Value-Added Tax Evasion through Reduced Tax Rate: A Field Study from an Emerging Economy
Value-Added Tax Evasion through Reduced Tax Rate: A Field Study from an Emerging Economy

Summary/Abstract: As vast majority of countries use standard and reduced value-added tax (VAT) rates, a taxpayer may be motivated to misuse the reduced rate – to calculate it when standard rate should be applied. Therefore, the main objective of the paper is to examine the extent to which VAT is evaded in this way and to study the most important determinants of it. The field research on bakeries in the emerging economy of Serbia showed that nearly a quarter of them misuse reduced VAT rate. Logistic regression showed that bakeries registered in VAT system for a shorter time and those located in smaller municipalities are more probable to misuse the reduced VAT rate. I argue that national tax authorities should not only have a role in punishing taxpayers, but also to educate them. They should also reconsider the scope of general and reduced VAT rates, reconsider punishing system and develop an electronic register of VAT regulation to make it easier accessible.

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