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on Informal and Underground Economics |
| By: | Laszlo Goerke (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University) |
| Abstract: | This contribution surveys theoretical analyses of tax evasion by firms. It uses a simple model in which the firm determines economic activity and the under-declaration of the tax base to integrate various approaches into a coherent analytical framework. Initially, the chapter characterises the basic features of the firm's decision. Subsequently, it considers the effects of firm-size heterogeneity, restrictions on evasion behaviour, the co-existence of tax evasion with other illegal activities, output market interactions, non-profit objectives, and corporate governance issues. |
| Keywords: | Firm, Tax Avoidance, Tax Evasion |
| JEL: | H25 H26 K34 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:iaa:dpaper:202104&r= |
| By: | Ogembo, Daisy |
| Abstract: | We currently know very little about the taxation of professionals in Africa – scholarly work on this group of taxpayers is scant. The little research that does exist is located within the literature on the taxation of the 'hard-to-tax', a term in tax evasion literature that refers to farmers, small and medium-sized enterprises, and professionals. However, scholarly discourse on the hard-to-tax in low- and middle-income countries, particularly in Africa, has focused primarily on farmers and small and medium-sized enterprises. Professionals are rarely critically considered, despite the acknowledgement in the literature that, considering their potential earnings, the absolute amount involved in evasion by professionals in low- and middle-income countries is probably higher than farmers and small and medium-sized enterprises. This paper begins from the premise that it is sensible to begin to focus more seriously on self-employed professionals in the policy and administrative efforts aimed at increasing tax collection from the informal sector in Africa. Proceeding on that premise, the author provides three lessons that we can learn from a Kenyan case study on taxing self-employed professionals in Africa. |
| Keywords: | Finance, Governance, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:15181&r= |
| By: | Yimam, Seid; Asmare, Fissha |
| Abstract: | Developing countries often lack tax information and enforcement capacity necessary to effectively implement instruments of a modern tax system, such as VAT, income taxes and others. An alternative strategy to increase tax compliance, and thus revenue, in these countries may depend on the capacity of policymakers to harness individual’s civicmindedness, social norms, reciprocity and cultural values of trust (Prichard, Custers, Dom, Davenport and Roscitt 2019). To do so in an effective and targeted way, policymakers need clear evidence on how tax compliance correlates with key taxpayer characteristics, such as gender. However, such evidence remains limited in the Global South, particularly in Africa, and our study aims to fill this gap. In this study, we investigate the correlation between business owner’s gender and tax compliance in Ethiopian enterprises. We measure the tax compliance of businesses from tax audit registry data and combine it with survey data collected from 408 enterprises. Our results suggest that enterprises’ tax compliance behaviour is significantly affected by their owners’ gender: female owned enterprises are more likely to be tax compliant than those owned by men. The correlation between the owner’s gender and tax compliance also becomes stronger as enterprises get larger in size. The results of our study imply that development-related polices, especially in the area of tax administration and compliance, should consider the behavioural variation among male and female business owners. Moreover, improving the participation of women in business in the country may also enhance equity and tax revenue collection for better resource mobilisation and development. |
| Keywords: | Economic Development, Finance, Gender, Governance, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:15724&r= |
| By: | Fisar, Milos; Reggiani, Tommaso (Cardiff Business School); Sabatini, Fabio; Spalek, Jirí |
| Abstract: | We study the impact of the media negativity bias on tax compliance. Through a framed laboratory experiment, we assess how the exposure to biased news about government action affects compliance in a repeated taxation game. Subjects treated with positive news are signicantly more compliant than the control group. Instead, the exposure to negative news does not prompt any significant reaction compared to the neutral condition, suggesting that participants may perceive the media negativity bias in the selection and tonality of news as the norm rather than the exception. Overall, our results suggest that biased news provision is a constant source of psychological priming and plays a vital role in taxpayers' compliance decisions. |
| Keywords: | tax compliance, media bias, taxation game, laboratory experiment.; tax compliance, media bias, taxation game, laboratory experiment. |
| JEL: | C91 D70 H26 H31 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2021/26&r= |
| By: | Kangave, Jalia; Byrne, Kieran; Karangwa, John |
| Abstract: | Increasing emphasis is being placed on the need for low income countries to collect more tax revenue. In parallel, the need for equitable tax systems is also gaining prominence. While African countries have made remarkable progress in increasing tax collections, taxation in many African countries is inequitable in various respects. For example, many revenue authorities collect the bulk of personal income taxes (PIT) from people in formal employment who earn modest incomes, with very little being collected from wealthy individuals. In Rwanda, between fiscal years 2016/2017 and 2018/2019, PIT accounted for approximately 24% of total tax revenue. However, 97% of this amount was collected from those in formal employment, through Pay As You Earn. Only 3% was collected from personal businesses. In an effort to raise more revenue and to promote more fairness in the tax system, a small cluster of revenue authorities in African countries have put in place mechanisms to ensure that wealthy individuals pay their fair share in taxes. Working with the Rwanda Revenue Authority (RRA), we have delved into individual wealth in Rwanda to establish the extent to which wealthy individuals in Rwanda are tax compliant. Summary of ICTD Working Paper 109 by Jalia Kangave, Kieran Byrne and John Karangwa. |
| Keywords: | Economic Development, Finance, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:15554&r= |
| By: | Gallien, Max; van den Boogaard, Vanessa |
| Abstract: | The concept of ‘formalisation’ has been ubiquitous in development discourse and policymaking in the early twenty-first century. It has underpinned policy interventions and proposals from tax registration to property titling, and a range of measures intended to connect informal entities with state institutions or formally structured markets. Despite the policy enthusiasm, however, the outcomes of formalisation policies have frequently been disappointing. We argue that this disconnect lies in the concept of formalisation itself and that common approaches to formalisation are often rooted in three conceptual fallacies: (a) there is a binary distinction between formal and informal economic actors; (b) all informal economic actors are alike; and (c) ‘becoming’ formal necessarily spurs a set of positive externalities. These conceptual confusions pay insufficient attention to contextual complexity and the political and social dynamics that shape informality in a given context, and are frequently rooted in the practicalities and power structures that shape knowledge creation in this area. Consequently, we argue for a new research agenda on formalisation that challenges both its conventional conceptual foundations and the practices of research that engage with it. |
| Keywords: | Finance, |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:16869&r= |
| By: | Mascagni, Giulia; Santoro, Fabrizio; Mukama, Denis; Karangwa, John; Hakizimana, Napthal |
| Abstract: | Nil-filing refers to taxpayers who report zero on all fields of their tax declaration. It is a largely ignored phenomenon in the tax literature, despite being well known to tax administrators. There is almost no evidence on the characteristics of nil-filers and the reasons for their apparently puzzling behaviour. This paper sheds light on this issue in Rwanda, using a descriptive analysis of administrative data, a randomised controlled trial (RCT), and qualitative interviews with taxpayers and tax officials. We argue that evasion is part of the explanation for nil-filing, but it seems to play a relatively small role. Instead, a major reason for nil-filing lies at the interaction between aggressive recruitment campaigns by the Rwanda Revenue Authority (RRA), and taxpayers’ response to a complex and often confusing tax system. |
| Keywords: | Economic Development, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:15314&r= |
| By: | Occhiali, Giovanni; Kalyango, Fredrick |
| Abstract: | Since the late 1970s, many countries have based their tax systems on self-assessment – taxpayers are expected to evaluate their liabilities autonomously, and voluntarily remit their tax due. If the tax system is perceived as fair and easy to navigate, with credible threat of penalisation for non-compliance, self-assessment reduces the cost of tax administration without significant revenue losses (Barr et al. 1977; Teviotdale and Thompson 1999; James and Alley 2004). On the other hand, self-assessment entails an increase in compliance costs for taxpayers, at the very least in terms of time spent complying with their obligations. However, none of the conditions mentioned above – fairness, simplicity and credibility – is easy to meet. Hence, initial moves towards self-assessment were met in many countries with an increased focus on what type of deterrence measures would increase taxpayer compliance (Forest and Sheffrin 2002), following the prevalent theoretical approach of the time (Allingham and Sandmo 1972). By the late 1990s, the focus was shifting to the perceived fairness and complexity of the tax system, increasingly seen as both a direct and indirect obstacle to compliance (Slemrod and Venkatesh 2002; Forest and Sheffrin 2002; Eichfelder and Schorn 2012). Intuitively, a taxpayer who does not understand their tax obligations has a hard time complying with them, and might well decide not to try at all – especially if penalisation is seen as unlikely. |
| Keywords: | Finance, |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:16871&r= |
| By: | Picciotto, Sol |
| Abstract: | This briefing aims to explain the ‘offshore’ system which enables both evasion and avoidance of tax, as well as of other types of laws and regulations, and discusses countermeasures. All illicit cross-border financial flows exploit the offshore system, so understanding how it works is the key to ensuring effective and coherent countermeasures, in relation to tax, money-laundering and corruption. It was written as a submission to the United Nations High Level Panel on Financial Accountability, Transparency & Integrity. |
| Keywords: | Economic Development, Finance, Governance, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:15516&r= |
| By: | Santoro, Fabrizio; Groening, Edward; Mdluli, Winnie; Shongwe, Mbongeni |
| Abstract: | Non-filing refers to taxpayers who fail to submit a tax declaration, thus becoming ghosts in the eyes of tax authorities. It is a widespread phenomenon in sub-Saharan Africa, and has a number of detrimental fiscal effects. Non-filing has been largely unexplored in the literature, which focusses more on active filers. The overall aim of this paper is to shed light on the determinants of non-filing, building on neoclassical and behavioural theories, as well as to contribute to the methodological discussion on how to measure tax compliance. Focusing on Eswatini, the analysis combines survey data from a thousand entrepreneurs with their tax returns and filing history 2013-2018. We show that economic deterrence, compliance costs and moral factors, such as intrinsic motivation and peer pressure, are strongly correlated with actual filing. We also study how our key factors change when controlling for the persistence of filing behaviour in past years, or using a self-reported measure of compliance. We argue that tax knowledge plays a major role in understanding the decision to file. In terms of policy, results show that the tax authority could improve filing rates by adopting both a deterrent and an assistance-related approach, and also by triggering the role of social norms. |
| Keywords: | Economic Development, Finance, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:15578&r= |
| By: | Santoro, Fabrizio; Groening, Edward; Mdluli, Winnie; Shongwe, Mbongeni |
| Abstract: | Tax collection in sub-Saharan Africa (SSA) performs poorly, with a tax/GDP ratio of about 15% –this has severe repercussions for service delivery, growth and state-building. The ratio in high-income countries is 35%. Resource-constrained tax authorities in SSA are transitioning towards a new tax era, and implementing innovative compliance strategies such as ‘tax nudges’ – communication campaigns aiming to influence the behaviour of taxpayers. Very little quantitative evidence has been produced as to why taxpayers in SSA comply with or evade taxes. While tax nudge literature has boomed in OECD countries and Latin America, only a handful of tax nudge studies have been produced in SSA. Understanding what motivates compliance is crucial, particularly for income taxes – for which the incentive to evade is higher. SSA countries need to improve collection of income taxes, which are preferable to indirect taxes in terms of fairness and equity. This is a summary of ICTD Working Paper 112. |
| Keywords: | Economic Development, Finance, Governance, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:15741&r= |
| By: | Fjeldstad, Odd-Helge; Kagoma, Cecilia; Mdee, Ephraim; Hoem Sjursen, Ingrid; Somville, Vincent |
| Abstract: | Value Added Tax (VAT) has emerged as one of the main modes of raising tax revenue worldwide, but has significantly underperformed as a revenue source in African countries. To improve compliance, Tanzania has introduced Electronic Fiscal Devices (EFDs), which automatically transmit information about business transactions to the tax administration. However, VAT collection has not improved as expected. In this paper, we examine EFD compliance and identify factors that influence it. An innovation in this study is the direct observation of EFD usage: our enumerators waited for customers departing from business premises, and then checked their receipts, interviewed them and interviewed the businesses. This design enabled us to observe each business’s actual compliance in issuing EFD receipts, thus mitigating the problem of dishonest reporting of compliance, which is common in self-reported survey data. We find that EFD compliance is associated not only with the business’s perception of other businesses’ compliance and its satisfaction with public services, but also, and more strongly, with the customer’s perception of detection and penalty risks. |
| Keywords: | Development Policy, Finance, Governance, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:15127&r= |
| By: | Amaeshi, Kenneth; Adi, Bongo; Ikiebey, Godson |
| Abstract: | This study explores how small business owners talk about their tax responsibility, especially in non-enabling institutional contexts. It identifies two main types of tax responsibility discourses amongst these business owners: (1) duty-based and (2) rights-based. The duty-based talks see taxation primarily as the citizens’ responsibility to governments, which should always be fulfilled unconditionally, while rights-based talks see taxation primarily as the government’s responsibility to citizens, which should be fulfilled first, in order for the government to earn the trust of citizens for higher tax compliance. Further analyses reveal that these talks are anchored on four common discursive themes – i.e. socio-economic development, legal, moral, and philanthropic themes, which business owners respond to in different ways. The paper argues that understanding these diverse responses will help tax regulators respond to taxpayers’ attitudes effectively. Summary of ATAP 15 by Kenneth Amaeshi, Bongo Adi and Godson Ikiebey. |
| Keywords: | Finance, Governance, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:14980&r= |
| By: | Tendai Zawaira (Department of Economics, University of Pretoria, Hatfield 0028, South Africa); Matthew Clance (Department of Economics, University of Pretoria, Hatfield 0028, South Africa); Carolyn Chisadza (Department of Economics, University of Pretoria, Hatfield 0028, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa) |
| Abstract: | This study analyses the association between financial inclusion and gender inequality in sub-Saharan Africa. Our findings suggest that generally, most individuals in sub-Saharan Africa rely on informal sources of finance, such as savings at a savings club and borrowing from family and friends compared to formal financial sources. Moreover, women are more likely to turn to the informal sources compared to men which is a concern that needs to be addressed at policy level. Improving access to finance is at the center of improving gender equality and increasing the economic freedoms and opportunities that women have to contribute to their families and societies. |
| Keywords: | Gender, Financial development, Financial inclusion, Africa |
| JEL: | J16 O11 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202167&r= |