Sustaining Growth in Developing Economies Through Improved Taxpayer Compliance: Challenges for Policy Makers and Revenue Authorities

Abstract

The existing body of literature on taxpayer compliance has developed over some 30 years or more and has predominantly emanated from developed economies including the United States, the United Kingdom, Canada and Australia. Over the same period many developed economies have made considerable investment in legislative tax reforms, taxpayer education programs, tax enforcement strategies, and increasingly sophisticated systems of tax administration using new technologies. Undoubtedly there are lessons to be learnt from studying best practice in developed economies.

However, compared to their counterparts in developed economies, policy makers and revenue authorities in developing economies face quite different challenges and constraints that require careful consideration in designing appropriate and effective tax systems. In particular, the tax system in a developing economy must foster sustainable economic growth, ensuring that the necessary revenue collections are made to provide for political stability, investment in infrastructure and improved standards of living. Typically developing economies have both limited administrative resources and expertise. Tax administration is generally weak, with widespread evasion, corruption and coercion. Further, taxpayers tend to have low levels of literacy, low tax morale and negative attitudes towards government. The cash economy, and its inherent opportunities for engagement in fraud and tax evasion, often plays a major role in developing economies.

This paper explores these challenges and constraints in developing economies. It uses Nigeria as a case study, and identifies the strategies considered to be most effective in improving both personal and corporate taxpayer compliance and the necessary steps to implement them in order to achieve sustainable economic growth.

Keywords: Taxation