The study investigates whether the firms' characteristics, including ownership structure, audit, and familiarity affect tax evasion. The study has used the ordinary least square (OLS) to analyze cross-sectional data of 85 countries between 2007 and 2015 collected from the world enterprise survey. The study finds that the domestic, foreign, and government ownership in the firm increases tax evasion, whereas proprietorship and female ownership decreases the tax evasion. Further, the results show that familiar firms with international recognition are less inclined to evade tax. Similarly, the negative relationship between audit and tax evasion implies that the government should make it compulsory to check the financial statements of the firms by the external auditors, which, in turn, reduces the firms' tax evasion. Moreover, the firms that face more financial constraints evade more tax than the firms with access to the bank loan and solvent ones. The tax authorities should also consider reducing the corporate tax rate as the higher tax rates stimulate the firms to evade more tax.
TopIntroduction
Research on tax evasion has been come out to an obligatory part for every country in this competitive era as most of the real earnings of a country go to the trash for the lack of investigation on taxpayers or tax management. Much more analysis is needed on the topic of firms' tax evasion, which can be theoretical or empirical. Nevertheless, most of the research can be seen from the theoretical perspective due to the lack of data as firms would not like to take the risk of sharing their data. Another reason is, it is complex to capture tax evasion analytically (Alm, Liu, & Zhang, 2019). However, prior research evidenced the significant effect of firm characteristics on tax evasion at both the micro-level (Blackburn, Bose, & Capasso, 2012; Mitra, 2017) and macro-level (Alm, Martinez-Vazquez, & McClellan, 2016; Beck, Lin, & Ma, 2014). Most of the literature has been discussed on individual tax evasion as well as income tax avoidance and a growing literature is working on firm tax evasion in the present situation because of being essential in today's financial condition in the world.
Tax evasion occurs if taxpayers intentionally do not comply with their tax obligations either through the failure of filling return, misreporting income or overstating expenses, or making a lower payment compared to actual tax despite having the ability to pay tax (Rashid, 2020; Islam et al., 2020). Tax evasion is considered as an illegal act which breaks law and influences not to pay tax (Besley, Jensen, & Persson, 2019). It is a willful task which is done in an illegal way to reduce tax liability (Doerrenberg & Duncan, 2019). Tax evasion inaugurated with the informal economy is also called black, underground or shadow economy (Alm et al., 2016; Slemrod, 2007).
Tax evasion has been considered as a subject of discussion for academic research in both developed and developing countries (Umar et al., 2019; Yamen et al., 2018). However, most of it relates to individuals. Most of the previous studies on tax evasion are based on the study of Allingham & Sandmo (1972), which focused on theoretical analysis from the individual perspective, and did not consider the firm with some exceptional studies (Alm et al., 2016; Carrillo, Pomeranz, & Singhal, 2017). Though most of the empirical research has mostly investigated the individual income tax evasion, empirical researches on firm tax evasion have been started recently (Abdixhiku, Pugh, & Hashi, 2018; Alm et al., 2019; Alm et al., 2016).
Research on firm tax evasion has become more critical as firms play a crucial role in an economy and the country's GDP as well. According to Torgler & Schneider (2007), tax evasion is covering more than 50% of countries, especially low-income countries' GDP. If firms continue to evade tax, then most of the countries' tax revenue will go in vain. The study is an attempt to measure which factors influence firms to evade tax and how much firms evade tax across the countries. Social general and economic developments are mostly depended on tax collection capacity. Through firms' tax evasion, a large amount of tax gap is created in government earnings which are one of the crucial reasons behind a country's underdevelopment condition. It is considered a severe loss of government revenue, resulting in pressure to the government in providing public services smoothly (Islam et al., 2020). Therefore, it has been a challenging issue for governments as well as tax authorities to increase the tax revenue from the taxpayers. The marginal net benefit from the firms' income decreases because of poor financial development an economy. The lower stage of financial development makes the higher incidence of evading tax and greater the underground economy size. These types of initiatives are the reasons for resource wastes or inefficient uses (Blackburn et al., 2012). Also, imperfect credit-information sharing system and lower level of bank branch penetration, increase tax evasion more (Beck et al., 2014; Blackburn et al., 2012).
Dearth studies on tax evasion at the firm level are unfortunate, especially given the matter that in most of the countries, firms pay the bulk share of taxes and also consider the bulk of tax evasion as well (Crocker & Slemrod, 2005; Nur-tegin, 2008). Moreover, as per the suggestion of the study of Abdixhiku et al. (2018), there is a considerable gap and thus a permanent need for international and cross country research on tax evasion, while the research worldwide at firm-level characteristics is still insufficient. Therefore, the study aims to reduce the gap by introducing some empirical findings for firm characteristics, cross-country and global tax evasion features.