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Monday, Januaryy 2, 2017

http://daillyasianage.com
m/news/432444/willful-andd-non-willful--tax-evasion

Willfu
ul and non-willf
n
ful tax evasion
e
M S Siddiqqui

Tiger at National
N
Board of Revennue (NBR).
The standdard law of any
a country defines tax evasion as any
a attempt to
t avoid paym
ment of due
taxes usinng illegal meeans.
Every cittizen and business instituution has thee right to takke lawful stepps to decreasse their tax
liability, including taax deductions and charitaable contribuutions. Howeever, avoidinng payment of
due taxess through illeegal means is
i a criminall act and willl lead to seriious consequuences.
The common type off tax evasionn is the failurre to report cash
c
income,, reporting leess than actuual
income and
a hiding money
m
in oveerseas accounnts and imprroperly claim
ming tax dedductions.

Claiming unauthorized deductions for personal expenses on a business tax return or falsely
claiming (or inflating) charitable deductions are forms of tax evasion.
Other types include filing a false tax return, omitting property, under reporting an estate's value
and overestimating the value of property donated to charity. Business companies may commit
tax evasion by paying employees in cash and not filing proper returns.
There are legal tax avoidance activities, such as income splitting, postponement of taxes, and tax
arbitrage across income that faces different tax treatment.
Tax evasion consists of illegal and intentional actions taken by individuals to reduce their legally
due tax obligations. The difficulty of identifying this willful tax noncompliance behavior is
reflected in the varying terms to which the analyses refer, such as "evasion", "noncompliance,"
"misreporting," and "tax gap".
The term "evasion" indicates theoretical treatments of willful noncompliance. This is because
despite the slim chances of being audited or reasonable penalties being imposed on tax evasion,
most people willingly abide by tax laws.
Tax evasion is a widespread practice, always has been, and probably always will be.There is an
old saying among tax professionals that "the poor evade and the rich avoid," meaning that the
rich tend to reduce their taxes through legal "avoidance" measures such as tax shelters, while
those with lower incomes attempt more outright evasion. Tax noncompliance seems related to
some other observable characteristics of taxpayers.
According to one study, married and taxpayers younger than 65 have significantly higher
average levels of noncompliance than others, and men evade more than women do. There also
seems to be substantial heterogeneity in tax evasion.
The US Taxpayer Compliance Measurement Program (TCMP) studies concluded that, within a
group defined by income, age or other demographic categories there are some who evade, some
who do not, and even some who overstate tax liability. For example, for taxpayers with reported
income between $50,000 and $100,000 in 1988, there are 60% understated tax, 26% reported
correctly, and 14% overstated tax.
No government can announce a tax policy and then rely on taxpayers' sense of duty to remit what
is owed. Some dutiful people undoubtedly pay what they owe, but many others do not. Paying
taxes is a legal responsibility of citizens, with penalties attendant on noncompliance.
But even in the face of those penalties, substantial tax evasion exists-and always has existed.
Considerable experimental and anecdotal evidence suggests that the story of tax evasion involves
more than amoral cost-benefit calculation. A taxpayer who is deciding whether to comply with
the tax law will weigh the expected cost of tax evasion against the cost of complying and choose
the cheaper option.
Individuals and firms can evade taxes by underreporting incomes, sales or wealth; by overstating

deductions, exemptions, or credits or by failing to file appropriate tax returns. Indeed, there is
widespread, if somewhat imprecise, evidence that tax evasion is extensive and commonplace in
nearly all countries, especially in developing ones.
It is often said that the only things certain in life are death and taxes. Taxes are far from being
inevitable, and at best individuals may take a variety of actions to reduce their tax liabilities.
In general, there is a large body of theoretical and empirical evidence to support the view that
threat of punishment such as higher audit probabilities and penalties encouraged higher tax rates
while discouraged compliance. However, there are other studies that pointed to different
direction.
There are contradictory findings about the influence of penalties. A number of studies indicated a
positive influence of higher penalty on tax compliance but other studies led to the opposite
findings. The severity of the penalty may only discourage taxpayers from reporting their true
incomes because the possibility of gaining is less than the possibility of loss. In addition, the
impact of penalty also varies among the groups of taxpayers.
For example, the severity of criminal fraud penalties was found to be positively related to the
behavior of high-income self-employed individuals. On the other hand, penalties appeared to
have negative relationships with the behaviors of small proprietors and middle-income
individuals. However, the direction of tax research has shifted since 1990s in order to try to
understand the positive attitudes of taxpayers rather than the negative ones.
It is understood that increasing extrinsic motivation-say with more punitive enforcement
policies-may "crowd out" intrinsic motivation by making people feel that they pay taxes because
they have to, rather than because they want to. An experimental study found that the level of
cooperation in certain settings declines significantly when penalties are introduced, suggesting
that the increased deterrence motivation did not compensate for the changes higher penalties
bring about to how people frame their decisions.
Some survey evidences support this view showing a positive relationship across countries
between survey-based attitudes toward tax evasion and professed trust in government, and other
finds that the same relationship holds across individuals within the United States and Germany.
A 2002 poll in the Czech Republic indicated that a person would be more likely to evade taxes if
that person believed government services were substandard. There is no such study by
government or possibly no academic research on evasion of tax in Bangladesh. Of course, such
survey responses may reflect after-the-fact rationalization of noncompliant behavior.
Tax evasion is a criminal offense under any law of states, subjecting a person convicted to a
prison sentence, fine, or both. An overt act is responsible to give rise to the crime of income tax
evasion; therefore, the government must show willfulness and an affirmative act intended to
mislead.
Some tax understatement is, however, inadvertent error, due to ignorance of or confusion about

the tax law (as is some overpayment of taxes). The dividing line between illegal tax evasion and
legal tax avoidance is blurry. The law in Bangladesh has no such differentiation of motive of
evasion.
The use of the terms tax avoidance and tax evasion can vary depending on the jurisdiction. In
general, the term "evasion" applies to illegal actions and "avoidance" to actions within the law.
To generalize, tax fraud or tax evasion involves an intentional wrongdoing on the part of the
taxpayer.
The United Kingdom has recently adopted the evasion/avoidance terminology as used in the
United States: evasion is a criminal attempt to avoid paying tax owed while avoidance is an
attempt to use the law to reduce taxes owed.
Willfulness involves a voluntary-intentional violation of a known legal duty. In taxes, it applies
for civil and criminal violations. Income tax evasion is the willful attempt to evade tax law. Tax
fraud occurs when a person or a company intentionally fails to file an income tax return or
willfully fails to pay taxes due or intentionally fails to report all income received or makes
fraudulent or false claims or prepares and files a false return.
Although the theory generally refers to willful understatement of tax liability, empirical analyses
cannot precisely identify the taxpayers' intent and therefore cannot precisely separate the willful
from the inadvertent. Nor can they, in complicated areas of the tax law, precisely distinguish the
illegal from the legal.
National Board of Revenue (NBR) installed a statue of tiger at the primes to give a signal to tax
evaders of the consequences, but there is no tiger for tax evaders within the NBR.
The writer is a legal economist