THE IMPROVEMENT OF DECISION-MAKING IN THE LATVIAN TAX SYSTEM : CASES OF IRREDUCIBLE INCOMPATIBILITY TAKING INTO ACCOUNT RELIABILITY, EQUITY AND EFFICIENCY CRITERIA

Abstract

The rational functioning of the tax system is a significant problem for any state. The evaluation of the performance of the tax system is usually carried out considering only one component: government, business, or specific narrow parts of the tax system, such as an analysis of a particular tax, thus preventing a fully fledged assessment. One of problem that is crucial for the vitality of the tax system is its reliability. The purpose of this article is to develop an approach to estimating and assessing the reliability of the tax system. Two major criteria of the functioning of the tax system are equity and efficiency, which form the basis of the optimization of the tax system by finding their optimal combination. The process of such multi-criteria optimization is usually associated with the irreducible incomparability of criteria. Methodology: As tools, the proposed Weibull distribution, S-shaped curve, as well as a three-tiered scale for determining the level of reliability of the tax system are used. Applying experts’ evaluation ranking and using Kendall’s Concordance Coefficient for processing the resulting data, taxes and criteria on which concessions could be made are determined. Findings: The analysis shows that the difference between the opinions of experts regarding the ranking of taxation criteria is related to their affiliation – state or business. To find a solution in this case, the method of successive concessions is applied, which requires ranking relative single indexes of taxation criteria, as well as taxes that are associated with them. Originality: For the formalization of the process of dealing with the incomparability of criteria, a concept of business-oriented aspects of tax optimization is proposed, which is aimed at both business entities as well as individuals and state-oriented aspects of tax optimization.