Tax evasion: Empirical evidence from sub-Saharan Africa

Abstract

Tax is the income which is paid to the government in order to fulfill the need of the public. However tax evasion is the act of not paying the tax by use of illegal ways. Allingham and Sandmo being the first researchers studying the tax evasion found a relationship of tax evasion with low penalty fees and a low detection. The tax evasion basically is affected by various factors but it also affects many economic factors. Sub Saharan Africa being a developing region is facing the phenomenon of tax evasion in a crucial way. This study measures the impact of the tax evasion on the Gross Domestic Product (GDP) per capita of Sub Saharan Africa. The relationship between the GDP per capita and tax evasion is tested using the generalized least squared whereby it is found that there is a positive impact of tax evasion on the GDP per capita however the p-value states that the tax evasion is insignificant and is not an important component for the determination of the GDP per capita. Moreover in the presence of tax evasion, this study shows that GDP per capita has also a negative relationship with the Foreign Direct Investment (FDI), positive relationship the Gross Domestic Fixed Capital Formation (GDFCF), a favorable connection with the export, a negative relationship with the import, a positive impact on the inflation and a negative relationship with the government expenditure. To fight against tax evasion for the economic benefit of Sub Saharan Africa, it is advised to review the tax system, to implement strict and severe penalties and very high fines for tax evaders. Moreover, the tax authorities of Sub Saharan Africa need to appoint more experts in auditing department to be able to detect the non-compliance tax payers easily and rapidly

Factors Influencing Taxpayers Engaged in Tax Evasion Evidence From Woldia City Administration Micro, Small and Large Enterprise Taxpayers

“…Tax evasion is done intentionally by taxpayers by avoiding and hiding different documents that become evidence for the tax collection authorities. It is simply an illegal act to pay the true amount of the tax (Aumeerun et al, 2016;Storm, 2013). Tax evasion is a crime that able to distort the overall economic, political, and social system of the country.…”

“…Where, N= Target population, n=sample size, e=error term = 4979 1 + 4979(0.05) 2 = Based on the sample size the respondents have participated proportionally as follows from each level. As shown in the table below 3.1 the total population divided as strata based on the level categorized by the authorities.…”

“…Scholars relate the effect of tax evasion on the macro level of the country's economic factors because it brings a devastating loss for the country's GDP. The issue of tax evasion became a controversial issue, debating and a special concern for tax collector authorities (Aumeerun et al, 2016). It is an illegal act and considered unethical practices by different individuals and groups who criticize engaged in tax evasion activities (Alleyne & Harris, 2017).…”

The Factor of Tax Avoidance

“…However, not all taxpayers want to carry out their tax obligations as they should. Aumeerun et al (2016) state that tax non-compliance is an act that does not comply with the laws and tax regulations of a country by not paying taxes or not reporting the actual amount of income, which can include avoiding taxes in a legal manner, namely tax avoidance and illegal, namely embezzlement tax.…”

“…Evasion and tax avoidance tend to show lower investment be the product mix, in which it means more moderate economic growth and public companies will be affected negatively Lim (2011) states as a tax avoidance tax savings arising from a general tax reduction method which sometimes legality to minimize tax liability is still questionable. Meanwhile, according to (Aumeerun, et al, 2016) of tax evasion part of measures to minimize the tax liability within the law, while tax evasion is an illegal act to avoid paying taxes. According to Mardiasmo (2016), tax evasion including tax relief efforts does not violate the law.…”