External audit and tax evasion: evidence from India

Nermeen Shehata, Siva Nathan, Omar Farooq and Khaled Dahawy

Applied Economics, 2023, vol. 55, issue 34, 4023-4036

Abstract: This paper aims to examine the relationship between voluntary external audit by privately held firms and tax evasion in India. We use data generated by the World Bank Enterprise Survey which is based on interviews conducted over 2013 and 2014 only. Our final sample includes 7,262 privately held Indian firms. Our research reports the following results for privately held companies in India: (1) Firms with voluntarily audited financial statements are more likely to evade taxes; (2) Firms that face financing constraints are more likely to have stronger relationship between voluntary external audit and tax evasion; (3) Firms operating in Indian states with better business environment (as measured by ease of doing business) are more likely to have weaker relationship between voluntary external audit and tax evasion.

Date: 2023
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DOI: 10.1080/00036846.2022.2123103

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