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Political economy of corruption: the case of tax evasion in Bangladesh

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posted on 17.02.2017, 01:16 by Monir, Nashid Rizwana
Corruption is considered to be a major problem across all parts of the world. However, corruption is arguably more prevalent in least developed countries when compared to developed industrialised nations. Bangladesh, in this regard, is no exception. The extent of corruption in Bangladesh reached such a record level that it was dubbed the most corrupt country in the world in Transparency International’s Corruption Perception Index for consecutive years between 2001 and 2005. The political economy of corruption in Bangladesh presents a frustrating picture of the problem that suggests that the apparent corrupt state of Bangladesh has primarily emanated from a longstanding nexus between corrupt politicians, public officials and other stakeholders, including businesspeople. Tax evasion is likely to play a significant role in creating and maintaining such a nexus resulting in a significant shortfall in the country’s overall revenue collection. Despite the importance of this intriguing scenario, very little empirical research has been conducted to date on tax evasion as a corrupt practice and the various politico-economic issues associated with it in Bangladesh. This study aims to identify and analyse the key issues associated with the tax policy formulation, implementation and compliance processes and their likely roles in facilitating tax evasion. It also seeks to investigate the involvement and nexus of various stakeholders and their alleged contribution to tax evasion in Bangladesh. Initially, the context of the thesis is established, relying on the background of the study and the literature on tax evasion and corruption. A number of relevant theories are identified as theoretical templates for assessing the problem in a Bangladesh context, viz., public choice theory, rent-seeking theory and the Allingham-Sandmo Model. A combination of deductive and inductive reasoning has been utilised to capture the complexity of the research. A conceptual framework and a set of propositions are framed on the basis of the literature. Based on a single-country-based case study approach, mixed methods have been employed to obtain insightful answers to the research problem. The study utilises both quantitative and qualitative research methods. Primary data were collected by conducting a survey utilising structured printed questionnaires, face-to-face interviews, and attendance at a roundtable seminar as a participant observer. Secondary data were collected from project reports, government publications and documents, books, journals, reports, newspapers and electronic media. The empirical findings suggest that the absence of a participatory policy making process, lack of research into, and reform of, the tax system, short-term oriented and politically motivated tax policies, loopholes, anomalies and complexities of tax laws and policies are responsible for creating scope for tax evasion. Institutional weaknesses of the tax administration, lack of professional support for tax officials and inappropriate behavioural aspects of tax officials have undermined the efficiency of the tax policy implementation process, resulting in widespread tax evasion. During the compliance process, the absence of a tax culture among income earners, inadequate taxpayer service, complexities and unfairness in tax estimation, weak enforcement and the negative image of the tax department work as influential driving forces for tax non-compliance. The empirical findings also revealed that the corrupt nexus of self-interested policy makers, rent-seeking tax officials, self-utility maximiser taxpayers, including businesspeople, professionals, self-employed persons, and their intermediaries, tax agents, facilitates tax evasion. This study provides policy implications and recommendations for combating tax evasion and corruption in the tax administration. It recommends comprehensive reform of the Income Tax Ordinance 1984, establishing a permanent autonomous tax research cell, ensuring participation of all stakeholders including taxpayers and the civil society in tax policy formulation. The study also flags an urgent need to strengthen the tax administration through providing adequate human resources, infrastructure and logistic support and automation, and enhancing its jurisdiction. Adequate wages and professional support for tax officials should immediately be provided. Strong tax enforcement, with an increased probability of detection of tax evasion, increased penalty rates and a reduction in tax rate would be effective measures to combat tax evasion. For establishing a tax paying culture, it is recommended to provide services to taxpayers such as taxpayer education and online facilities, simplify the complex and overly bureaucratic tax system, undertake systematic advertising and publicising of tax issues, and ensure transparency in spending the revenue raised. Discriminatory tax treatment, including the use of tax amnesties and tax exemptions should be discontinued. This study suggests implementing exemplary punishment of both tax evaders and corrupt tax officials to prevent tax evasion. Following an inductive process, this thesis also proposes a set of theoretical implications. As the thesis was limited to study the income tax evasion in socio-economic and administrative context of Bangladesh, generalising the findings regarding tax evasion to other countries may be problematical. The thesis is expected to partially meet an existing gap in the literature by investigating the problem of tax evasion from a developing country perspective which could act as a useful guide for the government of Bangladesh and its development partners to reform and improve the taxation regime. The research may also help stimulate future research on tax evasion and corruption from both developed and developing country perspectives.


Principal supervisor

As-Saber Sharif Nafe

Additional supervisor 1

Arunachalam Dharmalingam

Year of Award


Department, School or Centre

Department of Politics and International Relations, School of Political and Social Inquiry


Doctor of Philosophy

Degree Type



Faculty of Arts