Tax Avoidance and Evasion

What is Taxation?
Taxation is a system by which a government takes money from people and spends it on government machinery
(things).
Or
It is the practice of collecting taxes (money) from citizen based on their earnings and properties.

Tax Avoidance and Evasion:

Tax avoidance and evasion both are meant to reduce tax liability but what makes difference is legality.
Following are some points of differences.

Tax Avoidance Tax Evasion

 Minimization of tax liability by taking such means  Reducing tax liability by using illegal ways is tax
which don’t violate tax rules. Evasion
 Legitimate ways for reducing tax liability.  Illegal reducing burden by under reporting
income.
 Overstating deductions using illegal tax shelters.
Hedging of tax. Concealment of tax.
Attributes:
which involves bending law without breaking it Illegal and objectionable

Concept of Tax avoidance and Evasion:

Taking unfair advantage of the shortcomings in tax laws. Deliberate manipulations in accounts resulting in fraud.
Legal implications
Use of justified means Use of such means that are forbidden by law.
Type of act:
legal act Criminal offence
Objective:
To reduce tax liability by applying script of law. To reduce the liability by exercising unfair means.
Devices or Means:
Attempt through skillful devices used to eliminate or By
minimize tax liability  Non reporting or under reporting
 Making fraudulent changes in accounts
 Maintaining multiple set of account books.
 Over reporting expenses.
Causes:
Tax rates are so high that tax payer use this mean for not Weak enforcement of tax laws.
to pay tax and save money and to postpone, shift or
eliminate tax liability
Impacts:
This may force Govt. to raise tax rates. Ultimately effect common people because Govt.
increases rate of indirect tax instead of direct, to gain its
revenue.

Measures to Compete Tax Evasion:

 Reduction of tax rates by Govt.
 Simplified Tax rates and procedures.
 Well organized and Autonomous Administration Structure
 Increased Awareness among the taxpayers.
 Corruption free officials and taxpayers.
 Stronger penalties for noncompliance.
 Sense of responsibilities among taxpayers.
  Use of media.

Measures to Combat Tax Audience:

Here are five ways that Govt. can tackle tax avoidance.
 End Tax Havens:
Establish a clear list of worst tax havens based on objective criteria, backed with powerful counter actions,
such as sanctions, to end their use.
 End Corporate Tax Secrecy:
Commit to introduce PUBLIC country-by-country reporting (CBRC) for al multinational companies in each
country they operate.
Ensure development finance institutions only invest in companies that have adopted responsible tax policies, for
example for every country where they do business.

End Tax Secrecy for Super Rich:

Establish a public, centralized register of individuals benefiting from ownership of an asset.
Automatically exchange data from central register of beneficial ownership and financial data from their financial
institutions with all countries, including developed countries.

Re-balance Tax Deals:

Ensure registrations on tax treaties avoid exploiting developing countries tax bases.

Lead the way on Tax Reform:

Support a new generation of tax reforms that lead to tax systems that driver in public interest of all countries.Create
global tax body to lead and coordinate international tax corporation that includes all countries on an equal footing.