2025 Public Sector Perspectives

Enforcement and compliance measures Ensuring taxpayer compliance with tax regulations is a challenge in many countries, leading to various enforcement actions. If an efficient tax system is to be rooted in public trust, it is crucial for governments developing policies to focus on institutions with proven track records. For instance, Estonia aims high with its policy objectives, striving to achieve one of the highest voluntary tax compliance rates in Europe. The Estonian Tax and Customs Board (ETCB) actively works toward this goal by forming agreements with various digital platforms, allowing platformworkers to report their earnings to tax authorities with just a click. This user-friendly approach has led to 97% of tax returns being filed electronically, and an annual public survey by the ETCB shows that 91% of Estonians believe paying taxes is a civic duty. Luxembourg serves as another successful example of enforcing tax compliance through the adoption of an Anti-Tax Avoidance Directive. This directive includes five anti-avoidance measures that took effect in early 2019, based on the Anti-Tax Avoidance Package proposed by the European Commission. One key measure is ‘exit taxation,’ which prevents companies from relocating their assets solely to avoid taxes. Encouraging innovation Building institutional capacity and enforcing tax compliance measures are both crucial for establishing a trustworthy tax system. However, in rapidly modernizing economies, it is also important for tax systems to reflect current trends and income flows. For instance, green taxation measures address urgent concerns about climate change by allowing governments to combat rising global temperatures while generating fiscal revenues. These measures leverage taxation as a public policy tool to effectively influence behavior and consumption patterns. In Spain, the introduction of an explicit Carbon Tax in 2014 meant that fluorinated greenhouse gases were directly taxed. The tax rates were set by weight (in kilograms) and followed the polluter pays principle, ensuring that rates were proportional to their global warming potential and could be adjusted through the Annual Budget Law. Guyana also implemented an Environmental Tax, but as a levy on imported non-returnable containers. In 2017, this tax was raised, levied and collected at a rate of $10 per unit. The Guyana Revenue Authority believed this would encourage recycling and increase tax revenues. Another example of how green taxes can influence public behavior is the plastic bag tax in England. In 2015, all supermarkets introduced a 5p charge for carrier bags, which was increased to 10p in 2021 and extended to all businesses. As a result, the use of single-use supermarket plastic bags at major retailers has decreased by over 97% since 2015. 3 The average person now buys about three single-use carrier bags a year frommajor supermarkets, compared to 140 in 2014. 4 Similar to green policies, governments that think creatively can expand their tax base. It is beneficial for revenue authorities to explore ways to tax digital income streams and use technology to improve efficiency and tax revenue generation. For instance, in India, the Goods and Services Tax E-Way Bill aims to reduce GST evasion by requiring digital documentation for goods transported within the country valued over Rs50,000 (approximately $600). This system allows for real-time validation of transactions, helping authorities identify discrepancies between E-Way bills and GST returns. Shortly after the systemwas introduced, tax officials reported a positive impact on tax collections. 3 https://www.gov.uk/government/publications/carrier-bag-charge-summary-of-data-in-england/single-use-plastic-carrier-bags-charge-data-for-england-2021-to-2022 4 https://www.gov.uk/government/publications/carrier-bag-charge-summary-of-data-in-england/single-use-plastic-carrier-bags-charge-data-for-england-2021-to-2022 Citi Perspectives for the Public Sector 49