Governments are vested with the authority to enforce rules and regulations for the orderly functioning of society. They have an interest to ensure that as many people comply with regulations as possible, because this helps to reduce administrative costs significantly, while contributing to desired public outcomes.
In cases of non-compliance, there already are punitive consequences in place, based on the severity of the offence. No citizen would like to receive a warning letter, or be given a penalty. At the same time, there are those who fail to comply with the rules, despite well-designed schemes and appropriate penalties. Understanding why people are not acting and responding in a timely manner is a start to enforcing rules more effectively.
In Singapore, research from several government agencies shows that incorporating behavioural insights (BI) to make simple changes in the way they communicate with the public can nudge behaviours and result in sizeable improvements in compliance rates. As aptly put by Jason Furman, Chief Economic Advisor to former US president Obama, “(e)specially well-chosen behavioural policy interventions can have nano-sized costs and produce extremely high benefit-to-cost ratios”.1The experience from a number of public agencies in Singapore in using BI to encourage on-time settlements, and to nudge overdue customers to take action immediately, bears testimony to the veracity of Furman’s observation.
Understanding why people are not acting and responding in a timely manner is a start to enforcing rules more effectively.
Encouraging On-Time Settlements
Applying BI, the Inland Revenue Authority of Singapore (IRAS) sought to help two different customer groups — newly incorporated companies and property owners — file their returns (see “Increasing Tax Filing Compliance of Newly Incorporated Companies”) and pay their taxes on time (see “Encouraging Property Owners to Pay On Time”) respectively. Common features of these interventions included customised reminders and letters, and the use of loss aversion by emphasising the need to take prompt action in order to avoid late penalties. The Land Transport Authority (LTA) has also applied BI to nudge vehicle owners to pay their road taxes on time (see “Understanding How Nudges Interact”).
Increasing Tax Filing Compliance of Newly Incorporated Companies
Each year, companies receive letters from the Inland Revenue Authority of Singapore (IRAS) reminding them to file their corporate tax returns on time. These letters provide information tailored to the needs of various company segments. While the vast majority of companies file on time, IRAS has found that one particular profile of newly incorporated companies (NICs) was more likely to be late in filing their returns, compared to other firms.
Encouraging Property Owners to Pay on Time
IRAS wanted to encourage people with overdue property taxes to pay their taxes immediately. Their proposed solution involved sending trial text messages to encourage immediate action on property tax.
Understanding How Nudges Interact
The Land Transport Authority (LTA) regulates close to one million vehicles in Singapore, including matters related to road tax. LTA’s standard practice is to send a renewal notice to vehicle owners one month prior to road tax expiry. However, historical data showed that about 10% of all vehicle owners still end up making late renewals.
Nudging Overdue Customers
Most enforcement agencies rely on a reminder system to prompt people to pay their fines early. However, there will always be cases that end up being escalated to the courts. As this is a time consuming process, agencies are testing ways to achieve early settlement. One proven way of nudging people in this direction is to convey the consequences more saliently — by highlighting the penalties of late or non-payment and the action they can take to avoid higher fines and court action (see “Increasing Compliance to Payment of Parking Fines” and “Nudging Vehicle Owners in Arrears to Settle Immediately”).
Increasing Compliance to Payment of Parking Fines
Motorists who are late in making payment receive reminder letters to settle their parking offences, failing which, court action would be taken. The Urban Redevelopment Authority (URA) wanted to test if more clearly worded and better designed letters could encourage motorists to take action promptly and reduce the number of late payers downstream.
Nudging Overdue Customers
Each year, around 7,200 vehicle owners end up in road tax arrears of more than three months. In such cases, a Notice to Attend Court is issued stating that a court charge is imminent. Accompanying the court notice is an Advisory Note providing information on how the case might be settled out of court.
To reduce the number of offenders ending up in court, LTA conducted an experiment to test if a refreshed Advisory Note could increase the propensity for road tax arrears to be settled immediately.
These examples of successful behavioural nudges in strengthening enforcement suggest common factors relevant to Singapore’s public sector context:
Our agencies are making good progress in using BI to achieve their regulatory objectives, but more work lies ahead. For instance, LTA is looking into the efficacy of measures such as minority norms (e.g. “You are among the last 5% of vehicle owners who have yet to pay their tax”) in encouraging immediate compliance to road tax matters. URA is studying ways to simplify letters when inviting business owners to renew their expiring planning permission. IRAS is considering how BI can be applied to improve service delivery and to enhance tax reporting accuracy.
There continues to be a common imperative for all our enforcement agencies to adopt more learning, innovating and trials, in designing more effective communications, and finding out what works better for both the agency and its customers.
ABOUT THE AUTHOR
Leong Wai Yan is Senior Economist in the Economics Unit, Policy & Planning Group of the Land Transport Authority.
The author thanks Xu Ding Jiao from IRAS and Kenny Tan from URA for providing information on their respective agencies’ examples in this article.
- J. Furman, “Applying behavioral sciences in the service of four major economic problems,” Behavioral Science & Policy, 2(2016): 1–7.