Abstract

While revisiting the agency theory and how it models the relationship between a principal and an agent, we assess, through participant observation, the optimal contract form for the ubiquitous relationship, where a principal, delegates work to an agent. This forms the basis of the study, as it attempts to redefine the relationship between the taxpayer and the tax administrator. This research is an attempt to reverse the traditional relationship between the taxpayer and the tax administrator in favor of a modern perspective of relational model theory by seeing the taxpayer as the principal and the tax administrator as the agent. This is deeply rooted in the social contract theory, in relation to the agency theory. What this redefinition is expected to do, ultimately, is to make the tax authority more taxpayer centric based on the concept of trust breeds trust, for efficient and effective tax system that would be more accountable, transparent and responsible in service delivery in the 21st century. This paper draws from the application of the social contract theory and the empirical evidences obtained from participant observation in the form of improvement of service delivery to the taxpayers by the tax administrators in the experimental agency, in alignment with the agency theory, hence coming up with the ‘relational agency model’.

Key words: Taxpayer, tax administrator, agency theory, social contract, relational theory, relational agency model.