No full-text available
To read the full-text of this research,
you can request a copy directly from the authors.
Tax Evasion Attitudes of Small Firms in Low‐ and Middle‐income Countries: Evidence from Nigeria
Abstract
Motivation
The need to tax small firms for revenue generation and the objective to have a sustainable tax system for such firms that encourages economic growth has long been a challenge for Low- and Middle-income Countries, especially those with large informal economies such as Nigeria. This article explores the drivers of tax morale of small firms in low- and middle-income countries.
Purpose
This paper investigates what determines the attitudes of small firms on their potential evasion of taxes on profits, defined here as tax morale. Our objective is to use a new, dedicated small firm survey in Nigeria with high power to construct regressions that can help explore, and contribute to, hypotheses about tax evasion attitudes of small firms
Methods and approach
We use a new nationally representative dataset of 8,000 small firms in Africa’s largest economy, Nigeria, based on in-person interviews conducted in the summer of 2018. To investigate key factors shaping tax morale of small firms in Nigeria, we estimate an ordinary least squares (OLS) regression model using a comprehensive set of explanatory variables based on the large-N power of our survey.
Findings
We find that in Nigeria the normative dimension and business development dimension appear more important. Small firms that have a higher trust in the government seem to have better tax morale. But firms that believe corruption is relatively frequent have notably worse morale. Firms that are registered and have positive expectations of their own growth also appear to have better tax morale.
Policy implications
Small companies play an important role in Nigerian society as both an employer and drivers of economic growth. Yet, tax compliance among small companies in Nigeria remains very low, as evidenced through our survey. Investigating tax morale and compliance of small firms is critical to design strategies to incorporate them in the tax base to the benefit of the entire country. In particular, the findings suggest that building trust in government and business development policies is important to improve tax morale.
... Low morale, when it comes to taxes among firm executives, dissatisfaction with tax administration, and an increasing number of trade restrictions are all major factors that influence the likelihood of tax fraud (Nikulin, 2020). Small businesses with a higher level of trust in the government and that have optimistic growth expectations appear to have higher tax morale (Moerenhout and Yang, 2022). Source: own processing based on fincrime.net ...
Corporate fraud has become increasingly common and sophisticated in today’s complex economic world, and a variety of strategies for perpetrating fraud have arisen. Financial fraud has various negative implications in the corporate sector since it reduces efficiency and undermines confidence and loyalty among all stakeholders. In this context, the aim of this article is to identify the various types of corporate fraud by describing and categorizing them based on the motivation and purpose for which they are committed; additionally, different types of corporate financial crimes were examined in a case study for Romania. Data for this study were gathered from past research on the subject as well as other national databases on financial crime. Tax evasion, financial statement manipulation, and bankruptcy fraud to deceive financial data users are among the various types of fraud examined. Financial fraud in organizations is a continually changing topic. The findings suggest that corporate fraud must be prevented at multiple levels, including corporate governance, internal control and external regulation. This study contributes to the existing body of knowledge on corporate fraud and can be utilized as a resource by managers and regulators looking to better understand fraud and strengthen governance and internal control systems.
La cultura fiscal es un concepto emergente que está siendo abordado por la universidad y el mercado, es relevante entender su alcance e importancia que contribuyen al desarrollo empresarial, además de proponer medidas gubernamentales contra el fraude fiscal que coadyuven al crecimiento económico de un país tal es el caso de los países de América Latina que padecen las consecuencias por la falta de cultura fiscal entre sus habitantes. El objetivo de esta investigación es realizar un análisis bibliométrico de la base de datos de Elsevier Scopus sobre el concepto de cultura fiscal que permita la discusión teórica en torno a sus principales factores influyentes. Se analizaron 76 documentos científicos, extraídos de la base de datos de Elsevier Scopus sobre cultura fiscal, para lo cual se realizó un análisis de tipo bibliométrico cuantitativo y descriptivo. Los resultados muestran que el concepto de cultura fiscal es una variable que ha sido poco explorada por la comunidad científica, y se concluye que dentro de sus principales factores influyentes se encuentran la cultura cívica, los valores, la formación académica, la capacitación y el contrato fiscal asumido entre gobierno y ciudadanos, además de que es tarea primordial de todo país, generar mecanismos de fiscalización efectivos a través del esfuerzo conjunto entre la Universidad, las autoridades fiscales y el sector productivo, que contribuyan a erradicar la evasión fiscal.
Objetivo: Este artículo revisa la literatura sobre la evasión tributaria y el desarrollo económico en países emergentes, analizando cómo la evasión fiscal afecta la capacidad de los gobiernos para financiar servicios públicos y promover el crecimiento económico sostenible. Marco Teórico: Se exploran estudios relevantes sobre patrones globales en la evasión fiscal, el impacto de la economía informal y las limitaciones de recursos en la administración tributaria. La literatura destaca la importancia de estrategias efectivas para ampliar la base tributaria, la cooperación internacional y la adopción de tecnologías emergentes. Método: La investigación sigue un enfoque de revisión sistemática, identificando y analizando estudios académicos y datos relevantes sobre la evasión fiscal y su impacto en el desarrollo económico. Resultados y Discusión: La revisión revela tendencias, retos y oportunidades en la administración fiscal, subrayando la necesidad de fortalecer las políticas fiscales en contextos de alta informalidad y corrupción. Se destacan las barreras que enfrentan los gobiernos para implementar estrategias efectivas de recaudación en economías emergentes. Implicaciones de la Investigación: Las recomendaciones incluyen la implementación de tecnologías emergentes y la cooperación internacional como herramientas clave para mejorar la administración tributaria. Originalidad/Valor: Este estudio aporta una perspectiva comprensiva sobre cómo la evasión fiscal limita el desarrollo económico en países emergentes y propone estrategias para mitigar sus efectos negativos.
The study examines the impact of tax knowledge, tax fairness and religious ethics on tax evasion of SMEs in Katsina State. The data of the study was collected from 200 SMEs in Katsina South Senatorial Zone using a structured questionnaire. Three hypotheses were tested using Partial Least Square Structural Equation Modelling (PLS-SEM). The findings of the study revealed that tax knowledge, tax fairness and religious ethics are significantly related to tax evasion. Based on the findings of the study, the study concludes that tax knowledge, tax fairness and religious ethics play vital role in the changes of tax evasion activities of SMEs in Katsina State. Based on the conclusion of the study, the study recommends among other that States Internal Revenues Services should provide adequate knowledge of tax related issues in the State through radio and television programmes as well as social media platforms so that taxpayers in the state will be well equipped on the importance of tax payment and this will minimise number of tax payers participating in tax evasion activities in the State. In addition, the States Internal Revenues Services should redesign its tax policies in such a way that the tax payers will feel that the tax system is fair to them and not the other way round. This will minimise tax evasion activities in the State. Additionally, States Board of Internal Revenues Services should create a religion unit within the Board and engage the services of religion leaders to educate SMEs owners that God knows all their hidden activities and they will be punished by HIM if they engaged in illegal activities such as tax evasion.
It is examined in the study the impact of deterrence, government performance and religious ethics on tax evasion of SMEs in Katsina State. The researcher collected data from 165 SMEs in Katsina North Senatorial Zone using a structured questionnaire. Three hypotheses were tested using (PLS-SEM). The study found deterrence, government performance and religious ethics are significantly related to tax evasion. Therefore, deterrence, government performance and religious ethics play a vital role in the changes of tax evasion activities of SMEs in Katsina State. It is recommended among other that tax authorities should redesign its deterrence factors in such a way that deterrence factors can be very effective in preventing tax payers from engaging in tax evasion activities. In addition, Katsina State government should provide adequate socioeconomic projects in the state as it will motivate taxpayers to pay their taxes as at when due. Additionally, tax authorities should establish a religion unit within the State Board Internal Revenue Service to be charged with the responsibility of educating owners/managers of SMEs on the importance of regular and timely tax payments.
An important part of every country’s development process is the building of a social contract in which citizens pay tax and, in turn, receive public goods and services. Evidence suggests that this is associated with the establishment of a norm of tax payment and a belief that non-payment is wrong. We exploit a new, nationally representative, dataset to explore which factors are associated with higher tax morale in Nigeria. We find that a perception of higher penalties and greater difficulty avoiding taxes are both associated with higher tax morale. Tax morale is also higher the more people believe that other Nigerians pay taxes, the less frequently they have to pay bribes and the greater the trust they have in tax officials. However, we also find that Nigerians who believe that tax officials discriminate in their treatment of different ethnic, religious and gender groups have higher, not lower, tax morale. And we find no relationship between service delivery and measures of tax morale based on the respondent’s own behaviour, in contrast to the positive association found in the literature using broader measures of tax morale. This suggests that building a social contract based on taxation may be harder than previously thought.
In this study, we reconcile conflicting findings from the extant literature on the impact of tax system parameters on tax noncompliance. We argue that social norms play a role of heuristics facilitating tax payers’ response to the instrumental incentives posed by the systemic parameters, such as tax rate and penalties for evasion, and thus moderate the effect of those parameters on willingness to evade taxes. Relying on a unique survey experiment conducted in fourteen countries of Central-Eastern Europe, we demonstrate two types of a conditioning effect of norms. First, the impact of tax rates on respondents’ propensity for tax evasion is moderated by the perceived norms of the society at large (descriptive norms). In particular, an increasing tax rate lowers the probability of evasion as long as one views “most others” as honest taxpayers, which highlights the importance of equitability (fairness) concerns for tax compliance decisions. In contrast, the impact of punishment is moderated by the perceived norms of one’s immediate reference group (subjective norms). Strong subjective compliance norms tend to effectively replace penalties as a mechanism discouraging tax evasion, suggesting that the deterrent effect of a penalty can be entirely suppressed when subjective norms are strong. These findings have important implications for the understanding of tax compliance decisions under different formal and informal regimes.
Low tax morale is associated with domestic tax evasion. We find evidence of cross-border equity flows designed to evade taxes in low tax morale countries. Using Foreign Portfolio Equity Investment (FPI) flows into 21 OECD countries from 138 source countries and an index of tax morale from the World Value Survey (WVS), we show that individuals in countries with low tax morale engage in tax evasion via roundtripping through tax havens. This allows them to benefit from differential taxes applied to foreign investors vis-a-vis domestic investors. Our results remain robust to various measures of tax morale and distinct subsamples.
Tax compliance costs tend to be disproportionately higher for small and young businesses. This paper examines how the quality of tax administration affects firm performance for a large sample of firms in emerging market and developing economies. We construct a novel, internationally comparable, and multidimensional index of tax administration quality (the TAQI) using information from the Tax Administration Diagnostic Assessment Tool. We show that better tax administration attenuates the productivity gap of small and young firms relative to larger and older firms, a result that is robust to controlling for other aspects of tax policy and of economic governance, alternative definitions of small and young firms, and measures of the quality of tax administration.
Prior research shows taxpayers’ perceptions of fairness leads to greater cooperation and compliance with tax authorities. Yet our understanding of tax fairness has been hampered by its general reliance upon models and measures of fairness developed by organizational fairness research, even though fairness is a perception subject to contextual influences. Accordingly, we attempt to gain insight into the influence of contextual factors on fairness through the development of a theoretically based and empirically derived model of tax fairness, grounded in organizational literature, but empirically tested in the tax context. Our analysis shows the extent to which items and dimensions found in the organizational fairness literature reflect taxpayers’ perceptions of tax fairness. Most importantly, our findings contribute to fairness research by identifying the role of relevant comparison groups in affecting perceptions of fairness, and thereby extends our understanding of the role of context in affecting fairness perceptions. Furthermore, by identifying the dimensions and items incorporated in perceptions of tax fairness, our study provides a foundation for tax researchers and policy makers to determine how best to promote voluntary taxpayers’ compliance and in so doing, mitigate tax avoidance and tax evasion.
Motivation
The literature on effective tax rates focuses on high and middle‐income countries, but there is very little evidence on low‐income countries. This paper addresses this gap with new evidence from Ethiopia.
Purpose
We investigate corporate effective tax rates in Ethiopia, and whether the distributional effects they have in practice are in line with corporate tax policy design.
Approach and methods
We calculate ETRs in line with the literature in this field, using profit tax at the numerator and gross profit at the denominator. We then analyse ETRs using panel data, focussing particularly on their relation with firm size, but also including other explanatory variables.
Findings
Our main result is that, despite a proportional tax rate, small firms face a higher effective tax burden than larger firms, while middle‐sized firms face the lowest burden of all.
Policy implications
We highlight that tax systems can have practical implications that differ largely from their policy design, due to compliance costs and imperfect enforcement. Measures to reduce compliance costs for small firms are particularly recommended.
This article is protected by copyright. All rights reserved.
This study examines the conditions under which local social environments are likely to influence corporate tax behavior. Using a social capital index at the county level, we find that on average, social capital reduces firms’ aggressive tax avoidance behavior. The impact of social capital on corporate tax avoidance is weaker when managers are under excessive pressure to meet earnings targets, during the periods of financial constraints, and when managers are incentivized to undertake risk. We further find that corporate tax avoidance activities engaged by firms headquartered in high-social-capital counties tend to be less value-increasing, indicating that potential social sanctions in these areas may reduce the benefits of tax avoidance activities accrue to firms. However, the negative impact of tax avoidance on firm value in high-social-capital counties tends to be lower for firms with strong corporate governance, which suggests that managers in well-governed firms can better exploit tax avoidance opportunities. Overall, our evidence is consistent with our conjecture that although the local social environments have a significant influence on corporate tax behavior, this influence is fragile in the presence of excessive earnings pressure, financial constraints, and equity risk incentives.
In order to understand how the environment influences business owner/managers’ attitudes towards tax morale, we build a theoretical model based on a neo-institutionalist framework. Our model combines three complementary perspectives on institutions—normative, cultural–cognitive and regulatory–instrumental. This enables a broader understanding of factors that influence business owner–managers’ attitudes towards tax evasion. We test the resulting hypotheses using regression analysis on survey data on business owner/managers in Latvia—a transition country, which has undergone massive institutional changes since it was part of the Soviet Union over 25 years ago. We find that legitimacy of the tax authorities and the government (normative dimension), feeling of belonging to the nation (cultural–cognitive dimension) and perceptions of the risk and severity of punishment (regulatory–instrumental dimension) are all associated with higher tax morale for business owners and managers.
Using a mixed-methods approach, this paper evaluates the equity implications of Zimbabwe's presumptive tax system, introduced in 2005 to raise revenue from the country's growing informal sector. The representative taxpayer method, which compares the hypothetical tax burdens of formal and informal sector taxpayers at varying income levels, shows that the presumptive tax regime undermines both vertical and horizontal equity. In addition, interviews with key informants from the tax authorities, other relevant organisations, and informal sector operators, were conducted to probe issues around collection, compliance and perceptions of fairness. The qualitative data suggest that weak enforcement, with more visible informal activities bearing the brunt of the tax burden, and selective (and sometimes politically motivated) application of the legislation, compromise equity further. This article is protected by copyright. All rights reserved.
Small businesses in developing countries, as part of global supply chains, are sometimes assumed to respond in a straightforward manner to institutional demands for improved working conditions. This article problematizes this perspective. Drawing upon extensive qualitative data from Tirupur’s knitwear export industry in India, we highlight owner-managers’ agency in avoiding or circumventing these demands. The small businesses here actively engage in irresponsible business practices and “evasion” institutional work to disrupt institutional demands in three ways: undermining assumptions and values, dissociating consequences, and accumulating autonomy and political strength. This “evasion” work is supported by three conditions: void (in labor welfare mechanisms), distance (from institutional monitors), and contradictions (between value systems). Through detailed empirical findings, the article contributes to research on both small business social responsibility and institutional work.
This article provides a new model of tax compliance over the firm life course, focusing on the dynamics in the underlying motivations and capacities for tax compliance. We review and structure the relevant literature on the early life course of firms: the traditional stages of growth models and a less deterministic dynamic state model of developmental phases. Building on these insights on the changing nature of the firm and the role of the founder-entrepreneur, we construct a new model of tax compliance over the firm life course. We provide several potential avenues for future research as well as practical implications of our model.
The purpose of this study is to explore with more rigor and detail the role of social norms in tax compliance. This study draws on Cialdini and Trost’s (The Handbook of Social Psychology: Oxford University Press, Boston, MA, 1998) taxonomy of social norms to investigate with more specificity this potentially decisive (Alm and McKee, Managerial and Decision Economics, 19:259–275, 1998) influence on tax compliance. We test our research hypotheses regarding the direct and indirect influences of social norms using a hypothetical compliance scenario with 174 experienced taxpayers as participants. Factor analysis of the social norm questions successfully identified four distinct social norm constructs, in line with Cialdini and Trost (1998). Results of the path analysis show that individuals’ standards for behavior/ethical beliefs (personal norms) as well as the expectations of close others (subjective norms) directly influence tax compliance decisions, whereas general societal expectations (injunctive norms) and other individuals’ actual behavior (descriptive norms) have an indirect influence. This shows that social norms have important direct as well as indirect influences on tax compliance behavior. We also investigate a number of attitudinal variables that may be related to social norms and taxpayer compliance. The results of this study further clarify the important role that social norms have with regard to taxpayers’ compliance behavior.
This article provides a review of the literature on the compliance costs of tax regulations borne by small firms in the USA, the UK, Australia and New Zealand. The article concludes that in the USA and the UK the compliance costs of taxation comprise the largest single element of the compliance burden faced by businesses and this is probably also true for Australia and New Zealand. All of the countries studied offer best practice guidelines for assessing the costs of proposed regulations. However, despite government deregulation and simplification initiatives that in some cases began in the early 1980s in the countries reviewed, there is no evidence that progress is being made in reducing or even containing the burden of tax regulations affecting small businesses.
This article examines the factors that affect microenterprise performance in Nigeria. Specific attention is focused on the impact of membership of Cooperative Thrift and Credit Societies (CTCS) and personal agency belief on microenterprise performance. The results suggest that the entrepreneurial ability and business success of people in Cooperative Thrift and Credit Societies are better as compared to non-members, and personal agency belief is a significant predictor of microenterprise performance.
Alon A. and Hageman A. 2013. Impact of corruption on organizational tax compliance in transition economies. Journal of Business Ethics, 116(3), 479-494.
Tax compliance is an important issue for governments and the public alike. To meet public needs and fund public mandates, firms around the world are expected to comply with tax laws. Factors that are related to organizational (firm) tax compliance have not been sufficiently examined in the literature. Due to the increasing global influence of transition economies, factors associated with firm tax compliance in transition economies are particularly of interest. Based on a sample of over 5,000 firms from 22 former Soviet Bloc transition economies, we find that higher levels of corruption and higher levels of particularized trust (reliance on friends and family) are associated with lower levels of tax compliance. Interestingly, we also find that the negative relationship between corruption and tax compliance is weakened in situations of higher generalized trust (trust in strangers). Overall, our study’s results suggest that institutional factors play an important role and are related to firm tax compliance behavior in transition economies.
Anecdotal evidence often suggests that multinational enterprises (MNEs) operating in developing countries “exploit their multinationality” to avoid paying taxes to host governments. This article explores the concept of “responsible tax” as a corporate social responsibility (CSR) issue for MNEs, based on the notion that MNEs face considerable variation in the extent, monitoring, and application of tax laws internationally. This variation creates a “moral free space” as to which tax payments to make. Using firm-level data from three important sectors in India, the authors explore whether foreign MNE subsidiaries pay higher taxes than local firms, and whether, in the case of MNEs, there are differences between subsidiaries of MNEs with and without a reputation for CSR. The results show that MNEs pay considerably higher effective tax rates than do local firms, and MNE subsidiaries known for CSR pay more tax than do MNE subsidiaries less known for CSR. This set of findings suggests that MNEs operating in India see taxation in developing countries in relation to CSR.
A major financial problem in many municipalities in South Africa is the inadequate collection of service charges due to widespread non-payment. The prevailing view is that non-compliance is caused by poverty and the existence of an ‘entitlement culture’. However, huge variations in compliance exist both within poor communities and between communities with similar socio-economic characteristics. How can these differences be explained? Moreover, what factors determine citizens' compliance? This paper argues that non-payment is related not only to inability to pay and ‘a culture of entitlement’, but also to whether citizens perceive the local government to act in their interest. In particular, three dimensions of trust may affect citizens' compliance: (1) trust in the local government to use revenues to provide expected services; (2) trust in the authorities to establish fair procedures for revenue collection and distribution of services; and (3) trust in other citizens to pay their share.
Purpose
Small business owners play an important role in the tax system. This paper seeks to establish a framework to highlight the particular tax situation of small business owners and the resulting implications, from a psychological perspective.
Design/methodology/approach
A framework identifying the key characteristics of small business owners' actual and perceived tax situation is established. Literature investigating these characteristics is reviewed in line with the proposed framework.
Findings
Three key aspects seem to distinguish small business owners' perceptions of their tax situation: small business owners are likely to perceive more opportunities not to comply than employed taxpayers; they are more likely to experience a lack of meaningful taxation knowledge; and they are more likely to face decision frames that render taxes as painful losses.
Research limitations/implications
The suggested link between the subjective experience of the tax situation and compliance calls for a focus on strategies that aim to influence taxpayers' perceptions of their own evasion opportunities, their level of legislative and procedural knowledge, and their sense of ownership of tax money. Such a strategy is suggested to be particularly likely to be effective in the phase of nascent entrepreneurship and in a climate of mutual trust between taxpayers and tax authorities.
Originality/value
This paper comprehensively identifies and reviews the perceptual correlates of factors unique to small business owners' tax behaviour.
Australian National University. Eliza's main argument in her research on taxation is: if people are to pay taxes, they must believe that requests from the Tax Office are reasonable, that the tax system is fair and legitimate, and they must have confidence that others believe in the system. She has co-authoured "Shame Management through Reintegration" (Cambridge University Press, UK) demonstrating the implications of shame in relation to different kinds of wrongdoing, such as drink driving and school bullying.
Much recent research has investigated whether values, social norms, and attitudes differ across countries and whether these differences have measurable effects on economic behavior. One area in which such studies are particularly relevant is tax compliance, and a factor that has been suggested as a factor in compliance behavior is “tax morale”, or the intrinsic motivation to pay taxes. However, all of this work on tax morale has focused on individuals, not on firms. In this paper, we use information from the Business Environment and Enterprise Performance Survey and also from the World Enterprise Survey for a wide range of countries over several years of data to examine a firm's tax morale and the subsequent impact on firm tax compliance. We use these data first to examine a firm's perception of taxes as an obstacle to doing business. Importantly, once we control for the various factors that affect this perception, what is left is a measure that we believe is a measure of the firm's tax morale, as a driver of the firm's view of the appropriateness of cheating on taxes. With this measure of tax morale, we are then able to examine in a second stage estimation how our estimated firm tax morale affects the compliance decisions of the firm. Ultimately, our results allow us to identify factors that allow the government to improve its efforts to increase firm tax compliance.
Why so many people pay their taxes, even though fines and audit probability are low, is a central question in the tax compliance literature. Positing a homo oeconomicus having a refined motivation structure sheds light on this puzzle. This paper provides empirical evidence for the relevance of conditional cooperation, using survey data from 30 West and East European countries. We find a high correlation between perceived tax evasion and tax morale. The results remain robust after exploiting endogeneity and conducting several robustness tests. We also observe a strong positive correlation between institutional quality and tax morale. Journal of Comparative Economics35 (1) (2007) 136–159.
The question of why citizens pay their taxes has attracted increased attention in the tax compliance literature of late. In this book, Benno Torgler considers the evidence that suggests that enforcement efforts cannot fully explain the high degree of tax compliance within society. To attempt to resolve this puzzle, numerous researchers have argued that citizens' attitudes towards paying taxes (defined as tax morale) help to explain the high degree of compliance. Yet most have treated tax morale itself as a black box, failing to discuss the issues influencing it. This unique volume provides important new insights into the factors that shape the emergence and maintenance of citizens' willingness to cooperate with tax legislations in different societies.
Purpose: The purpose of this study was to determine factors affecting tax compliance by Smesin Kiambu CountyMethodology: The study adopted descriptive survey design and the research. The study population was 1084Smes in Kiambu County where a sample size of 325Smes was selected. Data was collected through structured and unstructured Questionnaires. Data was analyzed using Statistical Package for Social Sciences (SPSS) and results presented in frequency tables to show how the responses for the various questions posed to the respondents.Results: The study findings revealed that Non compliance opportunities, compliance cost, knowledge requirements and decision frames had a positive and significant effect on tax compliance. The study led to conclusion that the authorities had a weak capacity in detecting tax evasion, it was cheaper to bribe a tax official than pay full amount of tax, corrupt, fine and penalties deterred tax evasion and that degree of regulation deterred tax evasion, that tax system and rates affected the rate and amounts of tax evasion, nature and degree of regulations affected tax evasion, size and how the business was structured had a direct or indirect effect on tax evasion, location and focus of business affected tax evasion and that the type of business the tax payers were in affected tax evasion.Policy recommendation: The study recommended that the authorities should adopt high and modern technology to help in detecting tax evasion, proper measures should be emphasized on officials taking bribes, fines and penalties should be issued to those evading paying tax and that proper regulatory framework should be put in place to deter tax evasion and that the government should consider increasing tax incentives such as exemptions and tax holidays as these will not only encourage voluntary compliance but also attract investors who are potential viable tax payers in the future.
We investigate the impact of corruption on tax compliance using a sample of 700 small business in Bamako, Mali. The main contribution of this paper is to focus on micro-enterprises (including semi-formal and informal ones), while existing works concentrate on large and formal firms. Our results show that (i) even very small firms pay taxes (two-thirds of firms pay taxes in our sample); and, (ii) paying bribes reduces significantly tax compliance. This latter finding is robust (i) to the addition of a set of control variables accounting for other determinants, (ii) to treatment for endogeneity, and (iii) the use of a different proxy for tax compliance.
The book Achieving Sustainable Energy for All in Africa addresses the role of law in securing energy access for huge numbers of people in Africa who live without the benefit of modern energy services. Contributions to the book offer a variety of legal and socio-legal perspectives on the subject of energy access, describing the dire situation of energy poverty on the African continent and emphasizing its implications for overall development. Specific themes addressed include the concept of energy justice, the international human rights framework for advancing the notion of a right to energy, and the role of regulation and legal reform in achieving the desired levels of energy access. In particular, attention is focused on the use of law and policy to create an enabling environment, including appropriate dispute resolution mechanisms, for the financing of energy infrastructure and the development of new forms of energy. In relation to the latter, key considerations for constituting intellectual property governance regimes that promote access to relevant technology are canvassed. Furthermore, the disproportionate impact of energy poverty on women, children, and disabled persons is highlighted in the context of the limitations of existing law and the growing recognition of this reality in emerging legal interventions. The environmental dimension, which similarly affects these vulnerable population groups, is directed at the water-energy nexus, critical to the provision of clean water and clean energy. The focus on Nigeria and South Africa in some chapters reflects the institutional collaboration from which this volume has emerged.
To carry out their various missions —collecting revenue, facilitating trade and ensuring security—, many customs administrations have established a risk management unit. In developing countries, however, because of the lack of dedicated human and material resources, intelligence and risk analysis remain insufficiently developed. In view of the lack of resources, this article proposes a simple methodology aiming at detecting risky import operations. The mirror analysis first helps to identify and target products or sectors with the greatest risk. Based on the examination of customs declarations patterns (data mining), it is then possible to identify and target higher risk economic operators (importers and customs brokers). When implemented in Madagascar, this method has helped to reveal probable fraud cases in the present context of customs reforms.
Business tax evasion is an important issue for governments. Yet the factors that determine business tax evasion have not been sufficiently examined in the literature in general, and in transition contexts in particular. To address this gap, this study uses the WB/EBRD Business Environment and Enterprise Performance Survey (BEEPS) database with a sample of over 12,692 firms from 26 transition economies. Applying various modelling strategies, we argue that tax evasion is a function of firm-level and institutional-level variables. We contribute to the literature by providing robust evidence showing that the perceived tax burden has a positive impact on tax evasion. We also find that the tax evasive behaviour of firms is positively influenced by low trust in government and in the judicial system as well as by higher perceptions of corruption and higher compliance costs. We find that smaller firms, individual businesses and firms in sectors that are less visible to the tax administration are more likely to get involved in evasive behaviour. Overall, institutional factors play an important role in determining firms’ tax evasion behaviour in transition economies. This finding has important policy implications.
Why do firms evade taxes? We tackle this question by studying firms in the formal sector operating in countries with different institutional backgrounds, and comparing the incentives and constraints of staying within the formal sector against the competitive pressures originating from the informal sector. We argue that it is the combination of these factors that largely explains formal firms’ tax evasion decisions. Our findings highlight the dark side of competition, particularly when it originates from perceivably unfair sources (i.e. from the informal sector). We also shed light on how this effect is moderated by the institutional conditions of the environment.
Why do people evade paying taxes? This is the central question addressed in this volume by Robert McGee and a multidisciplinary group of contributors from around the world. Applying insights from economics, public finance, political science, law, philosophy, theology and sociology, the authors consider the complex motivations for not paying taxes and the conditions under which this behavior might be rationalized. Applying theoretical approaches as well as empirical research, The Ethics of Tax Evasion considers three general arguments for tax evasion: (1) in cases where the government is corrupt or engaged in human rights abuses; (2) where citizens claim inability to pay, unfairness in the tax system, paying for things that do not benefit the taxpayer, excessively high tax rates, or where taxes are used to support an unpopular war; and (3) through philosophical, moral, or religious opposition. The authors further explore these issues by asking whether attitudes toward tax evasion differ by country or other demographic variables such as gender, age, ethnicity, income level, marital status, education or religion. The result is a multi-faceted analysis of tax evasion in cultural and institutional context, and, more generally, a study in ethical dilemmas and rational decision making. © Springer Science+Business Media, LLC 2012. All rights reserved.
The federal government loses both individual and corporate income tax revenue from the shifting of profits and income into low-tax countries, often referred to as tax havens. Tax havens are located around the world with concentrations in the Caribbean and Europe. Corporate profit shifting may cost up to 70 billion per year.
There is an apparent disconnect between much of the academic literature on tax compliance and the administration of tax policy. In the benchmark economic model, the key policy parameters affecting tax evasion are the tax rate, the detection probability, and the penalty imposed conditional on the evasion being detected. Meanwhile, tax administrators also tend to place a great deal of emphasis on the importance of improving “tax morale,” by which they generally mean increasing voluntary compliance with tax laws and creating a social norm of compliance. We will define tax morale broadly to include nonpecuniary motivations for tax compliance as well as factors that fall outside the standard, expected utility framework. Tax morale does indeed appear to be an important component of compliance decisions. We demonstrate that tax morale operates through a variety of underlying mechanisms, drawing on evidence from laboratory studies, natural experiments, and an emerging literature employing randomized field experiments. We consider the implications for tax policy and attempt to understand why recent interventions designed to improve morale, and thereby compliance, have had mixed results to date.
Low-income countries typically collect taxes of between 10 to 20 percent of GDP while the average for high-income countries is more like 40 percent. In order to understand taxation, economic development, and the relationships between them, we need to think about the forces that drive the development process. Poor countries are poor for certain reasons, and these reasons can also help to explain their weakness in raising tax revenue. We begin by laying out some basic relationships regarding how tax revenue as a share of GDP varies with per capita income and with the breadth of a country's tax base. We sketch a baseline model of what determines a country?s tax revenue as a share of GDP. We then turn to our primary focus: why do developing countries tax so little? We begin with factors related to the economic structure of these economies. But we argue that there is also an important role for political factors, such as weak institutions, fragmented polities, and a lack of transparency due to weak news media. Moreover, sociological and cultural factors—such as a weak sense of national identity and a poor norm for compliance—may stifle the collection of tax revenue. In each case, we suggest the need for a dynamic approach that encompasses the two-way interactions between these political, social, and cultural factors and the economy.
Since the 1950s (Schmölders, 1959) it is well known that behavioral aspects have an influence on tax evasion or tax compliance. In particular, interactions among the various entities involved in the taxation process (e.g. taxpayers, law makers, tax practitioners, tax authorities, etc.), and the dynamics that these interactions may generate, seem to play an important role for the actual level of tax compliance. However, the mainstream neoclassical approach to tax evasion (Allingham & Sandmo, 1972) cannot account for such interactions and dynamics. Therefore, during the last two decades new approaches (e.g. lab experiments, agent-based modeling, etc.) have been developed with a view to model how behavioral dynamics may foster or prevent tax evasion. In addition, empirical evidence has been generated that supports a role for such interaction dynamics. In this contribution we survey the main developments in this research area and provide some suggestions for further research.
This article draws from qualitative research to investigate key networks of influence in tax compliance decisions in Australian small and medium-sized enterprises (SMEs). It focuses on how SME interviewees manage and meet tax obligations through invoking the wider ethical and moral values placed on compliance evident in their advocacy of equal opportunity and equity in human resourcing, occupational health and safety measures and environmental reporting. Good corporate citizenship constitutes an important independent ‘intangible’ node within decision-making networks, framing relationships with influential external parties such as accountants. This discussion is limited by its inability to independently verify self-reported claims of compliance, or measure key indicators such as performance differences between compliant and non-compliant firms due to access restrictions on audit data. Nevertheless, it provides a window on perspectives, discourses and subjective understandings of the relationship between taxation and SME business management opening up new questions for future empirical research.
Purpose
The purpose of this paper is to consider the activities of tax havens in the global financial markets and explore their role in providing a supply‐side stimulant for corrupt practices. It aims to argue that the corruption debate needs to shift to a second phase in which the role of tax havens as supply‐side stimulants features more prominently.
Design/methodology/approach
Based on the author's original research into the practices and activities of tax havens, the paper explores the operational features of tax havens, with particular focus on their role in providing opaque and complex offshore structures through which illicit financial flows can be routed to disguise their origins, method of transfer and true beneficial ownership. The paper explores how bankers, lawyers and accountants create complex and opaque offshore structures to facilitate economic crime and impede investigation.
Findings
Despite severe limitations imposed by the absence of rigorously researched statistical data on capital flows into and out of tax havens, the paper argues that the available data support the view that tax havens have become prominent features of the globalised capital markets, and their activities create a criminogenic environment in which illicit financial flows are easily disguised and hidden amongst legitimate commercial transactions. The paper notes that effective remedies are available to reduce financial market opacity, but political will is lacking to take effective action.
Originality/value
This paper tackles a new and under‐researched subject. Drawing on the author's experiences of working on a prominent tax haven for a total of 14 years, the paper brings attention to the impact of tax havens on international development.
This paper outlines the overlap between social psychology, taxation and government spending; an area referred to as ‘fiscal psychology’. Attention is drawn to the tendency of many public economists to ignore the intervening variables between economic stimuli and economic response. These intervening variables are largely attitudinal and could be used to improve economic predictions, understanding of the effects of taxes on work effort, the tendency to evade taxes and more generally, the relationship between taxpayer and government. Fiscal psychology also incorporates familiar approaches in social psychology including equity, intergroup relations, and attribution theory, and debates about attitude structure and the attitudes/behaviour link. Comment is additionally made on the importance of assessing taxpayers' preferences for government spending, and their influence on government fiscal policy as well as their reaction to it. This is done in the light, here as elsewhere, of the discussion as to the ‘descriptive’ or ‘prescriptive’ nature of social psychology in the real world.
We conduct an empirical study on the determinants of the psychological costs of tax evasion, also known as tax morale. As
a preliminary step, we build a model of tax evasion including non-monetary considerations, show the relationship between tax
compliance and tax morale. In the empirical analysis of tax morale we find, using a binomial logit model, that the justification
of tax evasion can be explained by the presence of grievance in absolute terms (those who feel that taxes are too high, those
who feel that public funds are wasted, and those who accept underground economic activities); and grievances in relative terms
(the suspected level of others’ tax evasion). The sense of duty and the level of solidarity are also relevant factors, but
to a lesser extent.
KeywordsTax morale–Tax evasion–Reputation factor
This second article evaluates and discusses the challenges to government revenue in sub-Saharan Africa posed by developments in corporate taxation. Using the dataset described in the first article, it shows that, in broad terms, corporate tax revenues in the region have held up, despite a reduction in rates and evidence of substantial base-narrowing (mainly through the provision of tax holidays in Investment Codes and Free Zones). This is something of a puzzle. Options for dealing with the continuation and intensification of the challenges to these revenues, including through regional co-operation, are discussed. Copyright (c) International Monetary Fund 2010. Journal compilation (c) 2010 Overseas Development Institute..
Tax compliance has been studied in economics by analysing the individual decision of a representative person between paying and evading taxes. A neglected aspect of tax compliance is the interaction of taxpayers and tax authorities. The relationship between the two actors can be understood as an implicit or “psychological” contract. Studies on tax evasion in Switzerland show that the more strongly the political participation rights are developed, the more important this contract is, and the higher tax morale is. In this paper, empirical evidence based on a survey of tax authorities of the 26 Swiss states (cantons) is presented, indicating that the differences in the treatment of taxpayers by tax authorities can be explained by differences in political participation rights as well. Copyright Springer-Verlag Berlin Heidelberg 2002
How to register a business name inNigeria:Step-by-step guide
- Investsmall
Corporate tax 2022: Nigeria
- Partners Chambers