Reasons for Tax Evasion and Tax Avoidance
Tax evasion may be defined either as the understatement or concealment of a taxable object or as the failure to pay tax m time either by the assessee or his agent. It is the illegal practice of not paying taxes, by not reporting income, reporting expenses not legally allowed, or by not paying taxes owed. On other hands, tax avoidance is the minimization of tax liability by the taxpayer or his agent by efficient tax planning. It is possible by fully complying with the tax laws and meeting tax liabilities.
Reasons for tax evasion and tax avoidance: The following can be identified as the main causes of tax evasion and avoidance by the taxpayers –
Ambiguity in tax rules: There are some tax rules in our tax ordinance, like some other countries, which are ambiguous. A taxpayer can take advantage of these rules to his own benefit.
High tax rate: If the rate is high, the taxpayers feel discouraged to pay tax.
The inadequacy of preventive measures: The existing measures to prevent tax evasion or avoidance are considered inadequate to solve the problem.
General tendency: It is said to be the human tendency of the assessee to avoid tax. So, they try to find out loopholes in tax rules to avoid tax payment.