Tax Evasion in Pakistan’s Digital Era: An Analysis of Drivers from World Value Survey

Abstract

The tax-to-GDP ratio of Pakistan has remained stagnant over the last decade and is far below the tipping point. The lower tax not only hinders the potential for economic growth but also restricts the ability to enhance public service delivery. The lower tax can be attributed to an informal sector within the economy and the prevailing attitudes of individuals towards engaging in tax evasion practices in the digital era in Pakistan. The present study endeavours to scrutinise and analyse the factors that contribute to the tax evasion motives exhibited by individuals. The current investigation employed data from the World Value Survey 2021, which consisted of a sample size of 1,995 individuals from Pakistan. The results of this study indicate that various demographic and socio-economic factors play a significant role in influencing the tax evasion motive of individuals. The phenomenon of tax evasion is influenced by multiple factors, including an individual’s well-being, trust in public institutes, beliefs and values, pro-democratic considerations, corruption perception and the extent of corruption in public authorities. These drivers play a significant role in shaping individuals’ decisions to engage in tax evasion activities. The study’s findings carry important implications regarding the factors that can soften tax evasion. The results of this study offer valuable insights to policymakers and fiscal analysts, enabling them to effectively identify and analyse the factors influential in the expansion of tax revenue.