Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.9, No.20, 2018 98 Tax Avoidance and Evasion Practices in Bangladesh: A Study on Dhaka City Md. Nur Mohabbat 1 Md. Khalilur Rahman 2* Dr. Md. Abud Darda 3 1.Lecturer, Department of Management, Demra College, Dhaka, Bangladesh 2.Assistant Professor of Accounting, National University, Gazipur 1704, Bangladesh 3.Associate Professor of Statistics, National University, Gazipur 1704, Bangladesh Abstract Tax payment is a civic duty and an obligatory contribution of citizens of a state imposed by the government. Tax is the major financial source of revenue that is used to meet public expenditure and development. In the present world, taxation is an instrument of economic policy. This study is designed to investigate the main reasons and ways of tax avoidance and evasion in Bangladesh. The study is based on a random sample of 200 respondents in Dhaka city including both tax payers and tax collectors. A structured questionnaire was developed and administrated for data collection. Results revealed that the main cause of tax avoidance and evasion is the dissatisfaction of existing tax rates followed by fear about tax, complex payment system, lack of tax collector cooperation, tax assessment system, lack of tax information and lack of counseling campaigns. The study also found that the reserve and provision is main way of tax avoidance and evasion followed by help of legal advisor, showing less income, shown more expenses and investment allowances and individual intention. Tax authority should properly review and evaluate the assessment and collection procedures. Media campaign and awareness development are also essential to minimize the tax avoidance and evasion. Keywords: Bangladesh, Revenue, Tax, Tax avoidance, Tax evasion. 1. Introduction Tax is one of the prime sources of government revenue in a state collection (Fisher, et al., 1989). It is a strong social and economic tool of the government in regulating the economy. Tax can be defined as a compulsory payment by individual and companies to the state. Tax is a non-punitive but compulsory levy by the Government on properties and income of individuals and corporations within the territory. Tax is the transfer of resources from the private to the public sector in order to accomplish some of the nation’s economic and social goals (Richardson, 2006). It is imposed by the government on the income, profit or wealth of an individual, partnership and corporate organization. To regulate the economic sectors into right direction by encouraging the production and distribution of useful goods and discouraging the harmful products, imposing tax is essential (Onyeukwu, 2010). Tax avoidance means taking undue benefit of the loopholes, lacunae or drafting mistakes for reducing tax liability and thus avoiding payment of tax which is lawfully payable (Warner, 1965). Generally it is done by twisting or interpreting the provisions of law and avoiding payment the tax. Tax avoidance is the legal utilization of the tax regime to one's own advantage, in order to reduce the amount of tax that is payable by person and it is very much within the law. In contrast, tax evasion is the general term for efforts by individuals, firms, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true statement of their affairs to the tax authorities to reduce their tax liability. It also includes, in particular, dishonest tax reporting such as declaring less income, profits or gains than actually earned; or overstating deductions. Tax Evasion apart from being a moral wrong also amounts to a breach of the tax laws (Nwachukwu, 2006). It is as a deliberate and willful practice of not disclosing full taxable income in order to pay less tax. Tax evasion is a intentional violation of tax laws and it is evident in situations where tax liability is fraudulently reduced or false claims are filled on the revenue tax form (Farayola, 1987). Tax is imposed by government on her subjects to enable her finance or run public utilities and perform other social responsibilities. Income tax is one of the principal sources of government revenue. The national budget of Bangladesh in 2016-17 fiscal year reveals that the contribution of income tax is 35.4% of total revenue. Number of registered taxpayers (direct tax) is 3.5 million and the number of return filers (direct tax) is1.2 million where the total population is about 160 million. The above statistics reflects a very low rate of tax collection or payment done by registered tax payers. Thus tax evasion and tax avoidance is a problem facing by the tax authority of Bangladesh. The problem lies in the collection of the taxes especially from the self-employed individual such as the businessmen, contractors and professional practitioners like lawyers, doctors, and traders in shops. This study helps to determine the causes of tax evasion and avoidance on personal income tax generation in Bangladesh.