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Information sharing, bank penetration and tax evasion in the developing countries

By Vo Manh Tan (VNP 21)

Supervisor: Dr. Vo Hong Duc

Abstract

Tax evasion defines illegal activities which aim to conceal taxable income from tax authorities or to include expenses which are not allowed in order to reduce tax duties. In the developing countries, tax evasion is critical problems and barriers to growth. An extensive literature review presents that tax and social security contribution burdens, regulations, public sector services, quality of institutions and tax compliance play an important role in the decision of whether firms would evade tax or not.

This study is conducted to provide a close look to tax evasion in the developing countries by developing a new TEI using data from standardized World Bank Enterprises survey 2006 - 2014. The newly developed TEI is then adopted to examine potential influences of information sharing and bank penetration from financial intermediate developments on tax evasion on the sample of 112 developing countries during the period of 2006 to 2014 using Tobit regression.

Findings indicate that a substance variance in TEI originates from public sector services. Corruption contributes most to the TEI with the average of 2.76 over 4. The average TEI for the developing countries stays at 0.62 and varies from 0.25 (for Etritrea) to 0.7539 (for Brazil). In addition, empirical analyses indicate a consistent and negative relationship between information sharing, bank penetration and tax evasion in the developing countries. Finally, large firms are considered to have adopted good tax compliance practices while firms located in remote areas are more likely to evade tax.

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