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Top1. Introduction
Tax evasion is considered as a severe loss of government revenue, resulting in pressure to the government in providing public services smoothly. Therefore, tax evasion has been a challenging issue for the government as well as tax authority to increase the tax revenue from the taxpayers. Tax evasion is defined as an illegal activity that people employ while paying taxes. It happens if the taxpayers do not comply with the tax obligation intentionally either through the failure of filling return, misreporting income, or less payment compared to actual tax despite having the ability of payment. Korndörfer et al. (2014) described tax evasion as an unlawful act that breaches the law and deviates from social norms requiring tax payment. Gottschalk (2010) defined tax evasion as “the wilful attempt to defeat or circumvent the tax law in order to illegally reduce one’s tax liability.”
Though tax evasion has become a subject of discussion for academic research in developed countries after years (Chan, 2019; Richardson, 2016), there are very few studies on the issue in developing countries (Nurunnabi, 2017). In developing countries, it is severe since about 20% of total tax revenue has been estimated as tax evasion repeatedly (Andreoni et al. 1998). Angel Gurría, the secretary-general of the OECD, once estimated that developing countries lose three times as much to tax evasion as they receive foreign aid. The Tax Justice Network, pointing out the data on tax evasion as murky at best, commented the real figure might be closer to ten times (Bearak, 2016). Similarly, in other developing countries like Bangladesh, this problem is even more severe as the loss of tax revenue is $500 million each year estimated by NBR. Moreover, the size of the shadow economy in Bangladesh is 38.1% of total GDP, whereas it is an average of 37.4% in other developing countries (Ahmed, 2016).
There are so many reasons why it is essential to examine the factors of tax evasion. The most common is that it reduces the tax collection capacity resulting in a loss of government revenue, which affects both the compliant taxpayers and the public service received by the citizen. In addition to a loss of government revenue, tax evasion is the cause of the misallocation of resources. It happens when taxpayers change their behavior to conceal the actual income, adopt unethical deductions, and hide the extra income in their tax return. Thus, the government requires expanding its capacity to detect tax evasion, to measure its magnitude, and to penalize its practitioners. The tax evasion behavior alters the distribution of income in unfair ways, which creates feelings of unjust treatment and disrespect for the rules and regulations. It also misinterprets the indicators of the overall economy. Therefore, it is merely possible to realize the actual effects of taxation without considering tax evasion. Hence, it is necessary to identify why people feel discouraged from paying taxes to their government; the study strives to identify the factors that influence their attitude towards tax evasion.