Determinates of tax evasion behavior empirical: survey data

Introduction:

1.1. Background of the study

Tax is charge in terms of monetary which is paid by public to the government. Tax evasion is a

process in which a tax payer does not pay tax to the tax authorities. Levi & suddle (1989)

claimed that tax evasion in wider sense, any activity which is against the law designed for

reducing, avoiding or delaying one’s tax liability that is, if found may bring imprisonment,

penalty or monetary fine to such person who is evader Historically, every nation imposes tax on

its citizens in order to regulate, control and create revenue for covering state expenses. The

primary responsibility of every government is to provide social facilities for its citizens, based on

the amount of taxes generated. Thus, the amount of money collected in a given period is utilized

to finance education programs, health care, electricity, water, law enforcement as well as other

projects beneficial to society. Many efforts have been taken by various countries in tackling tax

evasion and tax avoidance, but these have proven to be ineffective .Taxes provide high revenue

for governments. Tax revenue is an essential element for economic and social growth. Therefore,

there is no doubt about the need for tax revenue and its benefits to society.

Fuest and Riedel (2009) pointed out that providing public infrastructure and facilities is a

significant part of economic development. However, in developing countries, there is a lack of

public services, which adversely affects and undermines the standard of living of the people.

Sufficient tax revenues make many government projects possible and help elected officials and
politicians to remain in office longer if the government implements programs and projects

demanded by the public.

To understand tax evasion, one can examine the factors that cause taxpayers to evade taxes;

based on this information, policies can be developed to prevent tax evasion. This study uses data

from a survey conducted in Pakistan to answer the question of which factors contribute to tax

evasion.

Literature Review:

Many factors have been studied in the literature to explain the tax evasion behavior of taxpayers.

According to Brooks & Hwong (2006) said that it is unfortunate for citizen of a nation & its

prosperity to evade the tax. He also discussed that ratio of achieving social objectives

successfully for any high tax paying country is much better than low tax paying country.

From the perspective of tax auditing, it is clear that an increase in tax audits leads to a decrease

in tax evasion (Alm, Jackson and McKee, 1992; Alm, McClelland and Schulze, 1992). Gemmell

and Ratto (2012) investigate the relationship between random audits and taxpayers’ responses by

comparing randomly selected audited and non-audited taxpayers. These authors conclude that

audited taxpayers have reduced subsequent compliance. In their study, Snow and Warren Jr.

(2005) conclude that an increase in tax audits and tax penalties leads to an increase in tax

evasion.

Some studies provide empirical evidence of a significant relationship between demographic

factors and tax evasion, whereas other studies do not find a significant relationship. For instance,

Spicer and Becker (1980) show that male taxpayers tend to evade taxes more than female

taxpayers. McGee and Tyler (2006) stress that tax evasion is more unacceptable behavior for
female taxpayers than for male taxpayers. Frey and Feld (2002) study the relationship between

tax morale and tax officials’ behavior in the context of tax evasion. They find that when tax

officials are respectful in their duties toward taxpayers, tax morale increases. Richardson (2006)

studies the relationship between tax evasion and the complexity of the tax structure. He finds that

the lower the level of complexity, the lower the level of tax evasion is across countries.

According to Riahi-Belkaoui (2008) studies bureaucracy and tax behavior and concludes that an

increase in bureaucracy leads to an increase in tax evasion. In sum, many factors contribute to or

affect the tax-evading behavior of taxpayers. However, the degree of each factor’s effect on the

tax-evading behavior of taxpayers may differ due to differences in cultural and institutional

settings.

According to Robert W. McGee (1999) in Armenia to determine the reasons why Armenians

evade the payment of taxes. The two main reasons the author found were that tax evasion is easy

because there is no mechanism in place to collect taxes and the people feel no moral obligation

to pay taxes to a corrupt government that does not provide services.

Many authors have discussed impacts of tax evasion in different sectors of economy. However,

the degree of each factor’s effect on the tax-evading behavior of taxpayers may differ due to

differences in cultural and institutional settings.

Research Questions:

Q: Which factors related to tax evasion behavior?

Q: What is the relationship between governments polices and tax evasion?

Q: Which causes effect the taxpayers to evade taxes?

Research Objectives:

1. The primary objective of this study was to examine the determinants of tax evasion behavior.

2. To analyze possible ways to eliminate tax evasion.

3. To determine all causes of tax evasion in Pakistan.

Significance:

Talpur (2017, March 27) Consequences of Tax Evasion on General Public. DailyTimes. Tax

evasion is a crime in almost all developed countries, and the guilty party is liable

to fines and/or imprisonment. There are also many other causes of the tax evasion in Pakistan

such as illiteracy of tax calculation, lack of adequate tax incentives, common public do not have

knowledge about it, we have very poor relationship of tax payers and the authority, non-existence

of an equitable efficient tax system, absence of tax morality and etc. The evasions of taxes

effects on overall revenue of the country, when the revenue is affected. It cannot meet with

current expenditures that further leads toward distressing situation for the general public of the

country. The ultimate effects of tax evasion fall on common people because government

increases the rates of the indirect taxes instead of direct. Moreover, to benefit general public and

overall development of the country’s economy some more steps are needed to curb the incidence

of tax evasion. High seriousness is needed to encounter with this increasing challenge for the

economy of Pakistan, to relieve the general public from unnecessary burden of indirect taxes. So

this will study about the reasons of tax evasion in Pakistan. This study focus on all possible

causes of tax evasion which will be help full for other researchers to work in future.