Title: Exploring the Influence of Political Connection on Tax Compliance Behavior

in Digitalized Taxation Era: Evidence from a Developing Country.

Word Count:
Elements Words
Title 20
Summary 170
Introduction 334
Research Question and Objective 243
Research Design 75
Probable Contribution 36
Total 868
Summary:
Digitalization is one of the significant determinants of development for a developing country. Tax system
has flourished from traditional system to digitalized system. Technological improvements and
digitalization have influenced the tax collection processes worldwide by improving the speed, quality,
and accuracy of the data and changing the ways of reporting, controlling, and auditing the taxes
(Ahmed, Ali and Hounaida 2022). Many developing countries like Bangladesh are adopting digitalized tax
system realizing its importance. Bangladesh, like many other developing countries, has informal
processes and power relationships that prevent the implementation of laws (Mushtaq 2017). Hence, we
pose the research question: whether and how political power is still able to influence tax compliance
behavior in this digitalized taxation era in shadow of a developing country. We will conduct qualitative
research through semi-structural interview. The research will contribute to explore the limitations of
digitalized tax system in context of developing country of which administrative and legislative system in
greatly influenced by political connection and power and suggest policy makers to tackle those
limitations.

Introduction:
This research is concerned with the political factors influencing tax compliance behavior in this
digitalized tax system era. So, the research will be the result of blending the digitalized tax system and
political factors regarding tax compliance. Technological improvements and digitalization have
influenced the tax collection processes worldwide by improving the speed, quality, and accuracy of the
data and changing the ways of reporting, controlling, and auditing the taxes (Ahmed, Ali and Hounaida
2022). Digitalization in tax system has been a much-discussed topic in this digital economy era. For the
past two decades, we have witnessed a fast growth in the literature on tax compliance and evasion
(Andreoni, Erard and Feinstein 1998) (Schneider and Enste 2000). The taxpayers commit tax evasion
and tax avoidance through various non-compliance behavior. The purpose of digitalizing the tax system
is to inspire the tax payers about tax compliance behavior by simplifying tax system and preventing the
ways of tax evasion. There is a significant and positive relationship between digitalization and tax
compliance ( Fossung, Michael and Chi 2020). Furthermore, digitalization is an efficacious tool to reduce
tax evasion. There is negative relationship between tax evasion and digitalization adoption (Ahmed, Ali
and Hounaida 2022). There are many factors influencing tax compliance behavior and they are discussed
in general in existing literatures ( Faizal et al., 2017) (Fany 2018) (Mwangi 2014). The politicians in power
might be able to influence tax administration, enforcing tax authority to conduct tax auditing for their
interests. In contrast to the case of direct influence, the politicians might be able to influence tax
administration indirectly. In most countries, appointing the head of tax administration involves
influences from key politicians in the ruling party. This enables the politicians in power to implicitly
affect the behavior of tax administration even if it is the case that the politicians cannot influence tax
administration directly (Kim 2008). The political connections are positively associated with tax evasion
and the relationship becomes stronger for high corrupt environment (Hichem and Ines 2019).

Research Question and Objective:

The research question is whether and how political power is still able to influence tax compliance
behavior in this digitalized taxation era. The research objective is to discover how political connection
affecting the taxation though the system is digitalized. We will conduct the research evidence from
Bangladesh political perspective. Bangladesh, like many other developing countries, has informal
processes and power relationships that prevent the implementation of laws (Mushtaq 2017).
Bangladesh is becoming more secretive in helping individuals to hide their finances from the rule of law (
Financial Secrecy Index 2022). According to a journal “World Economic Outlook” published by IMF in
April, 2021 and a survey by CDP, Bangladesh has the most difference between Tax GDP Ratio and Tax
Rates among South Asian countries. In Bangladesh, governments often influence tax policies to gain
political support from the influential and wealthy members of society ( Ahmed 2018). Recently
Bangladesh has evolved its Income Tax Act 2023 from Income Tax Act 1984. There has been brought
unprecedented changes in Income tax Ordinance after 39 years. Digitalization in tax system is a
significant outcome of new tax ordinance. Previously, tax officials were in power to determine tax rates
at will through which political connections could influence that power. Digitalization has ensured
simplification, transparency, wider tax audit through Electronic Tax System. Our research aim is to
determine to what extend and how political intention is now able to influence tax system in spite of
existing digitalization.

Research Design:
It will be qualitative research. The data for this research will be collected through a semi-structured
interviews to collect rich, descriptive insights. We will include a list of predetermined questions to be
asked during the interview to ensure all area to be covered, with flexibility to clarify the answers if it is
required. The interviewees will be Tax Lawyers, Chartered Accountants and Officials of Tax Department.
Then we will analyze the data and draw conclusions.

Probable Contribution:
This research will contribute to find the loopholes of tax system, especially, for the countries which are
recently implementing digitalized tax system at the same time the developing countries in which
political connections are significantly influential.
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