Factors influencing tax compliance behavior : a study of Bangladesh

Abstract

As a Least Developed Country (LDC), Bangladesh's economy highly depends on tax revenue to formulate the national budget and conduct development projects. However, the country has consistently exhibited poor tax revenue collection and recorded one of the lowest tax compliance levels among the South Asian nations. In prior studies, Tax Compliance Behavior (TCB) has been discussed from the economic, social, and behavioral aspects. However, in the context of LDC, some important and relevant factors are yet to be addressed. Based on the theoretical foundations of social exchange theory, social influence theory, cognitive theory, and deterrence theory, this study aims to examine the factors influencing TCB of individual taxpayers in Bangladesh. Specifically, the study investigates the effects of key dimensions of the Quality of Government (QoG) including impartiality, provision of public services and control of corruption, Quality of Online Tax Services (QoTS), dimensions of the Tax System Structure (TSS) that are the probability of being detected, the severity of penalty and tax rate, and demographic factors on TCB. Furthermore, tax knowledge is incorporated into the model to assess its moderating role in the relationships between these determinants and TCB. To achieve the objectives of the study, a survey was carried out. Using snowball sampling, the questionnaire was distributed to the taxpayers in Dhaka and Chattogram, the country’s capital and business capital cities, respectively. With a response rate of 22%, the collected data has been coded and keyed into the SPSS software, and multiple regression analysis along with independent sample t-test and one way ANOVA have been utilized to analyze the data. The results indicate that control of corruption (CoC) and severity of penalty (SP) that representing dimensions of the QoG and TSS are significantly and positively associated with TCB. The findings also reveal a significant relationship between demographic factors and TCB, suggesting that tax compliance levels vary across different demographic groups. Furthermore, the analysis shows that tax knowledge significantly moderates the relationship between CoC and TCB, but in a negative direction, implying that higher tax knowledge weakens the positive influence of CoC on TCB. Conversely, tax knowledge exerts a significant positive moderating effect on the relationship between SP and TCB, although it slightly reduces the strength of the direct effect of SP on TCB. This study enriches the understanding of TCB by offering new empirical insights from the context of an LCD, specifically Bangladesh. The findings signify practical policy implications for LDCs, specifically, to improve revenue generation by introducing anti-corruption efforts, enforcing effective penalties, and promoting targeted tax education, which can strengthen compliance.