(Guest blog post regarding tax evasion and its consequences) Tax evasion has become a huge problem. Greece was and still is in peril because of this. And this problem is rampant in most other countries, be it first world or third. Basically, an individual/ company/ organization that do not pay their right dues in taxes become part of an illegal practice. While it is in every person’s right to reduce their taxes, it has to be done so in a legal manner. By tax evasion, the taxpayers deliberately either conceal the true nature of their finances or see to misrepresent them to the reporting tax officers and subsequently the tax authority itself. Such activity is seen as related with criminal and underground activities.
Many times, there is a “tax gap”: where there is a difference between the amount of income that one should legally have and the amount that has been actually reported. The punishment here would be a fine or a prison sentence or worse still, both. It is one thing to not file your tax returns- this will be frowned upon but you will probably be let off with a strict caution. But constant negligence to do so will be seen as part of a scheme to not pay taxes and can thus be used as evidence against the perpetrator. In some cases, the intent has to be proved. If seen that the failure to pay was intentional and not due to error, then it is charged as a crime.
Evasion can be considered thus:
- Number of attempts.
- Creative accountancy.
- Misinterpretation of tax laws according to convenience.
Take the example of the U.S where a lot of the tax revenue was being lost in offshore investments. Now, they have made it clear that all residents of the U.S.A are taxed on their global income. Due to this, those who invested in off shore accounts to evade taxes can now be tried and prosecuted for tax evasion.
Evasion can happen through many different ways apart from the ones already discussed. Some of the most common ways are:
- Evasion of custom duty: Many merchants try to evade the rightful amount by either under invoicing or mis-declaration, either in number of products or the nature of products. This can further be extended to using unauthorized ways to transport substances which would become smuggling. Here a smuggler does not pay duties primarily because they said substances are not even official. For that he or she will be prosecuted separately.
- Evasion of VAT: Value Added Tax, a modern day approach to consumption tax can also be evaded by those who sell the product by giving a false number of sales of the product. Even when travelling to a place that has lower tax levied, it is required that the bills be produced properly when you are back in your place of residence.
All these activities are met with strict discipline; no-one likes to be the victim of fraud or theft.
Tina is a freelance tax consultant based in Sweden. She has more than 15 years of experience working with multinational corporations. She also writes about tax evasion investigation services.
Image Credit: http://www.flickr.com/photos/68751915@N05/6629120915/