Social Network and Tax Evasion: Theoretical Model and Empirical Evidence in Bangladesh

The Cost and Management, Vol. 49, N. 2, March-April 2021

19 Pages Posted: 15 Jun 2021

See all articles by Dr Kazi Abdul Mannan

Dr Kazi Abdul Mannan

Southern Cross University, Australia

Dr Khandaker Mursheda Farhana

Shanto-Mariam University of Creative Technology

G.M. Omar Faruque Chowdhury

Elite Paint & Chemical Industries Ltd

Date Written: 2021

Abstract

This paper examines ethical and behavioral aspects of taxpayers, the financial condition of citizens, tax fairness, taxpayer services, complexities in the tax regime, tax rates, penalties and enforcement, and tax amnesties and the black economy. Primary data were collected by conducting a survey utilizing structured printed questionnaires. Secondary data were collected from project reports, government publications and documents, books, journals, reports, newspapers and electronic media. Empirical findings suggest that all these issues are associated with tax evasion in Bangladesh. We also find that eligibility in a social network increases the likelihood that others will take-up. This suggests that taxpayers affect each other’s decisions about tax avoidance, highlighting the importance of accounting for social interactions in understanding enforcement and tax avoidance behavior, and providing a concrete example of optimization frictions in the context of behavioral responses to taxation. The involvement and nexus of the three actors in tax policy formulation, implementation and compliance processes were examined. The empirical findings indicate the presence of this nexus which facilitates tax evasion. The high magnitude of tax evasion in Bangladesh is significantly acknowledged by respondents in the study. The empirical findings suggest that the absence of a participatory policy making process, lack of research into, and reform of, the tax system, short-term oriented and politically motivated tax policies, loopholes, anomalies and complexities of tax laws and policies are responsible for creating scope for tax evasion.

Keywords: Taxation, Social Network, Tax Evasion, Tax Avoidance, Network Centrality, Optimal Auditing, Network Model

JEL Classification: H2, H20, H21, H22, H23, H24, H25, H26, H27, H29

Suggested Citation

Mannan, Kazi Abdul and Farhana, Dr Khandaker Mursheda and Chowdhury, G.M. Omar Faruque, Social Network and Tax Evasion: Theoretical Model and Empirical Evidence in Bangladesh (2021). The Cost and Management, Vol. 49, N. 2, March-April 2021, Available at SSRN: https://ssrn.com/abstract=3860180

Kazi Abdul Mannan (Contact Author)

Southern Cross University, Australia ( email )

Lismore, New South Wales 2480
Australia

Dr Khandaker Mursheda Farhana

Shanto-Mariam University of Creative Technology ( email )

Dhaka, 1230
Bangladesh

G.M. Omar Faruque Chowdhury

Elite Paint & Chemical Industries Ltd ( email )

Bangladesh

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