Tax Literacy: the foundation of compliance?

This article describes some foundational tax literacy gaps and their impact on individual tax compliance via case studies and analyses them through the lens of the Australian Taxation Office (ATO) compliance model. While this model assumes that most taxpayers are voluntarily compliant and advocates for educational assistance for taxpayers at risk of non-compliance. the case studies reveal deficiencies in the model's application. To remedy this, the article recommends that the ATO's compliance model explicitly consider taxpayers' literacy levels so that appropriate and timely help can be provided. The article also recommends that tax literacy programs target the specific tax literacy deficiencies identified in the case studies. These recommendations also apply to New Zealand since it has similar tax laws, and the New Zealand Internal Revenue Department (NZIRD) uses a compliance model similar to the ATO's. Other jurisdictions with similar laws and compliance improvement approaches could also benefit from the recommendations made.