IPSAS: Catalysing fiscal transparency and voluntary tax compliance

Driven by the pursuit of long-term development, Oman launched its Vision 2040 with the aim to transform the Sultanate of Oman into a knowledge-based economy by 2040. The plan envisions a diversified economy that is less dependent on oil and gas revenues, and focuses on creating new industries, enhancing productivity, and promoting innovation. In addition, this vision aims to attract both local and foreign investments, resulting in increasing the country tax revenues, which in turn supports the government’s financial stability.
In this context, an effective and good public governance system is essential for promoting voluntary tax compliance. While governments globally constantly strive for tax reforms and to facilitate tax payments, which is certainly important for tax collection—trust in government among taxpayers, both individuals and business, remains the most crucial factor in ensuring voluntary compliance and preventing tax evasion.
To foster this trust, taxpayers expect that public funds, including collected taxes, will be managed properly and utilised to develop public services. This is where good public governance comes in, ensuring rational decision-making regarding these funds as well as providing governmental transparency and accountability.
As one of the most important tools of achieving good public governance, governments around the world have sought to adopt International Public Sector Accounting Standards (IPSAS) in achieving this goal. Statistics from the International Federation of Accountants (IFAC) showed that more than 80 member states have adopted or are in the process of adopting these standards.
The widespread adoption of these standards stems from their role in providing an effective government accounting system that delivers high-quality financial information, transparency in government financial reporting, sound financial decision-making processes and enhancing efficiency of government spending. Consequently, IPSAS certainly will enable Oman to fulfill the key objectives of its national Vision 2040.
From a tax compliance perspective, IPSASs has a direct benefit. By demonstrating transparency and accountability through internationally recognized standards, government will instill trust among the society in their fiscal systems resulting in increased voluntary compliance with tax obligations as opposed to reliance on the use of enforcement and penalties to enforce tax compliance.
Furthermore, adopting IPSASs strengthens the ability of governments to better plan financially and allocate resources, which improves service delivery. As taxpayers see visible improvements in infrastructure, education and all public services, their relationship with the government will improve and thus further strengthen their compliance with taxes due to them.
Significantly, the adoption of IPSASs has its challenges due to the need for investment in capacity building, upgrading financial systems, and resistance to institutional changes. However, the long-term benefits of greater transparency, improved governance and increased society trust are huge reasons for investing in these standards as a future strategy.
In conclusion, the necessary reforms to improve tax compliance include not just regulatory reform, but additionally a solid governance framework through transparent financial practices. The adoption of IPSASs contributes significantly to fulfilling this objective by improving transparency, accountability, developing trust and promoting sustainable public financial management.