Tax Evasion

Tax evasion is a criminal activity by individuals, corporate, trusts and other entities to evade taxes by illegal means.

It is the deliberate, misrepresentation or concealment of the true state of their financial affairs to the tax authorities to reduce their tax liability.It is all about avoiding the tax liability by declaring less incomes, profits or gains than actually what they earn or overstating their expenses.

All the tax evasion leading to creation of black money and social evils is harmful to the society.It is a crime in all major countries and the guilty parties are subjected to imprisonment and fines.

Tax Evasion: Ways

• Deliberate misrepresentation of material facts. 
• Hiding relevant documents and failing to keep accurate records of all transactions.
• Evaders will-fully fail to file return, submits false returns, submits false certificates to get deductions.
• Tax officials take bribery and help in smuggling thus making tax evasion a possibility.
• Exemptions and claiming low income, charging personal expenses to revenue, fail to pay dues within due date and so on to evade tax.

Tax Evasion: Causes

• High taxes: People are prone to tax evasion when tax rates are high relative to their incomes. 
• Ineffective tax authorities: When tax officials are not watchful, people will avoid taxes in every way they can think of while providing justifications to the tax authorities. 
• Lack of simplified procedures: Tax structure in India is complex and people find it hard to go to different departments for a single matter. 
• Multiple taxes: Underreporting of taxable income or activity is encouraged by multiple taxes and taxes at various rates on the same activity. 
• Political instability: Different governments implement different tax system and it becomes difficult to follow.
• Tax administration structure: Lack of organized and systematic tax administration structure.

Tax Evasion: Impact on economy

• Less tax for the government: Many times, the Indian Government has failed to collect the estimated amount of tax from the people of our country and it has impacted the development agenda.
• Uncontrollable inflation: When black money is out in the market, the amount of money in the system is higher than the Government expects causing the prices of commodities to increase to a level beyond normal.
• Leads to mass poverty: The distribution of wealth and income in our country has been severely affected by the growth of underground economy.
• Corruption: While corruption creates black money in the economy, it can also be a result of the growing underground market which further propagates tax evasion.
• Inflated real estate: Generally, people involved in black money market are always ready to pay more for a piece of land as this helps in converting their black money to legal money.
• Transfer of Indian funds abroad to Tax Havens: The black money generated in India is kept in foreign tax havens. Under-invoicing of exports and over-invoicing of imports are two of the main methods used by black money holders for transferring money overseas.

Tax Evasion: Steps taken

• A Special Investigating Team [SIT] was formed to investigate black money issues, as ordered by the Hon’ble Supreme Court.
• The Government has established the Tax Administration Reform Commission to undertake fundamental reforms in both direct and indirect taxes.
• The government raised the tax bracket, lowered the deduction rate, and tightened lawful tax avoidance techniques.
• The Income Tax Department has implemented a tax evasion reward scheme, which compensates those who report tax avoidance. 
• Persons in possession of black money can invest in special bonds under the Special Bearer Bond Scheme (Immunities and Exemptions Act, 1981) as a form of voluntary compliance.
• Lok Sabha passed the Benami Transaction Bill 2015 on July 20, which was primarily an anti-black money policy with the goal of seizing unknown property and prosecuting people involved in such activities.
• India and the United States recently signed an agreement to prevent Americans from evading taxes through Indian financial institutions.
• Global efforts to combat tax evasion and black money were taken by joining the Multilateral Competent Authority Agreement in respect of Automatic Exchange of Information (AEOI) and having an information sharing arrangement with the US under its Foreign Account Tax Compliance Act (FATCA).

Tax Evasion: A way ahead

• Reducing tax rates and widening the tax base to ensure progressive taxation.
• Make more simplified laws and simplified tax filing system.
• Design a well-organized tax administrative structure.
• Strengthen anti – corruption policy in the taxation department.
• Increase awareness among taxpayers by conducting seminars, conferences and through media.
• Ensure the political changes do not affect well defined tax structure.