Sustaining Growth in Developing Economies through Improved Taxpayer Compliance: Challenges for Policy Makers and Revenue Authorities
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eJournal of Tax Research (2009) vol. 7, no. 2, pp. 171-201
Sustaining Growth in Developing Economies
through Improved Taxpayer Compliance:
Challenges for Policy Makers and Revenue
Authorities
Margaret McKerchar and Chris Evans'
Abstract
The existing body of literature on taxpayer compliance has developed over some 30 years or more and has predominantly
emanated from developed economies. However, policy makers and revenue authorities in developing economies face quite
different challenges and constraints. These include limited administrative resources and expertise, weak tax administration,
widespread evasion, corruption and coercion, low taxpayer literacy and morale, and negative attitudes towards government.
This article explores these challenges and constraints in developing economies. It identifies strategies to improve taxpayer
compliance and the necessary steps to implement them in order to achieve sustainable economic growth.
1. INTRODUCTION
Taxes, and tax systems, are fundamental components of any attempts to build nations,
and this is particularly the case in developing or transitional nations. As Brautigam
has noted, [t]axes underwrite the capacity of states to carry out their goals; they form
one of the central arenas for the conduct of state-society relations, and they shape the
balance between accumulation and redistribution that gives states their social
character. In short, taxes build capacity (to provide security, meet basic needs or
foster economic development) and they build legitimacy and consent (helping to
create consensual, accountable and representative government).
A key component of any tax system is the manner in which it is administered. No
tax is better than its administration, so tax administration matters - a lot.' And an
essential objective of tax administration is to ensure the maximum possible
compliance by taxpayers of all types with their taxation obligations. Unfortunately, in
many developing countries, tax administration is usually weak and characterised by
1 Drs Margaret McKerchar and Chris Evans are Professors of Taxation, Australian School of Taxation
(Atax), UNSW, Sydney NSW 2052. Corresponding author: cc.evans @unsw.edu.au
2 Brautigam, D., 2008, 'Introduction: Taxation and State-Building in Developing Countries', in
Brautigam, D., Fjeldstad, 0-H and M. Moore (Eds) Taxation and State-Building in Developing
Countries: Capacity and Consent, Cambridge University Press, Cambridge, pp. 1-33, p. 1.
3 Bahl, R. and R. Bird, 2008, 'Tax Policy in Developing Countries: Looking Back - and Forward',
National Tax Journal, June, pp. 279-301, p. 296.](ViewImageLocal?handle=hein.journals/ejotaxrs7&div=14&collection=&method=preview&ext=.png&size=3)
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