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Tax evasion and avoidance

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Tax Evasion and Avoidance

Tax Evasion and AvoidancePrepared by:Sarrah Kaviwala C-40Shivani Patil C-33Vedant Sharma C-17Himani Singh C-27Devesh Pandey C-46Disha Mahawar D-20

What is Tax?A tax is a Financial charge or other levy imposed upon a tax payer by a state to fund various public expenditure.In other words a fee charged by a government on a product, income or activity.If tax is levied directly on personal income then it is Direct Tax.If tax is levied on price of goods and services then it is called indirect tax.

Types of TaxesDirect TaxesIncome TaxCapital Gain TaxCorporate Tax

Indirect TaxesSales TaxCustom Duty and OctroiExcise Duty

Meaning of Tax EvasionTax Evasion is not paying the taxes when they are actually due which is absolutely illegal.

Some ways of Tax EvasionFailing to pay the dueSmugglingInaccurate Financial statementBriberyStoring wealth outside the country

Tax AvoidanceTax avoidance is basically finding the loophole that exempts you from paying taxes and it is not strictly illegal.

Methods of Tax AvoidanceDeduction available in case of minor childThere is no tax on long term gainsAdult Children are big tax saversTax is not implied in case of parentsShow the monetary transaction as loan

Difference Between Tax Evasion and Tax Avoidance

Main Causes of Tax Evasion in IndiaLow level of Voluntary Tax Compliance

Weak Enforcement of Tax Laws

Manipulation of Accounts for Tax Evasion Out of book transactionsManipulation of sales/ receiptsUnder reporting of productionManipulation of Expenses Manipulation of Capital

Economic Consequences of Tax Evasion

Ill-Effects of Tax Evasion

Measures to Combat Tax EvasionReduction of Tax rates by the GovernmentSimplified Tax Laws and ProceduresWell Organised and Autonomous Administration StructureIncreased Awareness among the taxpayersCorruption free officials and taxpayersStronger penalties for non complianceSense of responsibilities among the tax payersUse of media

Legal Issues Of Tax evasion

Legal ExamplesWalter AndersonCadbury India Limited caseVodafone tax Scandal

Administrative Issues

. To design appropriate system

Equity based tax system

Provisions

Simplifications of tax procedure

E - Filing system

Source: Report released by Ministry of Finance, April, 2012SlabNumber in LakhsPercentage of tax payers0-5 lakh288.489%5-10 lakh17.885.50%10-20 lakh13.784.30%More than 20 lakh4.061.30%

ConclusionTax Avoidance and Tax Evasion both are meant to reduce the tax liability ultimately, but what makes the difference is that the former is justified in the eyes of law as it does not make any offence or breaks any law.However it is biased as the honest tax payers are not fools, but they can also make arrangements for postponing unnecessary tax.If we talk about the latter, it is completely unjustified because it is a fraudulent activity, because it involves the acts which are forbidden by law and hence it is punishable.

ConclusionHaving been aware of the ill effects of tax evasion, it becomes each one of our responsibility to support the government by complying with the tax procedures and pay taxes promptly.As it is rightly said that every drop of water makes an ocean, it can also be said that our small contribution makes a huge difference in the growth of the economy. Instead of expecting for change to happen, let us be the change agents who can bring in a drastic development by just fulfilling our responsibilities promptly.If each one of us speaks the same language, then there will be least or no scope for us to be exploited by any institution or authority. So let us fulfil our duties first and claim our rights next.

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