TAX EVASION

Tax evasion on the other hand is the act whereby a taxpayer takes unlawful steps to
minimize his/her tax liabilities. Tax evasion involves outright breach of the law, which
is fraudulent and deceitful, such as deliberate omission of a source of the taxpayer’s
income from the filed returns. The tax authority views any case of evasion seriously
and if discovered the tax authority will proceed to reopen the relevant assessments of
such a taxpayer, beyond the official statutory limit of six years. This is a case for tax
investigation to ascertain the amount of tax loss due to the taxpayer’s evasive acts.
Tax evasion may take any of several forms, but its objective is essentially the same,
which is to evade, partially or wholly, the tax liabilities that arise on the actual
expenditure, income, gains or wealth of the tax payer. It is an illegal act or practice of
failing to pay taxes that are owed.

The following are some examples of practices that amount to tax evasion:
(i) Providing false information about business income or expenditure
(ii) False claims of Capital Allowances
(iii) Over statement of expenses and costs
(iv) Deliberate under reporting of an income
(v) Substantially understating taxes.

TAX AVIODANCE
Tax avoidance refers to a situation where the taxpayer arranges his/her financial affairs in
such a way as it would make him/her pay the least possible tax. The taxpayer after a
critical review of the existing tax laws exploits loopholes in the tax laws, which would
enable him/her avoid or minimize tax liability. It should be added that tax avoidance is
legal once it is done within the limits permissible by the tax laws.
Tax Avoidance involves the exploitation of the loopholes in the law to one’s advantage.
It includes the legal usage of the tax regime to one’s own advantage in order to reduce
the amount of tax that is payable by means that are within the provisions of the law.

(ii) Differences between Tax Avoidance and Tax Evasion

TAX AVOIDANCE TAX EVASION
1. Legal Illegal
2. Achievable through the Achievable through deliberate
action of fraud and deceit or
exploitation of loopholes in the
rendering incorrect returns.
tax laws
3. Results in the taxpayer Results in taxpayer paying incorrect
paying minimum tax possible tax or paying tax through illegal
without breaking the provisions means or not paying at all
of existing tax laws
4. Supported by the Law Not supported by the law courts
Courts indecided cases
5. No criminal liability Tax evader is criminally liable
6. If stretched to the extreme At any level, Revenue Service will
the scheme could be disregarded frown at tax evasion.
by the Tax Authorities
7. Investigation and prior years’ Investigation will be instituted and
assessment will not be reopened has the power to reopen prior years’
assessments beyond the statutory limit
of six years.
8. No fines, penalties or even jail Upon conviction, maybe subject to
terms fines, penalties or even jail terms.

9. No any court charge Tax evader could be charge to court