TAX EVASION ETHICS: EMPIRICAL EVIDENCE FROM SRI LANKA

Abstract

This study examines the ethics of tax evasion in Sri Lanka. A five point Likert scale survey instrument which consisted of 17 statements justifying tax evasion was employed to solicit the views of accounting professionals and business executives selected randomly. 215 responses have been analyzed using both parametric and nonparametric statistics in testing the several hypotheses. Tests were also carried out to determine the significance of the differences in demographics. The study finds that the corruption and wastage in the government are the significant ‘dissatisfiers’ leading for tax evasion; tax collection system’s complexity and widely perceived unfairness are the significant tax mechanism-related reasons for tax evasion in Sri Lanka. Results also suggest that Sri Lankans wish paying taxes if the fellow citizens all are paying taxes; tax rates are not too high and whether personally benefited or not from the projects done by the government. Gender, age and educational differences are insignificant for tax evasion ethics. The evidence significantly supports the view that tax evasion is more ethical when the functions of taxation are disregarded. The findings suggest that the taxes to be managed well, system need to be equitable and simple. These findings have policy implications; eliminating of the moral justifications for tax evasion and adhering to the principles of Income Taxation are needed to reduce the extend of tax evasion. The paper provides insights into the issue of misgovernance in Sri Lanka.

Key Words: Ethics, Taxation, Evasion, Sri Lanka