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Study on Individual Income Tax Compliance Behavior Based on Prospect Theory

Author: YangYao
Tutor: LiuHua
School: Huazhong University of Science and Technology
Course: Business management
Keywords: Individual income tax tax compliance prospect theory experimental economics
CLC: F812.42
Type: Master's thesis
Year: 2010
Downloads: 91
Quote: 1
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Abstract

With the development of economy and the enhancement of people’s income in our country, individual income tax total income increases year by year and individual income has gradually become the main source of fiscal revenue. However, this thesis estimate s that the loss scale of individual income tax in China during 2009 is 19.38% and the integral compliance of individual income tax is 83.77% by using statistical data. Furthermore, some social material and data confirm in our country there are many problems about the individual income tax, such as that the phenomenon of high-income people escape paying taxes is very serious, the ratio of gray income in the national income is high and the“reverse adjust”of the individual income tax.In order to enhance the compliance of individual income tax in our country, display the role of individual income tax to adjust income distribution, narrow the gap between rich and poor and safeguard social fairness, the thesis establishes the tax compliance mode based on prospect theory, analyzes the factors that affect the taxpayer’s compliance and utilizes the prospect theory to explain the taxpayer’s behavior in our country. Comparing with overseas tax system, the tax system in our country has fundamental difference, currently our country adopts the subentry income tax system, but many west countries adopt consolidated income tax system. The difference between the subentry income tax system and consolidated income tax system will result in different taxpayer’s behavior. Under the subentry income tax system, taxpayer’s income is divided into 11 terms of taxable income. Each term of the taxable income has different fine rate, auditing rate and tax rate. According to the tax compliance mode, taxpayer’s tax compliance degree in each taxable income is not consistent, taxpayer will make complete compliance, partial compliance and complete non-compliance depend on the fine rate, auditing rate and tax rate of each term of taxable income.With the purpose of deep research taxpayer’s tax compliance behavior in our country and verify the effectiveness of prospect theory, the thesis introduces the method of experimental economics that simulate the real taxpaying procedure to observe the taxpayer’s tax compliance behavior. Experimental studies find that increasing auditing rate and moderate prepay tax both can enhance taxpayer’s tax compliance degree, these results also confirms the effectiveness of the prospect theory.In the end, based on the theoretical study and empirical study, the thesis put forward three policy proposal including perfect gray income tax collection and management system to prevent the loss of individual income tax, implementation of advance payment system to enhance high-income people’s tax compliance degrees and adopt the way of impose individual income tax on family unit to narrow the gap between poor and rich in our country.

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CLC: > Economic > Fiscal, monetary > Finance, the state's financial > China's financial > Financial income and expenditure > Tax
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