nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2021‒10‒11
nine papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Can “sin industries” prove their legitimacy through CSR reporting? A study of UK tobacco and gambling companies By Dhandhania, Asahita; O'Higgins, Eleanor
  2. Perception of Taxpayers and Tax Administrators Towards Value Added Withholding Tax in Zimbabwe By Hamudi, Simbarashe
  3. The VAT in Practice: Equity, Enforcement and Complexity By Mascagni, Giulia; Dom, Roel; Santoro, Fabrizio
  4. Tax avoidance in French Firms: Evidence from the Introduction of a Tax Notch By A. BAUER; - M. ROTEMBERG
  5. Unpacking the Black Box: Regulating Algorithmic Decisions By Laura Blattner; Scott Nelson; Jann Spiess
  6. The Role of Social Influence in Enforcing Tax Compliance: Experimental Evidence from Nigeria By Adeniran, Adedeji; Ekeruche, Mma Amara; Onywkwena, Chukwuka
  7. Perception of Taxpayers and Tax Administrators towards Value Added With holding Tax in Zimbabwe By Hamudi, Simbarashe
  8. A Simplified Method for Taxing Multinationals for Developing Countries: Building on the 'Amount B' Proposal to Repair the Transactional Net Margin Method By Durst, Michael C.
  9. Occupational Licensing and Accountant Quality: Evidence from the 150-Hour Rule By John M. Barrios

  1. By: Dhandhania, Asahita; O'Higgins, Eleanor
    Abstract: Purpose: The purpose of this study is to examine the ways that sin industry companies attempt to utilise CSR reporting for legitimation. Design/methodology/approach: Conventional and summative content analyses were carried out on annual CSR reports in UK tobacco and gambling companies, juxtaposed against analysis of the actual behaviour of the companies, collectively and individually. Findings: The paper concludes that there is an ongoing tension between the business of sin industry companies and their attempts to establish and maintain any legitimacy, using CSR reporting in particular ways to try to prove their credentials to society and to engage salient stakeholder support. Ultimately, they aim to give themselves the scope for strategic choice to enable survival and financial flourishing. Research limitations/implications: Further research on CSR on other sin industries and in other jurisdictions with different regulatory situations could shed further light on the achievement or denial of different types of legitimacy. Studying different time periods as industries change would be of value. Practical implications: On a practical basis, the study offers guidelines to stakeholders on the use of CSR reports from sin companies, and suggests the establishment of objective external CSR reports, overseen by accounting regulators. Social implications: The paper provides an overview of the role of sin industries in society, and mitigating their harms. Originality/value: This study allowed for a comprehensive, dynamic and inclusive understanding of the interplay of CSR reporting and legitimacy by addressing conflicting interests between sin companies' social effects and inherent activities at the industry level. The methodology of multiple case study design in two sin industries combined content analysis of CSR reports, juxtaposed against analysis of behaviour in context. Previous research included the juxtaposition of actuality in analysis of only single case studies or particular issues. Thus, this research allows for a broader industry understanding. On a practical basis, the study offers guidelines to stakeholders on the use of CSR reports from sin companies, and suggests the establishment of objective external CSR reports, overseen by accounting regulators. At the social level, the paper provides an overview of sin industries in society, and mitigating their harms.
    Keywords: corporate social responsibility; CSR reporting; legitimacy; sin industries
    JEL: R14 J01 M40
    Date: 2021–09–21
  2. By: Hamudi, Simbarashe
    Abstract: Value added tax is a key tax for generating revenue in Zimbabwe and all African states, and for financing the budget in African countries. VAT revenue has an essential role in budgetary policymaking. Every year revenue authorities are not collecting large amounts of VAT for various reasons, including ineffective administration and tax evasion. This brings the question of the reform of the VAT system to the forefront. In Zimbabwe, attempts to improve VAT revenue collection have been made over several years. Hopes were pinned on the use of fiscalisation and audits of VAT refunds.1 However, traders continue to evade VAT – and this has led to the introduction of value added withholding tax to improve VAT revenue collection.
    Keywords: Finance,
    Date: 2021
  3. By: Mascagni, Giulia; Dom, Roel; Santoro, Fabrizio
    Abstract: The value added tax (VAT) is supposed to be a tax on consumption that achieves greater economic efficiency than alternative indirect taxes. It is also meant to facilitate enforcement through the ‘self-enforcing mechanism’ – based on opposed incentives for buyers and sellers, and because of the paper trail it creates. Being a rather sophisticated tax, however, the VAT is complex to administer and costly to comply with, especially in lower-income countries. This paper takes a closer look at how the VAT system functions in practice in Rwanda. Using a mixed-methods approach, which combines qualitative information from focus group discussions with the analysis of administrative and survey data, we document and explain a number of surprising inconsistencies in the filing behaviour of VAT-remitting firms, which lead to suboptimal usage of electronic billing machines, as well as failure to claim legitimate VAT credits. The consequence of these inconsistencies is twofold. It makes it difficult for the Rwanda Revenue Authority to exploit its VAT data to the fullest, and leads to firms, particularly smaller ones, bearing a higher VAT burden than larger ones. There are several explanations for these inconsistencies. They appear to lie in a combination of taxpayer confusion, fear of audit, and constraints in administrative capacity.
    Keywords: Finance, Governance,
    Date: 2021
  4. By: A. BAUER (Insee); - M. ROTEMBERG (New York University)
    Abstract: Corporate tax codes can have notches; values where after-tax profits decrease in before-tax sales. Firms endogenously respond to notches, leading to excess mass in the firm-size distribution. We study a 1997 policy reform in which the French government implemented a transient tax reform that increased profit taxes by 15% for firms with over 50 million Francs in turnover. We use two distinct and complementary approaches to estimate the extent of tax avoidance: (a) using firms far away from (and therefore unlikely to be responsive to) the tax notch in the same year and (b) the entire firm size distribution before the tax reform. Both strategies generate similar results for the extent of tax avoidance. We show that the firms who avoid the tax are the ones with the lowest calibrated adjustment costs and those with the larger profits. The tax avoidance behavior comes mostly from increases in inventories and decreases in sales.
    Keywords: Business Taxes, Tax Evasion, Firm Production
    JEL: H25 H26 H32 D24
    Date: 2020
  5. By: Laura Blattner; Scott Nelson; Jann Spiess
    Abstract: We characterize optimal oversight of algorithms in a world where an agent designs a complex prediction function but a principal is limited in the amount of information she can learn about the prediction function. We show that limiting agents to prediction functions that are simple enough to be fully transparent is inefficient as long as the bias induced by misalignment between principal's and agent's preferences is small relative to the uncertainty about the true state of the world. Algorithmic audits can improve welfare, but the gains depend on the design of the audit tools. Tools that focus on minimizing overall information loss, the focus of many post-hoc explainer tools, will generally be inefficient since they focus on explaining the average behavior of the prediction function rather than sources of mis-prediction, which matter for welfare-relevant outcomes. Targeted tools that focus on the source of incentive misalignment, e.g., excess false positives or racial disparities, can provide first-best solutions. We provide empirical support for our theoretical findings using an application in consumer lending.
    Date: 2021–10
  6. By: Adeniran, Adedeji; Ekeruche, Mma Amara; Onywkwena, Chukwuka
    Abstract: Economic development is linked with increased state capacity including the ability to mobilise domestic tax resources. For many developing countries, high levels of informality are a major constraint in this regard. Yet, economic incentives like changing the tax rate or increasing the filling and audit rate can be ineffective in a highly informal economic structure. In this paper, we explore possible roles for behavioural interventions such as sharing information about peers’ tax behaviour to engineer higher tax compliance. Based on an artefactual field experiment among own account workers in Nigeria, we find that information interventions can play an important role in ensuring tax compliance. Specifically, targeting information around what people can directly observe can be a way to improve tax compliance. Providing information on punishment or good practices that appeal to feelings of morality yields higher tax compliance.
    Keywords: Finance, Social Protection,
    Date: 2021
  7. By: Hamudi, Simbarashe
    Abstract: Value added tax (VAT) has grown in importance in Africa since it was introduced on a large scale in the 1990s. It is now the largest single source of tax revenue for African governments. At the same time, and almost perversely, the efficiency of VAT collection is lower in Africa than in any other world region. It follows that nominal rates of VAT are relatively high in Africa, but many enterprises manage to evade paying, leaving others facing an unfairly high VAT burden.
    Keywords: Finance,
    Date: 2021
  8. By: Durst, Michael C.
    Abstract: The OECD’s Inclusive Framework is currently considering two substantial tax reform plans, Pillar One and Pillar Two. These are intended to develop a global consensus on methods for taxing the digitalised economy, but in their current form would have broad implications for international tax architecture in general, and particularly for the control of base erosion and profit-shifting (BEPS). This brief focuses on one component of Pillar One: Amount B. This would modify the OECD’s transfer pricing Transactional Net Margin Method (TNMM), as applied to ‘routine’ marketing functions of distribution companies. The TNMM, since its inception in 1995, has become central to tax administration in many countries. This is because multinational enterprises (MNEs) commonly establish ‘limited risk’ subsidiaries in countries where they operate, to perform not only distribution functions, but also manufacturing and service-provider functions. MNEs argue that because subsidiaries incur only limited business risks and perform only ‘routine’ functions, they should be permitted under the arm’s-length standard to earn relatively low profit margins in-country, and to transfer the remainder of their profits, in the form of management fees and other intragroup payments, to affiliates in other countries. The result has been high levels of BEPS. Tax administrations are supposed to use the TNMM to limit profit-shifting from limited risk subsidiaries, including subsidiaries engaged in distribution, manufacturing and service provision. The tax authority must (i) perform a detailed, case-by-case ‘functional analysis’ of the controlled subsidiary, and (ii) using information from commercially available financial databases, carry out ‘comparables studies’ on entities performing similar functions to the controlled subsidiary, ideally in the same country. It must then use statistical analysis to compute an ‘arm’s-length range’ of permissible profit levels, proposing adjustments if reported taxable income falls below the bottom of the range. Summary of ICTD Working Paper 108 by Michael C. Durst.
    Keywords: Economic Development, Finance, Governance,
    Date: 2020
  9. By: John M. Barrios
    Abstract: I examine the effects of occupational licensing on the quality of Certified Public Accountants (CPAs). I exploit the staggered adoption of the 150-hour rule, which increases the educational requirements for a CPA license. The analysis shows that the rule decreases the number of entrants into the profession, reducing both low- and high-quality candidates. Labor market proxies for quality find no difference between 150-hour rule CPAs and the rest. Moreover, rule CPAs exit public accounting at similar rates and have comparable writing quality to their non-rule counterparts. Overall, these findings are consistent with the theoretical argument that increases in licensing requirements restrict the supply of entrants and do little to improve quality in the labor market.
    JEL: D45 I21 J2 K2 L51 M1 M12 M21 M4 M40 M41 M5
    Date: 2021–10

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