Difference Between Tax Evasion and Tax Avoidance

In any government of a country, continent or nation, the citizens are expected to be responsible for its smooth running. While the electorates often look up to the government for the provision of every essential amenities through the magic wand of the political power it holds, the people also have a role to play while the magic show is in progress.

One of the roles is the payment of tax. The government collects 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 to improve 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 primary tactics adopted by dubious taxpayers to avoid paying their tax liabilities.

Although tax evasion and avoidance are almost similar 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 is the 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.

What is Tax Evasion?

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 means not honoring their civic duty of paying taxes. In a legal sense, tax evasion is FRAUDULENT.

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Taxpayers evade taxes by giving bribes to tax collectors to be falsely cleared from debt, presenting fake managerial accounts to the government, flouting stipulated laws on tax payment, holding back authentic statements of account that depict the correct financial profits, etc.

What is Tax Avoidance?

On tax avoidance, businesses usually compromise the legal system of tax in such a way that they minimize tax obligations for both the present time and the future. Many business organizations take advantage of loopholes in tax laws to minimize existing tax liabilities.

The Difference Between The Two

Tax avoidance refers to a legally acceptable means of taking advantage of anomalies in the existing tax laws of a state to reduce the total tax liabilities the business would have to remit to the government, by requesting for legitimate debentures and discounts. On the other hand, 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 truly 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 Nigerian tax laws. Such action is punishable by either jail terms or payment of fines.

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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.