Accessing the underground economy: a study of 3 incentive programmes of the national board of revenue

Abstract

For developing countries tax policy is determined primarily by the abilities of its tax administration rather than optimum tax theory. Providing incentives is a common practice to encourage tax payment as opposed to curbing tax evasion through enforcement of laws. The National Board of Revenue in Bangladesh offers many incentives, both permanent and short term, to encourage tax compliance. The purpose of this paper is to assess through the study of three incentive programmes of the NBR whether they are effective in increasing the collect of revenue from the underground economy or act as disincentives to tax compliance. Findings show that while in the short run, revenue is increased the long term effect on tax compliance is inconclusive. Greater steps need to be taken to improve tax administration to reduce reliance on such incentives.