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Corruption in Tax Administration

Purohit, Mahesh. 2007. Corruption in Tax Administration. In Performance Accountability and Combating Corruption edited by Anwar Shah. Washington, D.C.: The World Bank.

Corruption has always been in existence, in one form or another. As far back as the fourth century BCE, Kautiliya, a Sanskirt scholar, wrote, “Just as it is not possible not to taste honey(or poison) placed on the surface of the tongue, even so it is not possible for one dealing with the money of the king not to taste the money in however small a quantity. Just as fish moving inside water cannot be known when drinking water, even so officers appointed for carrying out works cannot be known when appropriating money” (Kangle 1972: 91). Kautiliya points out the ways in which employees can be involved in corruption and prescribes the modus operandi to be adopted by the king to deal with corruption and make appointments.


Broadly speaking, corruption can be classified into five categories: political corruption, administrative corruption, grand corruption, petty corruption, and patronage/paternalism and being a “team player.” In this chapter the term is defined to include pecuniary or nonpecuniary considerations given to government officials for the use of public office for private gains.1Activities that lead to personal benefit that do not involve the government or a quid pro quo are not examined here.


The scope of this chapter is confined to corruption in tax administration. The chapter is divided into five sections. The first section focuses on the main causes of corruption in tax administration. The second section presents issues related to corruption in tax administration and analyzes the role of procedures for administering custom duties, excise duties, and value added tax (VAT). The third section reviews the impact of corruption on the economy. The fourth section suggests policy measures for combating corruption in tax administration. It highlights how the design of the tax structure and procedures of tax administration can reduce the risk of corruption. The last section summarizes the chapter’s conclusions and recommendations.


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