DETERMINANTS OF TAX COMPLIANCE BEHAVIOR IN BANGLADESH: THE CASE OF INDIVIDUAL TAX PAYERS

Abstract

Tax revenue is one of the most important sources of government revenues that help the government to finance its expenditure in a way that is administratively reasonable, justifiable, and resourceful. Most of the developing countries are suffering from the problem of tax non-compliance, and its impact in a developing country like Bangladesh is severe. Despite remarkable GDP growth in the past decade, mobilizing resources through the growth in tax revenue has been sluggish in Bangladesh, and the Tax-GDP ratios have been either stagnated or declined. Despite several reform measures, the Tax-GDP ratio in Bangladesh has been increased from 3.41% (1972-73) to 10.3% (2017-18) only, which is one of the lowest among the developing countries as well as the similar economies. Such tax performance has prompted the uncertainty of not achieving the government’s 7th Five-Year Plan Target Tax-GDP ratio of 14.1 by 2020. As per the data from NBR Annual Reports, in Bangladesh, the number of individual taxpayers has not grown remarkably in recent years. The number of individual taxpayers in 2010-11 was 1.9 million, which rose to only 2.5 million in 2017-18. Although the number of e-TIN holders is approximately 34 lacs (as of May 2018), only half of them submit income tax returns. Compared to the total population of 163.65 million people, as of June 30, 2018, which is just slightly more than one percent of its total population. Tax evasion and avoidance, poor tax administration is the main problem of poor tax performance in Bangladesh. Therefore, this study is set to identify the key determinants influencing the tax compliance behavior of an individual taxpayer in Bangladesh. Data has been collected through a survey questionnaire and interviews. It has been observed that most of the respondents pay income tax as it is an obligation towards the government (i.e. it is a compulsory payment to the government) rather considering it a contribution to the society. The study used both descriptive and inferential statistical techniques to analyze the data. Some of the techniques are independent sample t-test, ANOVA, correlation, regression, factor analysis, and thematic analysis. The results suggest that in Bangladesh, the “behavioral approach” explains tax compliance behavior in a better manner comparing to the “economic deterrence” approach. Tax compliance has a strong positive correlation with the institutional determinants, socio-psychological determinants, economic determinants, and other non-economic determinants. Moderately strong correlation has been observed with individual determinants. It has also been observed that institutional, individual, and other non-economic determinants positively influence the tax compliance behavior, whereas economic and socio-psychological determinants reveal negative influence. It also provides an indicator that prior tax knowledge, tax lawyer’s assistance, sources of income, age, and occupation influences the tax compliance behavior of the individual taxpayers. On the other hand, gender, income tax rate, and average monthly income have no statistically significant influence on tax compliance behavior. Finally, ensuring strict and fair punitive measures for tax evaders, educating taxpayers, reducing current income tax rates, recruiting sufficient skilled and knowledgeable tax officials, ensuring fair treatment with all taxpayers, granting visible incentives/rewards for regular taxpayers, ensuring fairness in spending tax money by the government, and reforming tax administration to make it taxpayer friendly are suggested as strategies for enhancing the level of tax compliance in Bangladesh. It is expected that this study will be able to add value to the existing tax compliance behavior research arena and the findings can be used by the policymakers to take appropriate reform measures to enhance the level of tax compliance by the individuals.