Tax amnesty and secondary tax evasion

Abstract

Though tax amnesties (TAs) are considered as a policy tool to increase revenue for governments, they have generated some puzzles. To solve the puzzles of TA we should not ignore the behavioural aspects of delinquent taxpayers. In this paper, we focus on a relatively neglected but important area of the TA literature. Considering that people who participate in tax amnesty policy (TAP) may not honestly report the whole amounts of evaded tax, thus they commit a secondary tax evasion. We indicate that even considering the risk of abstaining from TA and incurring possible uncertainty of tax evasion penalties, participating in a TA provides a higher level of utility for the delinquent taxpayers. Also, due to a secondary tax evasion usually accompanying with TA, we show that during the initial assessment period of a TAP the tax revenue drastically increases and when the assessment period is approaching the tax revenue stably declines and ultimately converges to a fixed value. Furthermore, we show that if delinquent taxpayers participate in the TAP and the penalties are larger than the expected tax revenue of the government, it increases the tax revenue without reducing the welfare of other taxpayers, so as to achieving Pareto improvement.

Reforming the Malaysian Tax System: The Effects of Special Voluntary Disclosure Programme (Svdp), Role of Inland Revenue Board Malaysia (Irbm), and Demographics of Taxpayers on Malaysian Tax Awareness

“…All three programmes had the same goal, which was to encourage more taxpayers to come forward (LHDN 2018). Tax amnesty programmes involve the redemption of tax liabilities, which is focused on increasing government revenue (Wang et al 2020).…”