'They are a tax fearing people': Deterrent Effect-Penalties, Audit and Corruption in a Developing Country

Faridy, Nahida and Freudenberg, Brett and Sarker, Tapan ORCID: https://orcid.org/0000-0002-0682-2940 (2016) 'They are a tax fearing people': Deterrent Effect-Penalties, Audit and Corruption in a Developing Country. Curtin Law and Taxation Review, 3. pp. 1-50. ISSN 2203-5028


Abstract

Critical to a country’s tax revenue base is taxpayer compliance, with Allingham and Sandmo’s model of tax compliance predicting that if detection is likely and penalties are severe, people will be more compliant. However, the mixed evidence about the deterrent effect has been attributed to factors such as low penalties and corruption. Given the importance of a value added tax (‘VAT’) for developing nations, this study explores the extent to which there is a deterrent effect to improve compliance with VAT law in such a country. In particular, this article reports the findings from focus groups and a survey of 240 small and medium enterprises (‘SMEs’) in Bangladesh. The results indicate that there is a greater deterrent effect for SME taxpayers who have a compliant history compared to non-compliant taxpayers. These results are consistent over a number of measures of deterrence, including the likelihood of audits and penalties. Part of the reason for the reduced deterrence for non-compliant SME taxpayers appears to be due to Tax Officers being ‘managed’ through bribes. The findings demonstrate that for a deterrent effect through audits and penalties to lead to greater compliance in a developing country, it is essential that the issue of corruption is addressed.


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Files associated with this item cannot be displayed due to copyright restrictions.
Faculty/School / Institute/Centre: No Faculty
Faculty/School / Institute/Centre: No Faculty
Date Deposited: 03 May 2022 01:40
Last Modified: 25 May 2022 01:38
Uncontrolled Keywords: tax literacy; financial literacy; corruption; developing country; VAT; compliance; Bangladesh; SME; audits; penalties
Fields of Research (2020): 35 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 3502 Banking, finance and investment > 350205 Household finance and financial literacy
35 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 3502 Banking, finance and investment > 350299 Banking, finance and investment not elsewhere classified
Socio-Economic Objectives (2020): 13 CULTURE AND SOCIETY > 1303 Ethics > 130306 Workplace and organisational ethics (excl. business ethics)
13 CULTURE AND SOCIETY > 1303 Ethics > 130399 Ethics not elsewhere classified
URI: http://eprints.usq.edu.au/id/eprint/47745

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