Socially oriented taxation and how it is perceived (case study of a survey of economists-to-be)

Figure 1. The structure of respondents

□ Women       □ Men

Source: compiled by the authors.

to the administrative and territorial structure of modern countries. In addition, Muslims pay double taxes: zakat and traditional taxes in relevant tax jurisdiction. Zakat is part of the state tax system in Yemen, Libya, Malaysia, Pakistan, Saudi Arabia and Sudan. In nine more Muslim countries (Bangladesh, Bahrain, Egypt, Indonesia, Jordan, Iran, Kuwait, Lebanon and the United Arab Emirates), the state supports the institution of zakat by providing benefits to its payers (including mitigation of double taxation), as well as by taking part in spending the raised funds and (or) controlling their redistribution. In other Muslim countries zakat administration is carried out without state participation [3]. This situation is especially typical for countries where Islam is a predominant religion. It is easy to assume that in Russia zakat is not part of the tax system. However, it is voluntarily paid by Muslims to non-state funds.

Methodology and data

For the research purposes we conducted a survey of economists-to-be – Ph.D. sophomore, third- and forth-year students in Economics at Saint Petersburg State University⁴. All in all, 127 people answered the questionnaire. The sampling amounts to 870 people. The survey was conducted in April, 2015. The structure of respondents is presented in Figure 1 .

The questionnaire includes 20 statements comprising two semantic blocks: the first concerned the perception of social justice; the second – the respondents’ awareness about religious taxation with an emphasis on Islamic tax practice in the context of Islamic financial system functioning, which reflects the research subject ( Tab. 1 ). Data was collected by the authors through questionnaires in paper form.

Note that the statements of the questionnaire can be structured in two groups:

• 1)    depending on the content – into four blocks: a) the ethical framework of financial relations (1–5); b) mechanisms of support for socially vulnerable population groups (6–10); c) awareness of religious taxes and fees (11– 15); d) awareness of Islamic finance (16–20);

• 2)    by level of importance of the subjective factor – into two blocks: a) statements

Table 1. Content of the questionnaire

Questions related to perception of social justice Questions for estimating the level of awareness 1. Financial; relations must comply with strict moral principles 11. I am well informed about the specific features of religions taxes and fees 2. The financial system should foster socially equitable distribution of income in the society 12. Religious taxation is expedient regardless of the level of per capita income 3. Financial support for socially disadvantaged population groups should be provided by the state 13. Religious taxation makes economic sense in countries with a large percentage of religious population 4. Financial support for socially vulnerable population groups is an indispensable element of corporate social responsibility 14. Religious taxes and fees are usually charged by specialized religious organizations 5. The entire society is responsible for the financial support for socially vulnerable population groups 15. Religious taxes and fees are not included in the Russian taxation system 6. A special tax aimed at supporting socially vulnerable population groups should be introduced 16. I am well informed about the specific features of Islamic finance 7. Collection and distribution of funds to support socially vulnerable population groups must be dealt with by specialized private funds with public and transparent reporting 17. A key principle of Islamic finance is the prohibition of interest on loans 8. I am willing to give up part of income to support socially vulnerable population groups 18. Islamic finance exist in both Muslim and non-Muslim countries 9. I am willing to donate to specialized non-state funds to support socially vulnerable population groups 19. I am well infirmed about the specific features of Islamic taxes 10. Expenditures to support socially vulnerable population groups should influence the individual income tax 20. There are Islamic taxes in Russia Note. The authors deliberately did not include the question about respondents’ religions beliefs in the questionnaire as it would then be in some contradiction with the hypotheses about the awareness about alternative tax practices. However, this aspect was assessed in an indirect way. Respondents were asked to specify the region where they received secondary education. The regions were divided into two groups: 1) regions with predominantly Muslim population; 2) other regions. Accordingly, we introduced a dummy variable in the model, which, however, did not present any statistical significance. Income: compiled by the authors. concerning the subjective perception of the research subject including subjective assessment of awareness (1–10; 11–13, 16, 19); b) statements assessing the knowledge of religious taxation and Islamic finance (14, 15, 17, 18, 20).

Each statement implies the ranking of respondent’s attitude from negative (“completely wrong”, “rather not true”) to positive (“rather true”, “true”). In addition, the option “no answer” was also available. The distribution of answers is presented in Table 2 .

The first phase of the study was to test the hypothesis that low resp ondents’ awareness about alternative tax practices, including

Islamic tax, which is a significant phenomenon of the modern Islamic financial system.

The second phase we carried out modeling of tolerance to socially oriented taxation in the case of conditional tax resembling zakat.

The research hypotheses were formulated as follows:

H₀ : tolerance to the introduction of a particular tax does not depend on subjective (perception of social responsibility) and objective (gender, course of studies) factors.

H₁ : tolerance to the introduction of a particular tax depends on the factors under review.

Table 2. Distribution of respondents’ answers

No. of statement	Undecided	Completely wrong	Rather wrong	Rather true	Completely true
1	1%	3%	20%	59%	17%
2	0%	2%	13%	47%	38%
3	0%	2%	2%	39%	57%
4	0%	4%	48%	39%	9%
5	0%	3%	36%	48%	13%
6	2%	17%	46%	29%	6%
7	0%	4%	18%	48%	30%
8	0%	16%	41%	37%	6%
9	1%	6%	44%	45%	4%
10	2%	43%	27%	11%	17%
11	1%	50%	29%	14%	6%
12	6%	1%	14%	39%	40%
13	9%	13%	17%	51%	10%
14	15%	8%	21%	49%	7%
15	8%	9%	15%	29%	39%
16	5%	35%	17%	34%	9%
17	16%	2%	13%	32%	37%
18	14%	3%	24%	45%	14%
19	4%	44%	25%	22%	5%
20	13%	39%	35%	11%	2%
Source: compiled by the authors.

The modeling was implemented in the program Stata 11.

Our research is based on assumptions about low respondents’ awareness of the research subject. This hypothesis has fully confirmed.

In particular, more than half of the students admit that they are not well informed about religious taxes and fees ( Fig. 2 ).

The lowest awareness is noted in terms of Islamic taxes. Only 5% of respondents believe they are aware of the issue. At the same time, it is noteworthy that they mistakenly admit that these taxes do not exist in Russia. Thus, subjective assessment of awareness can be legitimately disputed ( Fig. 3 ).

It is noteworthy that only 10% of students consider themselves aware of the specific

Figure 2. Awareness of religious taxes and fees

religious taxes and fees           religious organizations                  system

Source: compiled by the authors.

Source: compiled by the authors.

features of Islamic finance. At the same time, 32% of respondents chose the correct answer that the key principle of Islamic finance is the prohibition of interest on loans. However, only 14% believe that the Islamic financial system operates in both Muslim and nonMuslim countries ( Fig. 4 ).

Therefore, low subjective assessment of awareness in this case is only p-partly confirmed and can therefore be characterized as overly cautious. In our view, this can be explained by respondents’ dissatisfaction with their knowledge of this subject and their potential interest in its further study.

The testing of hypotheses about tolerance to socially oriented taxation in the case of conditional tax resembling zakat was carried out using the method of ordered logit.

To study the factors influencing loyalty in this matter we selected statement 6 of the questionnaire (“A special tax aimed at supporting socially vulnerable population groups should be introduced”) the attitude to which was presented as an ordered variable (Y). Under the terms of the survey the variable could take one of four possible values with the lowest being “totally agree” with the imposition of the tax, and the highest – “strongly agree”. Statements which respondents found difficult to assess were excluded from the final model. Thus, it included 122 statements out of 127.

The initial set of factors proposed for characterizing the attitude to socially oriented taxes included:

– nine discrete ordered variables taking values: “1” – disagree, “2” – rather disagree, “3” – rather agree, “4” – agree: attitude of statements 1–5 and 7–10 of the first block of the questionnaire related to perception of social justice.

Figure 4. Awareness of Islamic financial system

interest on loans                Muslim countries

□ Rather true          □ True

Source: compiled by the authors.

– a dummy variable corresponding to the gender of the respondent (“1” – for males, “0” – for women);

– two dummy variables corresponding to the respondent’s year of study (“1” – for third-year students, “0” – other; “1” – for sophomore students, “0” – other).

The selection of significant factors was based on Student’s t-test at five percent significance level.

The resulting model has the following form:

Y = -0,58 x X 1 + 0,50 x X 2 + 1,00 x X 3 + +0,46 x X ₄ + 1,31 x X 5 .

Y – attitude to introduction of a special socially oriented tax implying one of the four options:

• 1)    if Y <  Y₀, then “totally agree”;

• 2)    Y 0 <  Y < Y 1 , then “rather disagree”;

• 3)    Y 1 <  Y < Y₂, then “rather agree”;

• 4)    Y₂ <  Y, then “absolutely agree”;

• X₁ – agreement on financial support for socially vulnerable population groups to be an indispensable element of corporate social responsibility (Statement 4);

X2 – agreement on collection and distribution of funds to support socially vulnerable population groups to be dealt with by specialized private funds with public and transparent reporting (Statement 7);

X3 – respondent’s personal willingness to give up part of income to support socially vulnerable population groups (Statement 8);

X4 –view that expenditures to support socially vulnerable population groups should influence the individual income tax (Statement 10);

X5 – sophomore students.

Table 3. Model of tolerance to socially oriented taxation

Variable	Index	Standard error	z-test	Likelihood
X 1	- .579599	.2680124	-2.16	0.031
X 2	.502654	.2363988	2.13	0.033
X 3	1.001874	.2457274	4.08	0.000
X4	.459762	.1670974	2.75	0.006
X5	1.315009	.4765873	2.76	0.006
Isolation point
Y 0	1.595964	1.064465
Y 1	4.453875	1.12938
Y 2	7.111679	1.259993
Likelihood function logarithm	-121.01352	Pseudo-R2		0,162
		LR-test		47.02
		Likelihood (LR-test)		0.0000
Source: compiled by the authors.

Detailed characteristics of the model⁵ are presented in Table 3 .

Table 3 indicates that loyalty to the introduction of a conditional tax resembling zakat is positively related to agreement with statements 7, 8, 10 and negative – with agreement with statement 4. In other words, the level of tolerance in this case is determined by the willingness to give up part of the income to support socially vulnerable population groups, as well as by the level of trust in the relevant non-state organizations. The chances of agreement with the introduction of a socially oriented tax are significantly higher for sophomore students than for third- and forth-year students. In our view, this result can be explained by the fact that younger students associate themselves with taxpayers to a lesser extent.

The study has shown that respondents’ agreement with certain statements is statistically insignificant, including: agreement with the fact there is a need for financial relations to be complied with strict moral principles; the function of the financial system to foster socially equitable income distribution in the society; with providing financial support for socially vulnerable population groups; with responsibility of the entire society for financial support for socially vulnerable population groups; with the willingness to donate to support socially vulnerable population groups at a certain time and with a certain amount. Interestingly, tolerance to socially oriented taxation is not affected by gender differences. It is particularly noteworthy that the majority of respondents shared the view that financial relations should contribute to equitable income distribution in the society (Tab. 4).

A significant share of respondents is willing to make regular donations to support socially vulnerable population groups. However, not all of them agree with the introduction of a special socially oriented tax. In our view, this suggests that the defining feature of any tax is its compulsory nature.

Conclusions

The study has confirmed there is statistically significant correlation between certain aspects of perception of social responsibility, including the mechanisms for its practical implementation, and the level of tolerance to socially oriented taxation. According to the survey, economists-to-be from Saint Petersburg, with low awareness of specific examples of implementation of alternative tax mechanisms in practice, demonstrate their willingness to take additional social obligations. Loyalty to introduction of conditional socially oriented tax resembling zakat is positively dependent on the following factors: willingness to give

Table 4. Attitude to the social role of financial relations

Variant 5 E О £ £ E Forth-year students The financial system should foster socially equitable distribution of income in the society (2) 0% 2% 19% 46% 33% I am willing to give up part of income to support socially vulnerable population groups (8) 0% 22% 26% 41% 11% A special tax aimed at supporting socially vulnerable population groups should be introduced (6) 2% 24% 46% 21% 7% Third-year students The financial system should foster socially equitable distribution of income in the society (2) 0% 2% 12% 39% 47% I am willing to give up part of income to support socially vulnerable population groups (8) 0% 14% 53% 29% 4% A special tax aimed at supporting socially vulnerable population groups should be introduced (6) 2% 18% 47% 29% 4% Sophomore students The financial system should foster socially equitable distribution of income in the society (2) 0% 4% 5% 64% 27% I am willing to give up part of income to support socially vulnerable population groups (8) 0% 5% 50% 45% 0% A special tax aimed at supporting socially vulnerable population groups should be introduced (6) 0% 0% 41% 50% 9% Note. Brackets indicate the number of the statement. Source: compiled by the authors. up part of individual income to support socially vulnerable population groups; positive attitude to non-state administration of socially oriented taxes; expectation of corresponding individual income tax exemptions.

The research results, developing the traditional understanding of tax mechanisms in the context of religious and socially oriented taxation, have both scientific and certain practical significance. In our view, the experience of religious taxation may find successful application in tax administration in multicultural secular states including the Russian Federation. It is noteworthy that Islamic taxation mechanisms focused on effective motivation, rather than coercion, are implemented with the use of innovative techniques. For example, in Russia advanced methods of zakat administration are implemented: the tax rate can be calculated using online calculators, fund transfers may be implemented with the use of a broad spectrum of payment tools (cash, bank transfer, credit card, cybercash, via SMS, etc.). Thus, maximum convenience is provided for the taxpayers, ensuring their involvement and interest, which in turn is the key to overcoming economic disparities in the society. A promising area for further studies in this sphere are surveys of economists-to-be repeated in various Russian regions, as well as involvement of the representatives of the academic and professional community in the discussion of alternative tax mechanisms.