The Devil is in the Detail: An Analysis of VAT Compliance Costs for SMEs in a Developing Nation

Faridy, Nahida and Freudenberg, Brett and Sarker, Tapan ORCID: (2017) The Devil is in the Detail: An Analysis of VAT Compliance Costs for SMEs in a Developing Nation. New Zealand Journal of Taxation Law and Policy, 23 (2). pp. 176-203. ISSN 1322-4417


Higher compliance costs for a value-added tax (VAT) through excessive government regulations are often portrayed as one of the important factors that affect small and medium enterprises (SME), resulting in potentially significant non-compliance and under representation in terms of their registration for VAT and their contribution to the VAT revenue collected. However, while the existing literature makes reference to estimating VAT compliance costs for SMEs in developed economies, there is little detailed evidence of its impacts on developing economies such as Bangladesh. This study utilises a mixed methods approach involving both compliant and non-compliant VAT payers to estimate the VAT compliance costs for SMEs in Bangladesh across a number of characteristics. The results demonstrate that VAT compliance costs for Bangladeshi SMEs are regressive and that manufacturers have a higher burden of monetary compliance costs followed by those in the trading sector. The study also finds that as the size of business increases, the VAT compliance costs for compliant taxpayers increase as compared to non-complaint taxpayers. The analysis and policy recommendations emerging from these findings may provide some useful lessons for Bangladesh and other developing countries in designing a better VAT regime for SMEs.

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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 01:51
Last Modified: 16 May 2022 02:53
Uncontrolled Keywords: Tax compliance; financial literacy; developing country; GST; VAT; compliance cost; Bangladesh; SME
Fields of Research (2020): 35 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 3502 Banking, finance and investment > 350205 Household finance and financial literacy
Socio-Economic Objectives (2020): 15 ECONOMIC FRAMEWORK > 1502 Macroeconomics > 150210 Taxation

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