Difference Between Tax Evasion And Tax Avoidance – In any government of any country, continent or nation, the citizens are expected to be responsible for its smooth running. While the electorates oftentimes look up to the government for the provision of every essential amenities through the magical wand of the political power it holds, the people also have a role to play while the magical show is in progress.
One of the roles is the payment of tax. Government collect taxes on various facilities, transactions and services offered by the state, and the revenue generated through these taxes are in turn used to provide more infrastructure and improving on the existing ones.
Unfortunately, people have devised cunning means of dodging this responsibility and causing problems in the society. Tax evasion and tax avoidance are the two major tactics adopted by dubious taxpayers to avoid paying their tax liabilities.
Although tax evasion and avoidance are almost similarly in nature and both aim at taking advantage of the law, they are technically different.
Constitutionally, the two may be deemed to be unacceptable. The major difference between these two means are reduction of tax or complete escape from tax payment, although tax avoidance is legal. Let us examine the various definitions of tax avoidance and tax evasion by economic scholars and reliable sources.
Tax evasion involves doctoring business transactions in such a manner that the involved taxpayers will escape paying taxes to the government or even if they pay, there will be fake accounts of tax remission, says Auru, an economic expert.
In other words, evading tax completely means not honoring their civic duty of paying taxes. In a legal sense, tax evasion is fraudulent.
Taxpayers evade taxes by giving bribes to tax collectors in order to be falsely cleared from debt, presenting fake managerial accounts to the government, flouting stipulated laws on tax payment, holding back authentic statement of account that depicts the correct financial profits, etc.
On tax avoidance, Businesses usually compromise the legal system of tax in such a way that they minimise tax obligations for both the present time and the future. A lot of businesses take advantage of loopholes established in the tax laws to minimize existing tax liabilities.
Investopedia also lends credence to this facts about the two terms. Tax avoidance refers to a legally acceptable means of taking advantage of anomalies in the existing tax laws of a state in order to reduce the total tax liabilities the business would have to remit to the government, by requesting for legitimate debentures and discounts.
Whereas, tax evasion involves the unlawful owing of tax payment and part payment of taxes, deliberately done by the individual, tax evasion is deceitful. It gives a taxpayer an avenue to intentionally escape paying tax or presenting fake documents which may indicate amount higher than the true paid tax. Tax evaders cancel the statements of their financial profits, demanding for false entitlements to wages and expenses, and other unscrupulous acts.
Payment of tax is mandatory for everyone, as long as they have started making income. Tax evasion is seen as a deliberate and unlawful move to escape the check and balances or the remission of taxes stipulated under the federal government law.
Such action is punishable by either jail terms or payment of fines.
Throughout the world, tax evasion is a global menace frowned at by all judicial systems. People take joy in soiling their hands by dipping into this crime. Information obtained from some countries indicate a growing headache by tax evaders.
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Three economic experts from Scandinavia, Zucman, Annette and Johannesen conducted a survey on the situation of tax evasion in the country, using materials obtained from Panama thesis and Swiss leaks in Switzerland to aid their investigations.
They found out that the percentage of individual evaded taxes is around 3%. But there seem to be an increase of 30% in this result when calculated from 0.01% population of the wealthy citizens. “This shows that the wealthy are not being equally prosecuted for tax evasion, unlike the masses,” the researchers reported.
According to the tax agency in UK, HMRC, the government lost about £5.3 billion between 2014 to 2015, to an estimated tax evasion which excluded concealed economy and vices (commonly referred to as pure tax evasion). When compared with a larger gap on tax, which showed the difference in the expected amount of remitted tax to HMRC and what was collected in the long-run, about £37 billion was recorded. On the other hand, tax avoidance costs the government about £3.2 billion, excluding some complex tax agreements beyond the UK control. However, the UK government has been fighting hard to curb tax evasion.
A deeper investigation into tax evasion carried out by the Internal Revenue Service (IRS) revealed that sole owners of ventures and small investors are the worst culprits in widening the gap of tax because in reality, the taxes being paid by the citizens to the federal purse do not reflect the actual remitted taxes on paper, meaning it’s higher than what was being paid.
People most times evade payment of tax if the amount involved is voluminous. Some other responsible factors for evasion include the size of an individual or company’s bank account. Then we have to also consider the tax officials who can easily compromise the standards of the law when money exchanged hands, meaning some of them are corrupt. This has contributed immensely to the ineffectiveness in combating evasion.
Unfortunately, some tax collectors liaise with people who supposed to pay tax but plan to evade it. After the evasion which will be brought to the knowledge of the officers, they (the tax collectors), will intentionally ignore it, meaning the offence will not be reported to the appropriate quarters. This corruption among tax workers is rampant in less developed countries.
Back to our own country Nigeria, the situation is not any fairer, rather it looks even worse, because the government have won the reputation of distrust and cancerous corruption, which do not allow the people to remove all iota of doubt about them.