Deterre NCE Risk And Tax Enforcement Strategies For High-Income Individuals

It is a quite universal phenomenon in China that high-income individuals escape from paying taxes. How to regulate them effectively has become a tough problem for the tax compliance work to be solved. Based on surveys and simulation experiments, in this paper, an analysis is made of high-income individuals’tax compliance decisions at deterrence risks. In addition, on this basis, the way to realize optimal tax compliance decisions of high-income individuals is also explored.Firstly, the game theory and other related methods are adopted to make research on the relationship between deterrence risk and tax compliance decisions and demonstrate the positive correlation and substitutability between the detection rate, the penalty rate and tax compliance. Moreover, the equilibrium analysis, marginal analysis and other methods in microeconomics are used to figure out the way to realize the optimal tax policy, which turns out to be:providing positive incentives to taxpayers based on the deterrence law enforcement and implementing policies combining rewards with punishments.Secondly, based on a questionnaire analysis, a comparative test is done for collection and management factors that would affect the tax compliance of high-income individuals. The test results show that among various factors, the detection rate and credit incentives establish a higher relevance with tax compliance decisions of high-income individuals.Lastly, based on simulation experiments, a comparison is made between tax compliance decisions of high-income individuals and low and middle-income individuals under different law enforcement strategies. According to the analysis of experimental results, it can be seen that among various tax law enforcement factors, the detection rate has the most significant impact on high-income individuals’tax compliance, while the penalty rate exerts little impact. Among various combinations of tax enforcement strategies, the combined enforcement strategy based on both deterrence and rewards is not as effective as that of the high detection rate. However, from the perspective of the cost-benefit principle, the high detection rate is superior to other combinations of strategies with no incentive mechanism.Based on comprehensive theoretical and empirical analyses, the author believes that the optimal tax compliance decision of high-income individuals is to make tax authorities under the constraint of limited enforcement resources and rationally adopt deterrence and incentives such as the detection rate, the penalty rate, the credit incentives and tax services, thereby maximizing the promotion of taxpayers’ compliance with the tax laws and regulations. To gain a high level of tax compliance of high-income individuals, tax authorities not only have to improve the detection rate to impose law enforcement deterrence, but also should create a favorable tax payment environment to provide positive incentives through offering awards. The strategy based on both enforcement and services would bring a more harmonious relationship between tax collectors and taxpayers. Based on problems existing in the current tax law enforcement mechanism in China, it can be concluded that improvement should be made for tax administrations by improving the tax check probability, optimizing the tax penalty system and reshaping tax incentive mechanisms and other means, in order to achieve goals mentioned above.