1.

Introduction
In Bangladesh tax avoidance and tax evasion is a prodigious problem. Both these occurrences are
possibly as old as taxation itself. Many individual taxpayers and corporations evade and avoid
tax in our country. Tax avoidance and tax evasion are many times considered as similar thing.
But both these thoughts are completely different. Tax avoidance can be said as tax minimization
by efficient tax planning. Whereas cover-up or concealment of taxable object or failure to pay
tax in time either by the taxpayers or their agents is called tax evasion. This paper focuses on the
methods, causes, consequences and remedies of tax avoidance and tax evasion which will be
supportive in future.

2. Literature Review
Both these phenomena of tax avoidance and evasion are demarcated by several researchers in
various ways. Although both results loss of government revenue, tax avoidance is legal but tax
evasion is illegal. Khan et al. (2000) has presented that, a huge number of corruptions by tax
officials is a serious problem for the tax administration in countries like Bangladesh. Bobek and
Hatfield (2003) said that, ethical beliefs of individuals can be the best means for enlightening tax
obedience. Rahman (2005) indicated that, a noteworthy amount of revenue losses in Bangladesh
for tax evasion. Kaibel and Nwokah (2009) have found that, a common problem is faced by
every tax system is tax avoidance and evasion. In a study, Green (2009) has identified, why tax
evasion should be treated as morally wrong, arises questions. Buehn and Schneider (2012) said
that, in the year of 2007, the average size of the shadow economy comprised of 37.4 percent of
the GDP in developing countries. According to Oxfam (2013), tax evasion broadens the circle of
poverty and erodes the economy of developing countries. Hasan (2014) has specified that, a solid
ethical conviction will motivate more people in becoming an exemplary taxpayer.

3. Objectives of the study

The major objective of the study is to find out the methods, causes, consequences and remedies
of tax avoidance and tax evasion in Bangladesh.
The specific objectives of the study are:
1. To discover some obvious means and motives of tax avoidance and tax evasion used by
taxpayers in Bangladesh.
2. To analyze significances of tax avoidance and tax evasion in the economy of Bangladesh and
suggest some medications to overcome this problem.

4. Methodology of the study

Descriptive research method is used to attain the objectives. The study is based on
secondary data. Secondary data was collected from various newspapers, magazines
and books. Additionally, different working papers, journals, articles and websites
have been pursued enriching the literature of the study. MS word has been used for
summarizing and elucidating the collected data thoroughly. As the study is
conceptual in nature so no survey was made for gathering primary data and no
financial data are analyzed here.

5. Methods of Tax Avoidance & Tax Evasion

Tax avoidance is done legally by effective tax planning. Some common methods used by
taxpayers to avoid tax are given below:
1. Underpricing is used for reduced tax base to avoid a valorem import duty. To avoid specific
duty, predominant misstatement of measure is often used.
2. The dissimilarity between “professional expenditures” and “personal expenditures” is a worry
for taxpayers and tax authorities. Any terms of tax law which is a vague cloudiness is a
prospective source of tax avoidance.
3. Forming distinct legal entity such as trust or foundation is an additional tactic to avoid tax.
Assets are transferred or donate for the welfare of the foundation from one's property so that
gains may be released or earned, within this authorized entity rather than earned by the original
proprietor, back to the inventor of the trust but not as individual.
4. To minimize tax liability Multinational Companies (MNCs) manipulate price of physical
products and, also falsify prices of intangible assets such as intellectual property rights (IPR),
management services and insurance.
5. Individual taxpayers transfer their property in the name of wife or dependent child to reduce
the level of income and tax liability.
6. By creation of Private Limited Companies with the family members, friends and relatives, the
management shows expenses and allowances in that way which helps to lessen tax liability.
7. Any business concern or company can avoid tax by transferring a proportion of profit prior to
the declaration of dividend to capital reserve or converting it to capital.

Pursuing illegal means to cut or eliminate tax charge is called tax evasion. Typically, this
includes either knowingly under-broadcasting earnings, or deteriorating to show any income at
all. Tax evasion may be defined either as the underestimate or suppression of taxable item or as
the failure to pay tax in time either by the taxpayers or his/her agent. So, it is illegal. Some
common methods used for Tax evasion are discussed below:

1. Importation or exportation of illegal products by using unauthorized approach is one of the

common methods of Tax evasion. A trafficker escape customs duty since the products is not
moved through an official or notified customer's port. So, they easily not declare the payment of
duties and taxes.
2. VAT (Value Added Tax) is basically an indirect tax, which is an extended form of turnover or
sales tax. The consumer who ultimately bears the tax burden has minimum scope to evade tax
but the producers or distributors who collect VAT from the consumers has chance to evade tax
by under reporting the amount of sale.
3. By under invoicing and misstatement of quantity and product description, the
importersresistdodgingcustoms duty.
4. Single taxpayers may escape tax by not revealing their other sources of income, same as a
business may conceal income by not combining their branch income properly.
5. Many corporate businesses maintain duplicate records of their economic activities to evade
tax.

6. Causes of Tax Avoidance and Tax Evasion in Bangladesh

Responsibility of tax avoidance and evasion in Bangladesh does not rest on any single factor.
Akram et al (2012) said that, “motivated by many factors, that grounds of tax evasion in
Bangladesh are compound”. Some vital motives for tax avoidance and tax evasion are:

1. In developing countries like Bangladesh, corruption by tax officials is a major problem for the
tax administration. In return for illegal indulgence or bribe, corrupted tax officials abstain from
reporting when they identify an occurrence of evasion. Increase in corruption and reduction of
income tax moves parallel.
2. High tax percentage can be considered as one of the main motives of tax avoidance and
evasion in Bangladesh. Compared to other countries, corporate tax rate is high in Bangladesh.
High tax rate adversely affects savings and capital formation.
3. Maximum taxpayers have less knowledge about tax law and get minimum information from
the tax department. In Bangladesh, lack of knowledge regarding tax laws is another cause of tax
evasion.
4. The tax authority in Bangladesh depends on the taxpayers to get information about their
income and financial transactions. These loopholes make taxpayers able to hide or twist the
affairs which will state true information about their income.
5. Tax administrations of developing countries are commonly inefficient and ineffective.
Inefficiencies of tax officers and difficult regulations lead the taxpayers towards tax evasion and
avoidance.
6. Bangladesh has a very complex tax law. A complex tax structure demotivates honest taxpayers
to calculate actual payable tax amount and encourage dishonest taxpayers to find ways to avoid
or evade tax. The present tax structure of Bangladesh is multifarious and full of rebates and
exemptions. The complexity occurs because of repeated changes in tax laws which boost the
tendency of taxpayers towards tax avoidance and tax evasion.
7. Bangladesh has lacking of preventive measures for tax avoidance and tax evasion. In addition,
corrupted tax officers help the taxpayers to avoid or evade tax by using different means in
exchange of speed money.
8. Political intentions of the government and tax evasion are closely related with each other.
Politicians stab to control the tax administration to obtain political gain. To earn political support
from the influential and wealthy members of the society, the government of Bangladesh often
influences tax policies. One of the provisions of law in Bangladesh is that, politicians could
receive gift from relatives without paying tax which has allowed black money holders to evade
tax and legalize their black money.
9. As taxpayers have to pay tax directly from their income, they consider it more as liability than
public duty. So, this is a general tendency of taxpayers to find out the tax rebates and exemptions
to lead their tax liability as minimum as possible.
Along with these discussed reasons, there are some other aims behind tax avoidance and tax
evasion. These are: failure of government for providing basic public goods and services, lack of
transparency and accountability in the use of public funds, high costs of gather necessary
information and paying tax etc.

7. Consequences of Tax Avoidance and Tax Evasion in the Economy of

Bangladesh
Even though the core objective of tax avoidance and tax evasion is same, but there is some
dissimilarity on their application. Tax evasion is illegal because here, tax liability is reduced by
using illegal means or tax is paid not at all. On the other hand, tax avoidance is legal, because in
this case, tax liability is minimized by taking the advantages of tax rebates and exemptions and
by making proper tax planning. However, tax avoidance or evasion both has a negative impact
on the economy of country. Developing countries like Bangladesh, where more than 80% of
government revenue is collected from tax, the socio-economic impacts and consequences of tax
avoidance and evasion are very severe. Some of the consequences are discussed below:
1. Government revenue reduction or loss is the ultimate result of tax avoidance and tax evasion.
It causes falls of improvement expenses and affects the treasure distribution function of a
country.
2. NBR estimated that, gigantic revenue is lost each year because of tax avoidance and tax
evasion in Bangladesh. With the increase of tax evasion, the size of informal economy also
increases.
3. To evade tax, taxpayers also transfer illegally earned money to abroad which make the
country's economy weak.
4. Tax laws become distorted because of tax evasion and tax avoidance. In developing countries
like Bangladesh, tax laws are edited by tax authorities to counter the activities commenced by
wealthy individuals and large corporations to avoid and evade tax. Tax authorities need to
change tax laws to prevent measures taken by the taxpayers and tax advisers.
5. Price of luxurious goods rises as taxpayers used their tax evaded income for consuming such
goods. As a result, honest taxpayers get frustrated as they find themselves priced out of the
market and get inspired to avoid and evade tax.
6. The proficiency and fairness of tax administration is doubted because of high tax evasion and
avoidance as tax burden falls to the low-income taxpayers. If there is tax evasion, tax
administration is considered biased and loses their creditability.
7. For the development of the economic condition of a country, investment by the government
can play a vital role. But investment will need fund. Barriers for such investment are created by
this unethical practice of avoiding and evading tax.
8. With the loss of government revenue for tax evasion and avoidance, it is becoming harder to
ensure income and wealth re-distribution by the government. As a result, the fundamental goal of
gathering tax is remaining incomplete.
Alongside, increase of administrative cost, failing to achieve tax and policy goals, reduction of
revenue and badly affected social equity, Unemployment problem, less investment in industry
are some other consequences of tax avoidance and evasion in Bangladesh.

8. Conclusion
Government is legitimately liable to serve the public and to ensure their basic rights. But any
development needs fund and in Bangladesh more than 80% of government revenues come from
tax. The malicious cycle of tax avoidance and evasion is not only a huge barrier for economic
development but also responsible for social discrimination. In every financial year, government
prepares budget for the development of the country, based on their estimated earning revenue
from tax and other sources, which remains fragmentary for the reason of high amount of tax
avoidance and tax evasion. Every year, a gap between budgeted revenue and collected revenue is
a huge threat for our economy which obliges the government to borrow loan thus the economic
development is affected badly. To prevent the sericeous cycle of tax avoidance and tax evasion,
“Tax morale” needs to be developed until it is too late to recover. Government must be more
aware regarding this problem and make more strict laws and penalties for the tax evaded
taxpayers and corrupted tax officials. When the entire citizen will fulfill their obligations towards
the country and pay tax properly on time and will support the government to build an
economically strong nation, only then a country like Bangladesh can move forward from
developing to developed country.