Training for Cost-Effectiveness vs. Training as Tax Evasion Tool – A Study on Selected Private Companies in Bangladesh

Abstract

Bangladeshi organizations consider employee training as an indispensable strategic tool for enhancing employee’s performance. Although training seems to be an expense, it is regarded as an investment. Every company is increasing the amount of the budget on training programs showing the reason that training brings the competitive edge. The study is focused on analyzing the tendency of increasing the training budget to know whether it is an investment or an evasion medium of tax in Bangladesh. A survey has been administered to find the degree of effectiveness of training programs, the utilization of budget on training, the cost-effectiveness of training programs and the possibility of training programs used as a tax evasion medium in Bangladesh. We have collected data through a semi-structured questionnaire from a sample of 200 employees working in 20 private organizations located in Dhaka city. We have observed from our survey that most of the time training programs held in different organizations in Bangladesh are not always effective. Trainees are not getting the most out of it. Contrary to the expectation, the analysis showed that the training budget is not sufficient. Although companies are increasing the amount of the training budget every year, it is not enough to give best results. And the budget is not utilized effectively in many cases. For this, many company’s performance in cost-effectiveness of training is not satisfactory. The formal evaluation method is not followed in every company, and the training programs are not improved always. Every organization doesn’t conduct cost and benefit analysis of training programs. The study has also found that training can be used as a tax evasion tool and in many organizations, it is somewhat being used. Training program opens up the opportunity to include false expenses which increases the total cost. The result of increased expense is a decrease in taxable profit. We have used mean, standard deviation, variance, percentage analysis, hypothesis testing, etc. for statistical analysis.

Tax avoidance and tax evasion: current insights and future research directions from an emerging economy

“…, 2018). Firms usually use fake expenses like employee training expenses to evade tax (Hossain and Noor, 2018). They also manipulate financial data or reports to evade tax (Rahman et al.…”

“…Reduction of taxable income or increment of expenses can reduce tax burden of the business firm (Rahman et al, 2018). Firms usually use fake expenses like employee training expenses to evade tax (Hossain and Noor, 2018). They also manipulate financial data or reports to evade tax (Rahman et al, 2018).…”

“…Firms with strong political connections are more tax aggressive, whilst weaker connections are more socially responsible Audit Committee (AC) Attributes Islam and Hashim (2023) AC size has a negative insignificant association with corporate tax avoidance, whilst AC meeting has a negative significant relationship to corporate tax avoidance The interaction of AC size and AC independence has a negative significant relationship to corporate tax avoidance. In contrast, the interaction of AC meeting and AC independence positively affects corporate tax avoidance Audit (Rashid and Morshed, 2021) The external auditing has a negative effect on tax evasion by firms Financial issues Internal Culture of Giving Bribe (Gauthier et al, 2021) Corruption in tax administration tends to be mainly a demand-side phenomenon Training Employees (Hossain and Noor, 2018) Training can be used as a tax evasion tool, and in many organisations, it is being used somewhat Report Manipulation (Rahman et al, 2018) The reserve and provision are the main way of tax avoidance and evasion, followed by help from a legal advisor, showing less income, more expenses, investment allowances and individual intention Ownership and Financial Restrictions (Rashid and Morshad, 2021) Ownership (Hassan et al, 2022;Masum and Hena, 2017) 1) The firm's domestic, foreign and government ownership increases tax evasion 2) Proprietorship and female ownership decrease tax evasion 3) The negative relationship between audit and tax evasion implies that the government should make it compulsory to check the financial statements of the firms by external auditors, which, in turn, reduces the firms' tax evasion 4) The firms that face more financial constraints evade more tax than those with access to bank loans and solvent ones 1) Board ownership and public ownership are significantly and positively associated with corporate tax avoidance Role of tax authority and policies Corruption, Improper Behaviour, Tax Policy (Rahman and Karim, 2016) The contemporary tax policy of Bangladesh, its multiplying tax burden, and its loopholes are the probable stimulus behind the practice of earnings management Political settlement, inefficient and manual tax auditing system and very high marginal tax rate (Razzaque et al, 2023) Tax evasion activities have been significantly increased by the political settlement in Bangladesh's tax system. Most rich elites can avoid paying taxes because of their political connections; they can file low-tax returns that are not auditable or choose not to register An ineffective, manual tax auditing system exacerbated the prevalence of tax evasion and avoidance Source(s): Authors' own creation Theoretically, a lack of institutionalisation, a higher level of political influence and corruption result in higher tax evasion Good Governance (Rashid et al, 2023) Sound governance leads to lower tax evasion in developed and developing countries Good Governance (Murshed and Saadat, 2018) The key role of ensuring good governance within the economy is to incentivise the taxpayers to d...…”