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INTRODUCTION

Tax Saving Schemes Taxation laws in many jurisdictions provide for legal means of savingthe amount of tax due. This is referred to as tax avoidance. Taxavoidance is legal but tax evasion is illegal. Tax saving schemes should therefore be based on what is legal only.

There are also two modes of taxes: namely direct and indirect, where such schemes can be applied. They can also be applied as corporate taxor individual tax. Such schemes will involve the determination of taxable income, allowable deductions in arriving at taxable income, various tax reliefs or tax breaks available in law, and the timing of when such taxes become due.

Where tax saving schemes involve taxable income, they are applied in the ascertainment of income, personal or corporate relief, rate of chargeable tax, allowable and dis-allowable deductions.

Tax authorities define what taxable income is. This can apply to direct or indirect tax. In such cases a tax saving scheme will ensure that income does not qualify as taxable income, or it is a percentage of the total tax. Where this involves direct or personal tax, the scheme will ensure either the income is exempt, or the rate applicable is at the lowest. They will ensure that the reliefs applicable are of the highest rate. Thus the amount of tax that will be due will be lower because either the income earned does not qualify or the rate applicable is at the lowest.

Similar levels of incomes could also enjoy different rates of tax if they are settled without deducting certain expenses. Lower rates of tax could also be applicable to the same income, if certain specified conditions are met. Tax saving schemesidentify such circumstances.

There are provisions for certain expenses to be allowable deductions in arriving at taxable income. A tax saving scheme is one that maximizes on the amount deductions that are allowable. There are expenses that will qualify to be deducted in full and others which will not

be fully deductible. The best scheme is one that maximizes on the deductible amount of expenses.

Tax saving schemes can also involve the time when the tax is paid. Tax could besaved by being paid immediately, or tax benefits are enjoyed at a later date. The rate of tax charged could also be affected by the time it is paid. Penalties are charged for late payment and deductions allowed for prompt payment. Tax saving schemes will therefore take into consideration the financial ability of the taxpayer at specific times.

Administrative issues may also be taken into consideration in planning for a tax saving scheme. Schemes that are cumbersome may result in higher administrative cost hence the saving may not be worthwhile. On the whole, therefore a tax saving scheme should aim to minimize the amount of tax paid, and without administrative difficulties to the tax authority and the tax payer. Priority being given to schemes that are easier to claim and whose results are readily available to the tax payer and will not involve complex computations and collection of data.