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Small Business Tax Evasion, is There a Case of Internal Finance?

Author

Listed:
  • Ilirjan Lipi

    (University of Vlora)

  • Rudina Lipi

    (Pavarësia University College)

Abstract

As long as there are taxes, the incentive for evasion will exist as well. Studies for tax evasion are of interest in different fields like that of economics, public finance, personal finance, business administration, business finance, financial accounting, in the banking system etc. However, there are only a few studies about the internal causes and financial incentives that oblige decision-makers of small firms towards tax evasion. When we refer to business tax evasion, always brings to mind sensational cases of large businesses that evade taxes, but business tax evasion is a widespread phenomenon even to small firms. To be more competitive, small business must have a consistently entrepreneurial orientation, but limited financing prevents this, therefore the business savings from tax evasion is believed to be an internally funding path. The restrictions on small firms financing often make them orientate more toward internal generation of funds, which also has few alternatives. As a way to internal saving, firms often find tax evasion, which is not only a deviant and unethical behavior, but also puts firms into many difficulties in the long run. Consequently, the study aims to discuss the phenomenon of tax evasion in the managerial practice of small business in an Albanian region, as well as its financial cause as is perceived by the small business. The study findings report that the deviant behavior of businesses from taxes considers the need for internal financing as an important reason. The study concluded that savings from tax evasion is an alternative of internal financing primarily for small and early-staged firms, and that if entrepreneurs are capable of a good business model and competitive strategy, they will not need to make evasion.

Suggested Citation

  • Ilirjan Lipi & Rudina Lipi, 2017. "Small Business Tax Evasion, is There a Case of Internal Finance?," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 13(2), pages 45-54, April.
  • Handle: RePEc:dug:actaec:y:2017:i:2:p:45-54
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    References listed on IDEAS

    as
    1. Rafael La Porta & Andrei Shleifer, 2014. "Informality and Development," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 109-126, Summer.
    2. World Bank, 2014. "Albania Public Finance Review : Part 1. Toward a Sustainable Fiscal Policy for Growth," World Bank Publications - Reports 17279, The World Bank Group.
    3. Rudina LIPI, 2013. "The Growth Performance Of Small Business Under The View Of Life-Cycle Model," Management Research and Practice, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 5(4), pages 58-67, December.
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