Prevalence of Value Added Tax (VAT) Under Reporting Among Business Entities in Dhaka, Bangladesh: Insights from a List Experiment

Abstract Book of the 10th International Conference on Applied Research in Business, Management and Economics

Year: 2026

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Prevalence of Value Added Tax (VAT) Under Reporting Among Business Entities in Dhaka, Bangladesh: Insights from a List Experiment

Mohammod Ullah, Chen Shuning, Masaru Ichihashi

ABSTRACT:

Value Added Tax (VAT) under-reporting at the point of final sale represents a critical but relatively under-explored vulnerability in tax systems. At the last point of VAT chain, the final consumer pays VAT along with the purchase price and has less incentive to demand documentation. Businesses may take this opportunity to underreport the VAT amount they collect. This paper aims to quantify the prevalence of actual VAT under reporting and the perception of ease of under-reporting at that final point of sale. We employ a list experiment (item count technique) to estimate the prevalence of VAT under-reporting among businesses who sell directly to final consumers. Using a randomized survey design with 819 business respondents (Treatment 1: n=251; Treatment 2: n=249; Control: n=320), we found approximately 21% of businesses believe VAT collected from consumers can easily be cheated (p=0.009). The prevalence of actual underreporting of the collected VAT amount was approximately 16% (p=0.01). The paper provides an indirect survey-based estimate of the prevalence of VAT under-reporting at the final consumer level, and the respondents are the business entities. It also emphasizes the need for continued compliance monitoring at final-consumer sales points even in a digitalized system in a least developed country context.

Keywords: VAT Evasion; Last mile; Social Desirability; Surveys; Bangladesh