Taxing the Informal Economy: The Current State of Knowledge and Agendas for Future Research

This paper reviews the literature on taxation of the informal economy, taking stock of key debates and drawing attention to recent innovations. Conventionally, the debate on whether to tax has frequently focused on the limited revenue potential, high cost of collection, and potentially adverse impact on small firms. Recent arguments have increasingly emphasised the more indirect benefits of informal taxation in relation to economic growth, broader tax compliance, and governance. More research is needed, we argue, into the relevant costs and benefits for all, including quasi-voluntary compliance, political and administrative incentives for reform, and citizen-state bargaining over taxation

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

political economy, tax reform, political settlementsThis paper explores the political economy of tax reform in Bangladesh over several decades, shedding light on the complex factors that account for unusually effective and sustained resistance to significant reform. We contend that it is necessary to understand both deep-seated formal and informal institutions and the micro-level incentives that shape the negotiation of short-term reform in order to comprehend tax outcomes. We describe a tax system that is highly informal, largely manual and characterised by high levels of discretion and corruption. However, despite appearing highly dysfunctional on the surface, this system serves the core interests of powerful political, economic and administrative actors. Underpinned by robust informal institutions, the current system delivers low and predictable tax rates to businesses, provides extensive discretion and opportunities for corruption to the tax administration, and acts as an important vehicle for political elites to raise funds and distribute patronage and economic rents. While the tax system has not been without reform, individual reform efforts have been constrained by the parameters of this broader settlement, leaving competing interest groups to pursue strategic gains at the margins while seeking to satisfy external reform demands. This tax bargain reflects Bangladesh’s broader political economy, which is characterised by entrenched informal institutions underpinning the combination of generally weak governance and high levels of economic growth – the so-called ‘paradox of Bangladesh’.DfID, NORA

Problems of Administering a Value-Added Tax in Developing Countries

During the 1970s and 1980s, many developing countries enacted value-added taxes (VATs) as a part of their fiscal structures. The productivity of this source of revenue has depended in large part on the facility with which the tax can be administered. Single rate VATs have proved easier to administer than those with multiple rates. Exemptions and zero-rating tend to complicate administration. Because small taxpayers are so numerous in developing countries and administrative resources so limited, the treatment of small taxpayers has required special attention. The difficulty of taxing services has led most developing countries to omit all but a few services from the tax base. Administrative constraints are the main reason why the VAT that prevails in developing countries is usually very different from the broad-based and neutral tax discussed in public finance treatises.Tax administration;Value added tax;Developing countries;Taxation;vat, checking, sales tax, small enterprises, value-added taxes, tax administrations, large taxpayers, vat rate, consumption taxes, publicity, vat revenue, taxpayer resistance, total tax revenue, tax systems, taxpayer information, tax receipts, tax department, sales taxes, vat system, taxpayer identification, income taxes, tax agency, lump sum tax, vat compliance, tax authorities, vat receipts, tax refunds, tax auditors, tax administrators, tax audit, state tax, tax compliance, tax evasion, vat structure, recording, delinquent taxes, indirect taxes

Presumptive Income Taxation

This paper discusses assessment of income on the basis of approximate indicators as opposed to conventional records. Such a method of assessment, known as presumptive income taxation, is widely used in many developing and industrial countries; however, it has been neglected in public finance literature. In most cases the presumptive approach has been followed for administrative reasons, but this paper argues that more attention should be paid to the efficiency implications of presumptive taxes.Income taxes;Tax administration;Taxation;presumptive taxation, tax system, public finance, presumptive taxes, tax evasion, tax liability, tax reform, tax administrations, tax authorities, taxable income, tax systems, progressive taxation, tax payments, tax collections, fiscal reform, tax officials, tax administrators, tax base, tax rates, tax legislation, fiscal documentation, tax department, optimal taxation, tax policy, tax structure, marginal tax rate, tax assessment, corporate income taxes, marginal tax rates, tax departments, tax return, direct taxation, taxpayer compliance, income tax payments, high tax rates, national tax journal, optimal ? tax, taxpaying population, company income tax, taxation of income, tax incomes, tax on wages, theory of taxation, tax revenue, fiscal affairs, sales taxes, federal tax, income tax system, presumptive income tax, amount of tax, interest payments, tax inspectors, sales tax, tax journal, fiscal affairs department, corporate tax rate