Question and Answer: Tax Evasion, Tax Avoidance


Q: What is Tax Evasion and Tax Avoidance? How do they differ?

A: Tax evasion is the illegal evasion of taxes by individuals, companies, and trusts. It is the act of causing a tax to be falsely assessed, such as through the failure to report taxable income. It could also means escaping payment of taxes by illegal means.
Tax evasion is the non-payment or underpayment of tax. Tax evasion is criminal, and has no effect on the amount of tax actually owed, although it may give rise to substantial monetary penalties. Tax evasion is an activity commonly associated with the informal economy. In summary, tax evasion is using illegal means to avoid paying taxes, and it is criminal.

Tax avoidance is legally exploiting the tax system to reduce current or future tax liabilities by means not intended by parliament. It is legal action to reduce taxes. It is also a way of seeking to minimise a tax bill without deliberate deception (which would be tax evasion) but contrary to the spirit of the law. Tax avoidance is what we do when we fill in tax returns and carefully recall the legitimate expenses with which to reduce taxable profits. Tax avoidance is the legitimate minimizing of taxes, using methods approved by the tax authorities. Tax avoidance is the legal usage of the tax regime in a single territory to one’s own advantage to reduce the amount of tax that is payable by means that are within the law. Tax avoidance is not illegal, and it’s not immoral.

Tax evasion is separate from “tax avoidance”, which is the legal utilization of the tax regime to one’s own advantage in order to reduce the amount of tax that is payable by means that are within the law. But, of course, tax avoidance is not illegal; tax evasion on the other hand is where someone deliberately seeks to not pay tax that is due. Tax evasion is a crime; tax avoidance is not. The main difference between tax avoidance and tax evasion is that tax avoidance is permissible whereas tax evasion is a serious crime. Whereas tax evasion is an offense (punishable by both civil and criminal penalties), tax avoidance is not.
To wrap it up tax avoidance is legal, tax evasion is not.

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