Researchers implemented a range of programmes to exploit firms’ interest in social recognition to increase VAT compliance.
Exposing information about firms’ tax compliance to their peers can increase tax payment in a cost-effective way.
After receiving information about the tax payment status of neighbouring firms, firms in high-compliance areas were 3.4 percentage points more likely to make a payment and paid 17% more in taxes overall the following year.
Findings of this study informed the country's strategic development plan, the Seventh Five Year Plan (FY 2016-2020).
Bangladesh has one of the lowest tax-to-GDP ratios in the world. Revenue collection using audits, fines and other punishment-based methods has proven difficult due to firms’ ability to evade payment, and the challenges of enforcing legal sanctions. This research project instead attempted to exploit firms’ interest in social recognition to increase VAT compliance.
IGC researchers partnered with the National Board of Revenue (NBR), Bangladesh to implement a range of programmes that attempted to exploit firms’ interest in social incentives and peer recognition to increase voluntary tax compliance among firms. The team conducted a multi-arm randomised controlled trial to rigorously evaluate the impact of these programmes on tax payments.
A randomly-selected group of firms received information about the tax payment status of neighbouring firms. After receiving this information, the following year, firms in high-compliance areas were 3.4 percentage points more likely to make a payment and paid 17% more in taxes overall.
The results suggest that exposing information about firms to their peers can increase tax compliance and payment. Publicly available information about tax compliance may affect consumer behaviour -- perhaps steering customers towards tax compliant businesses, and thus induce additional incentives for compliance. Scaling this programme to a larger geographic area than that of the study, in addition to the potential changes in consumer behaviour, may lead to increases in revenue far greater than what is predicted by the study.