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Complexity, compliance costs and non compliance with VAT by small and medium enterprises in Bangladesh: Is there a relationship?

Published on 01 May 14 by "AUSTRALIAN TAX FORUM" JOURNAL ARTICLE

Similar to many developing nations, Bangladesh’s small and medium sector enterprises (SMEs) constitute some 90% of all businesses and play an important role in the country’s economic growth and employment.1 This study investigates the nature and extent of the relationships between the complexity of Bangladesh’s Value Added Tax (VAT) legislation, the costs of compliance with VAT in Bangladesh, and non-compliance (either intentional or unintentional) with the VAT legislation by Bangladeshi SMEs. These results could be important as it appears that SMEs are under-represented in terms of their contribution to Bangladesh’s VAT revenue collection, which if other foreign studies2 are relevant could be due in part to compliance costs. The current study is the first to empirically examine the relationships between the complexity of VAT legislation, compliance costs and noncompliance for SMEs in Bangladesh context. The study involved firstly a series of focus group interviews involving different types of SMEs taxpayers in Bangladesh. This was then followed by survey through a purposive sample of SMEs taxpayers in Bangladesh.

The results suggest that a majority of the compliant SMEs taxpayers listed complexity in VAT law and compliance costs as the two important factors influencing VAT noncompliance in SMEs. On the other hand, non-compliant taxpayers emphasised more about the positive relationship between taxpayers and VAT officials for compliant behaviour. The likelihood of audits, penalties and sanctions were found to have less effect on VAT non-compliance for non-compliant taxpayers. In comparison, such monitoring and penalties would apparently improve compliant behaviour by compliant taxpayers. The findings of this research have practical policy implications, in that they can assist policy makers and administrators in their understanding of the potential interrelationships between legislative and regulatory complexity, the costs of complying with VAT legislation, and non-compliance with VAT legislation by SMEs. Having a robust and functioning VAT system is seen as an important attribute for a developing economy, so these findings may be important not only for Bangladesh, but also similar developing economies.

Author profiles:

Tapan Sarker
Tapan works for Department of International Business & Asian Studies, Griffith Business School, Griffith University.
Current at 1 May 2014

 
Richard Copp
Richard works for Department of Accounting, Finance and Economics, Griffith Business School, Griffith University.
Current at 1 May 2014
Click here to expand/collapse more articles by Richard Copp.

Author Photo - Brett Freudenberg CTA
Dr Brett Freudenberg CTA
Brett works at the Department of Accounting, Finance and Economics, Griffith Business School, Griffith University. In addition to his taxation teaching, Brett was awarded a PhD for his research into tax transparent companies in the US, the UK and New Zealand, and how Australian closely held businesses may benefit from their introduction. In 2009 Brett was invited to present his PhD research findings to the Australian Treasury as part of the Henry Tax Review. In 2006 Brett received a Fulbright Award, which saw him conducting research at the University of Illinois to analyse the proliferation of new business forms in the United States and their potential application for Australian businesses. Brett has published refereed articles in leading Australian and international tax journals. In addition to his tax expertise, Brett has received a number of teaching accolades, including in 2008 a national teaching citation from the Australian Learning & Teaching Council for his outstanding contributions to student learning. Current at 01 July 2016 Click here to expand/collapse more articles by Brett FREUDENBERG.


Nahida Faridy
Nahida works for Department of Accounting, Finance and Economics, Griffith Business School, Griffith University.
  • Current at 1 May 2014

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