A Logit Model of Informal Traders’ Decision to Evade Tax: A Case of Zimbabwe

Abstract

Taxation is the commonest and oldest source of government revenue in the world. The main reason for taxation is to finance government expenses and redistribute of wealth. The shadow economy and tax evasion are both widespread in Zimbabwe. When the taxation system is not effective, many economic agents will use this opportunity to escape paying tax (which is legal) or evade tax which is illegal. When tax evasion exist, the government fails to allocate enough income for its programs, hence fails to deliver desirable social services. Noting the significant influence of tax evasion on the state, this paper pursues to determine factors that cause tax evasion and their relative impact. A questionnaire approach has been employed to collect responses. Using a logit model the results shows that income, marital status and frequency of crossing the border have positive effect on tax evasion.