News ID: 314676
Published: 0542 GMT July 10, 2021

How to reduce tax evasion and improve tax collection

How to reduce tax evasion and improve tax collection

By Ebrahim Rassam*

This article aims to determine the institutional factors affecting the reduction of tax evasion and to create a better institutional and corporate environment to improve tax collection.

We have witnessed empirical evidence of tax evasion, which may have a domino effect on other economic indicators and on society as a whole.

Key investigations prove that both the strength of auditing standards and the ethical behavior of companies are powerful formal and informal institutional mechanisms for reducing tax evasion.

However, after considering their common impact on the outcome, ethical behavior has a greater impact on tax evasion than the strength of auditing standards.

In addition, corporate ethics have a more significant effect than audit power on reducing tax evasion before, during, and after the global financial crisis.

However, during a recession, companies’ ethical behavior toward regulatory power in preventing tax evasion is also important.

We also looked at factors that could be expected to increase tax collection.

Briefly, ethical behavior and strict auditing regulations are effective if boards of directors of companies are more successful in monitoring and controlling performance.

The relationship between tax evasion and the institutions of ethical conduct and auditing regulations is conditional on the status of investor protection, both of which perform best in controlling tax evasion under a moderate level of investor protection.

Finally, the impact of ethical behavior and auditing regulations is much more appreciated in high-income countries than in low- and middle-income countries.

This article has targeted global applications for organizations and policymakers.

Policymakers can use the results of studies to adjust organizational conditions to minimize tax evasion, which also improves tax collection.

First, the ethical behavior of organizations in relation to officials and the formation of their boards of directors is crucial in reducing tax evasion.

In addition, the strength of auditing standards is not as influential as the ethical behavior of firms, although it has an adverse effect on tax evasion in low-income groups.

The monitoring framework is not set up well to achieve the desired results, or it is not implemented well. The astonishing inability of auditing standards to prevent tax evasion, especially standards of boards of directors, can be seen within the framework of low- and high-investor protection in low- and middle-income countries.

In addition, as internal governance mechanisms, boards of directors play a vital role in controlling tax evasion.

We therefore recommend that government or market-related institutions closely monitor and regulate the structure of the company’s board of directors.

In general, the results show the importance of the joint role of companies and regulatory bodies in reducing tax evasion.

Therefore, the findings indicate the need for the two groups to work together to achieve the desired results.

According to the results, we also find that both small institutions (at the company level) and large institutions (at the national level) must take responsibility for tax evasion.

We also acknowledge that creating an institutional environment that controls tax evasion is not always easy.

As a theoretical contribution, the present writing shows that the study of tax evasion from the perspective of institutional theory provides a rich and meaningful insight.


*Ebrahim Rassam is an Iranian expert in economics.


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