Improving trust in tax to build a better world

Global challenges — from the pandemic to climate change — have underscored the importance of creating a more sustainable world. As governments seek to address environmental and social issues, however, they face a crisis of trust. And that lack of trust threatens the key resource at any government’s disposal to meet today’s challenges: tax revenues.

Building trust in the tax system is, and will continue to be, a high priority. The question is, how?

We know from the work of the Organization for Economic Cooperation and Development (OECD) and others that messages must come from trusted sources in order to be trusted. Research within G20 countries — a group of 20 of the world’s largest economies — shows professional tax accountants are the most trusted players in relation to tax systems. Connecting the dots between the two points is simple: Professional accountants have a critical role to play in educating the public about the power and impact of taxes.

And let's be clear what's at stake. Without effective tax systems, governments cannot deliver on the UN’s Sustainable Development Goals (SDGs). Accordingly, the accountancy profession's role in tax education is one as enablers of the UN SDGs.

After nearly a half century in this business — as a tax practitioner, Canada’s senior-most tax official, CEO of PwC Canada and CPA Canada, and now as CEO of the International Federation of Accountants (IFAC) — I’ve acquired a panoramic view of the issues involved and recognize how crucial it is for policymakers to understand the varying levels of trust that exists within the global tax system — both in developed and emerging economies — in order to drive better outcomes.

Motivating voluntary tax compliance

 For governments to have the resources to engage in critical programs to meet the SDGs, they must be able to collect taxes efficiently. Yet only 43% of citizens trust their tax authorities, while 22% actively distrust them, according to a 2021 global survey conducted by IFAC, Chartered Accountants Australia and New Zealand (CA ANZ) and the Association of Chartered Certified Accountants (ACCA).

If citizens don’t understand and trust the tax system, they are less likely to comply. Research shows, however, people do understand the value of taxes. Two-thirds of survey respondents strongly supported using the tax system to promote social good, including helping individuals and small businesses recover following the pandemic and tackling global challenges such as the climate crisis.

Knowing the tax system supports those goals can improve people’s “tax morale,” making them more likely to pay their taxes. The lower the incidence of tax evasion, the more resources governments have at their disposal to pursue sustainable development efforts.

The importance of building trust across developing and emerging economies

 The survey IFAC conducted with the ACCA and CAANZ in September 2021 provides a snapshot of public trust in G20 tax systems. However, given the global scale of sustainability challenges, we need to understand the trust landscape beyond the G20 countries — particularly in those countries where the distance to achieving the SDGs is most severe. That’s why I am excited to announce the next iteration of our Trust in Tax series: Global Perspectives.

Trust in Tax: Global Perspectives will look at countries including Nigeria, Angola, Ivory Coast, Guatemala, Vietnam and Pakistan to better understand public attitudes toward tax. The final report will be published in partnership with the ACCA in the third quarter of 2022.

We hope to see similar levels of trust in professional accountants in these countries as we do within the G20, so we can activate the global accountancy profession to help improve tax education and accelerate progress toward the SDGs. If a similar level of trust isn’t there, however, we’ll be laser-focused on building it. This is a role perfect for IFAC as the global convener of professional accountancy organizations and key stakeholders across the tax spectrum.

How IFAC is supporting financial literacy and tax education

 IFAC’s position at the center of the global accountancy profession gives us a unique opportunity to facilitate our members’ engagement in tax education. We’ve taken the first steps in that process by supporting research to produce a baseline measurement of the public’s current sentiment toward taxes.

But tax education is only one piece of a broader and critically important issue — financial literacy. We must continue and strengthen our efforts to support financial literacy, such as participating in IOSCO World Investor Week. We also strongly encourage engaging with stakeholders and partnering with regional financial literacy organizations including the American Institute of Certified Public Accountants’ Financial Literary Resource Center, CPA Canada’s Financial Literacy Program and the Hong Kong Institute of Certified Public Accountants’ Rich Kid, Poor Kid program.

With the lingering pandemic, the ongoing climate crisis, and elevated geopolitical and economic tensions, enhancing the trust and effectiveness of government institutions is even more important. The accountancy profession must actively embrace its position to help the public better understand their local tax systems and continue to provide necessary resources to strengthen overall trust in the global tax system — as enablers of the UN SDGs.