The Effects Of International Financial Reporting Standards(IFRS);Auditing;Legal Enforcement And International Trade On Tax Evasion

The recent financial crises in developing,emerging and developed nations can partly be attributed to tax evasion.Tax evasion thrives in jurisdictions where financial reporting systems are poor,regulatory and monitoring mechanisms are weak and additionally where legal enforcement is weak.Moreover,with the increase in globalization and technology,there is a potential of increased tax corruption on trade tariff revenue activities.Therefore,the purpose of this study is to investigate the impact of public/ political corruption on tax evasion in the presence of key macro-economic variables.Additionally,the thesis seeks to investigate whether IFRS,auditing and legal enforcement will impact tax evasion.Tax evasion indirectly leads to financial crisis as many Jurisdictions lose billions of US dollars through illicit activities and anecdotal evidence claims that poor nations have higher corruption that drives higher tax evasion due to weak institution and weaker legal enforcement.In pursuance of the aims and objectives identified,first,the study examined the relationship between tax evasion,political/public corruption,and increased taxation in Zimbabwe.Second,the study investigates the relationship between tax evasion;public/political corruption on key International trade tax revenue(Import and export)and other key macroeconomic variables.Finally,the study investigates the effects of International Financial Reporting Standards(IFRS),auditing and the legal enforcement on tax evasion as some of the key instruments which can enhance more chances of collecting more tax revenue.This thesis is organized in 8 Chapters.Chapter one is the introduction.It comprises the background,Justification of the study,research questions,significance of the study,definition of terms,innovation and proposed solution,and organization of the study.Chapter two presents the Literature review.This includes the conceptual,theoretical,empirical frameworks and hypothesis development.Chapter 3 presents Variable selected for the study.Chapter 4 presents research methodology which includes;research design/plan,sources of data,research instruments,data collection procedures,validity,reliability,data presentation and analysis procedures.Chapter 5 to7 extant data presentation and analysis of tax evasion at country level(Zimbabwe),tax evasion at global level(40 world countries)and the possible solution to tax evasion employing 37 Africa countries(regional level),)respectively.Summary,conclusion and recommendations were presented at Chapter 8.At country level(Zimbabwe),the study used questionnaires and interviews as research instruments for collecting data because this study is a descriptive survey.The advanced dynamic two-step system-Generalized Moment Method(system-GMM)was employed at global level Finally,Three-stage least square regression(3SLS)was used for empirical findings at regional level for examining possible solution(37 African countries).The major findings of this research study are as follows;the first objective revealed that most firms in Zimbabwe are no longer paying some form of taxes as expected since the Government of Zimbabwe(Go Z)through the Ministry of Finance and Reserve Bank of Zimbabwe(RBZ)introduced the 2 percent tax levy on all bank electronic transactions greater than US$10 from October 2018 due to public/ political corruption,increase in black market,high tax rates and lack of confidence with the tax authorities/ government.The researcher recommends the Go Z and other Jurisdictions to create an independent anti-corruption committee with strong monitoring and regulatory mechanism so as to fight political/public corruption hence creating a paradigm of trust and confidence among different economic players.Additionally,the tax authorities should engage all the key economic players when crafting the country's tax laws/rates so as to promote a sense of equity,equality and economic transparency among citizens.Second,the results of the second objective indicate that,there is statistically significant interaction between the Corruption Perception Index(CPI)and international trade activities.Notably,other results revealed that CPI and trade tax revenue activities are statistically insignificant to tax evasion in three clusters;least corrupt countries,highly corrupt and trade surplus countries although the coefficient signs remained consistent.Probably,this is due to the low level of corruption in the least corrupt countries or concealment of corruption-related information in highly corrupt countries and low level of import evasion in trade surplus countries.In line with postulated theory and results,public and political officials should promote good corporate governance by strictly monitoring trade revenue activities because parties involved can employ technical criminality to conceal illegal behaviour.Furthermore,the government should apply economic theory of crime,especially in highly political corrupt countries and perennial trade deficit countries because key macroeconomic tax revenue activities such as import invite numerous forms of dishonestyResults from the third objective of this research study reveal that there is a negative and significant relationship between IFRS and tax evasion in some clusters(Early IFRS adopters and strong legal enforcers).Again,other clusters(late IFRS adopters and weak legal enforcers)have a similar sign of coefficient though statistically insignificant.The adoption and application of IFRS lead to improved financial reporting quality.This lessen tax evasion in some African Jurisdictions.Moreover,legal enforcement is statistically significant to tax evasion in two clusters(Early IFRS adopters and strong legal enforcers).While some countries are slow or ineffective in adopting and implementing IFRS,IFRS cannot work alone to improve tax compliance.IFRS can only achieve its objective in the presence of strong legal enforcement(control of corruption,rule of law,effective regulatory framework,voice and accountability,strong monitoring and auditing to promote transparency).More evidently,countries with strong legal enforcement have high IFRS which can strengthen the Auditing and reporting Standards hence improve tax compliance and this is in contrast with weak legal enforcers.Further studies should be carried out on the impact of inflation and devaluation of the local currency on tax revenue.Additionally,there is need to study the relationships between tax revenues and the CPI based on the level of country's income.Lastly,the impact of applying IFRS in low-income countries using a Survey method at a firm level should be investigated as the key driver in reducing revenue losses through tax evasion.