities tend to be evaluated in terms of what they represent and their performance. Individuals and groups tend to develop positions in relation to the authority, based on these evaluations. The psychological concept of this positioning is referred to as social distance (Bogardus, 1928- cited in Braithwaite, 2003a). This term is used to describe the stances that taxpayers openly express in their relationship with the tax authority.
In terms of tax compliance behaviour, the social distance or motivational postures are considered to account for the self-positioning of taxpayers relative to the tax authority (Braithwaite, 2003a). These postures reflect the underlying beliefs and attitudes, which are shared, borrowed, challenged, and elaborated through social communication. Five
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motivational postures, ranging from deference-oriented postures to defiance-oriented postures, were identified as being relevant to tax compliance behaviour: commitment, capitulation, resistance, disengagement, and game playing (Braithwaite, 2003a).
Commitment represents beliefs about the desirability of tax systems and moral obligations
to act in the interest of society at large, and pay one‟s tax willingly. Capitulation reflects acceptance of the tax authority as the legitimate authority that will use its power if necessary. Resistance refers to a sense of apprehension towards the tax authority‟s intentions, and to resist the tax authority‟s power. The disengagement posture represents taxpayers who display contempt for the tax authority, and who have decided to disengage from the tax system, thus putting the most social distance between themselves and the tax authority. This is the most difficult posture for the tax authority to deal with (Braithwaite et al., 1994). The last motivational posture, game playing, described as attitude towards the legal rules was a later addition (Braithwaite, 2003a).67
Braithwaite (2003a) contends that motivational postures are not directly related to behaviour, on the basis that they are fairly broad and attitudinal, rather than specific and behavioural. However, whilst they may not lead directly to certain behaviour, they may precede behaviour. The research model in the current study is based on the TPB, which uses attitudinal variables to predict compliance behaviour. Accordingly, it should be acceptable to include measures of motivational postures to extend the research model proposed for this study. In a tax context, motivational postures or the social distance are considered to account for the self-position in relation to the tax authority (Hartner et al., 2008).
3.7 SUMMARY
This chapter presented and described the Theory of Planned Behaviour (TPB) and selected theories underpinning some of the constructs used in the TPB Model. A more comprehensive review of the TPB was provided because the TPB Model is used as a theoretical framework to develop the research model.
The TPB and its predecessors were developed from Expectancy-Value Theory, which provides a framework for understanding the relationship between attitudes and beliefs, and its influence on motivation to engage in the behaviour of interest. The TPB Model provides an insight into factors that motivate people‟s behaviour, by examining their beliefs about the outcome from performing the target behaviour, and how this outcome results in attitudes towards the behaviour. The key elements of the TPB were discussed in depth, which include,
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attitudes toward the behaviour, subjective norms, and perceived behavioural control. The effect of behavioural intention on behaviour was also discussed. A large body of empirical research, some cited in this study, provides support to the predictive validity for the TPB, thus providing justification for its use in the current tax compliance research.
This chapter then introduced Deterrence Theory and its development from the original work of Becker (1968). Deterrence Theory is based on the rational person, who seeks to maximise utility. Criminal behaviours are deterred by either increasing the probability of arrest, the certainty of conviction of those arrested, or the severity of the punishment. From a tax perspective, the increased probability of detection for noncompliance, together with the increased certainty of punishment and the severity of the punishment, will act as a deterrent. In addition, this chapter discussed the three inhibitory elements of social control considered to control norm violations: fear of legal punishment, which is imposed by the state; fear of social disapproval, which is imposed by peers; and the influence of moral conscience, which is imposed by the individual.
Procedural Justice Theory (PJT) was then presented and was described as a process by which individuals apply one or multiple justice rules to determine the allocative fairness of a process. If the process is perceived to be procedurally fair, the authority will have legitimacy, and any decisions made by the authority are more likely to be accepted, even if the outcome is unfavourable.
The final section of this chapter described the social distance, or motivational postures, which were incorporated into the research model. Motivational postures are used by taxpayers to express their relationship with the tax authority. The postures range from compliance oriented attitudes (or deference) to noncompliance oriented attitudes (defiance), and individuals adopt different postures in response to different signals from authority. The more social distance individuals place between themselves and the tax authority, the more difficult it is for the authority to deal with this group. Conversely, those who place the least distance between themselves and the authority tend to accept the legitimacy of the authority, making it easier for the authority to regulate this group.
The present research draws upon the theories discussed in this chapter and builds these into the research model, which will be used to study tax compliance behaviour of New Zealand taxpayers. The next chapter of this study outlines the development of the research model (which includes the key variables based on theories discussed in this chapter), and the hypotheses, including the theoretical justification for the hypotheses tested.