The cost of convenience: Are pre-filled returns a shortcut to tax evasion?

Monash Business School PhD candidate Agustina Amardi.

January 15 2024

Monash Business School researcher Agustina Arumardi is challenging the belief that simplifying tax returns boosts compliance. Her study suggests pre-filled forms could actually be counterproductive.

Taxes may be an unavoidable part of life, but ensuring people pay their fair share can be a challenge.

To streamline the process, many governments - including Australia’s - have turned to technology, simplifying tax returns through pre-populated forms.

However, a new study by Monash Business School PhD candidate Agustina Arumardi challenges the assumption that making tax returns easier will lead to better compliance.

Ms Arumardi, from the Department of Business Law and Taxation, said pre-filled tax returns were launched in Australia for the 2006-07 financial year, and by 2021 included 26 different types of pre-populated data.

“The ATO is known as the leader in comprehensive and various third-party data in the Asia Pacific Region,” she said.

Even so, recent analysis showed the ATO model has failed to significantly lower tax compliance costs.

“This finding hints at the difficulty of accurately predicting the effects of pre-filling, despite the touted benefits,” she said.

With 15 years of experience working closely with the Indonesian tax authority, Ms Arumardi brings a unique perspective to the psychology behind taxpayer behaviour.

“The Indonesian tax authority is focused on building trust with taxpayers to encourage them to meet their tax obligations willingly, and one way they're doing this is by improving taxpayer services through pre-filled tax returns,” she said.

While intended to increase compliance, Ms Arumardi suspects the approach might be backfiring.

“Previous research suggests pre-filled tax returns can lead to non-compliance, or tax evasion, where taxpayers underreport their income,” she said.

This could be due to a range of factors, from a reduced sense of responsibility to deliberately omitting additional income sources.

To test her theory, Ms Arumardi will conduct a comprehensive analysis of historical Indonesia tax data, alongside a laboratory experiment to investigate the reasons behind non-compliance behaviours triggered by pre-filled tax returns.

“The primary aim of my study is to assess the effectiveness of pre-filled tax returns in reducing compliance costs and administrative burdens, while also examining the inadvertent effects that may lead to non-compliant tax behaviour,” she said.

The potential implications of her research are far-reaching and could force a dramatic rethink of tax policy worldwide.

“This research aims to inform Indonesian policy-makers and tax authorities about effective strategies for improving taxpayers’ service and enhancing compliance," she said.

"It could influence policy, raise awareness about tax compliance issues, and contribute more broadly to the understanding of tax compliance behaviour. Ultimately, I hope to contribute to the development of tax systems that are both efficient and equitable."

Beyond the academic implications, Ms Arumardi is passionate about the broader impact of her work.

“Effective tax administration is crucial for development and economic stability,” she said.

“Improving tax compliance not only strengthens government finances, it also contributes to broader societal wellbeing, stability, and a sustainable future for Indonesia and beyond.”

Her supervisor, Professor John Bevacqua, said Ms Arumardi’s work would provide new and valuable insights into tax compliance attitudes and behaviours.

“Agustina's work does this in an Indonesian context,” Prof Bevacqua said.

“However, its importance and timeliness extends beyond Indonesia, providing valuable insights for tax administrators and policy makers keen to harness technology and data to foster voluntary tax compliance and close the tax gap.”

Ms Arumardi said Monash Business School had provided a fertile ground for her research.

“As a student, I appreciate the academic programs and the expertise of the faculty members who bring real-world experience,” she said.

“Monash Business School often provides opportunities for students to connect with other researchers through seminars, workshops, and networking sessions.”