The Political Economy of Domestic Tax Reform in Bangladesh: Political Settlements, Informal Institutions and the Negotiation of Reform

Abstract

This paper explains the persistence of a tax system characterised by low revenue collection and extensive informality in Bangladesh. It combines analysis of long-term formal and informal institutions and of micro-level incentives shaping negotiation of short-term reform. The system is unusually informal, discretionary, and corrupt, but remains resistant to change because it delivers low and predictable tax rates to business, extensive opportunities for corruption to the tax administration, and an important vehicle for fundraising by political leaders and rent distribution to their elite supporters. We then explore the dynamics of micro-level reform and external pressure within the constraints of this overarching political bargain.

Taxonomies of money laundering: an Iranian perspective

“…A significant endogenous factor contributing to money laundering pertains to the political economy of a country and the extent to which elites understand the obligation to pay taxes for economic and social advancement (Hassan and Prichard, 2016). This in turn is a product of social cohesiveness; if a society is atomised and individualistic, or if evasion of taxes is regarded as socially or morally acceptable, then the size of the illegal economy and with it money laundering as a corollary, will increase (Storm, 2013).…”

Innovations in Tax Compliance: Conceptual Framework

“…77 However, members of tax administrations have at other times resisted reforms that increase transparency, reduce discretion and thus curtail opportunities for collusion and corruption. 78 Meanwhile, building broad popular support for tax reform is notoriously difficult, as the bulk of taxpayers are relatively poorly organized, and frequently have little trust in the government. 79 This lack of trust is, in turn, a key factor, because tax reforms frequently ask taxpayers to bear a heavier burden of taxation immediately, based on the promise of future improvements in public spending.…”

“…103 Particularly where face-to-face interactions between taxpayers and tax officials are common there is extensive evidence of tax collectors seeking to extract informal payments from taxpayers. There is some evidence that this extraction sometimes targets more vulnerable or less educated groups, 104 or areas in which tax collectors have greater leverage -owing, for example, to the ability to disrupt business operations 105 or access to key services. 106 But extraction is not limited to these groups.…”

Political Settlements and Bureaucratic Reforms: An Exploratory Analysis Focusing on Bangladesh

“…A few studies (BIGD, 2014; Hassan, 2014; Hassan and Nazneen, 2017; Hassan and Prichard, 2016; Serra, 2012) have reflected on partyarchy, a phenomenon that implies capture of vital state and non-state institutions by the ruling coalition that gained momentum after 1990 and which still endures. For this article, the concept of partyarchy carries enormous significance, mainly because the systematic process it entails has virtually made even incremental bureaucratic reform initiatives impossible to undertake, let alone providing radical solutions.…”