Page 76 - DCOM301_INCOME_TAX_LAWS_I

Unit 3: Tax Planning: An Introduction

Notes

Notes Some of the Instances of Tax Evasion relate to failing and claiming:
Failing to:
1. report all income
2. report cash wages
3. forward tax withheld from employee’s wages to the ATO

4. withhold tax from a worker’s wages – for example, paying cash in hand
5. pay employee super entitlements
6. lodge tax returns, in an attempt to avoid payment

7. lodge a tax return in order to avoid child support or other obligations
Claiming:
1. deductions for expenses not incurred or legally deductible
2. input credits for goods or services that GST has not been paid on.

3.3.1 Importance of Tax Evasion

Tax evasion is important for many reasons:

(i) It reduces tax collections, thereby affecting taxes that compliant taxpayers face and public
services that citizens receive.
(ii) Evasion creates misallocations in resource use when individuals and firms alter their
behaviour to cheat on their taxes.
(iii) Its presence requires that government expend resources to deter noncompliance, to detect
its magnitude, and to penalize its practitioners.
(iv) Tax evasion alters the distribution of income unpredictably; unless tax evaders are caught,
they pay fewer taxes than honest taxpayers. Evasion may contribute to feelings of unfair
treatment and disrespect for the law, creating a self-generating cycle that feeds upon itself
and leads to even more evasion. It affects the accuracy of macroeconomic statistics.

(v) More broadly, it is not possible to understand the true impact of taxation without
recognizing the existence of evasion.

3.3.2 Causes of Tax Evasion

Following are the causes of Tax Evasion:
(i) Controls and Licensing System: The system of controls, permits, quotas and licenses which
are associated with misdistributions of the commodities in short supply results in the
generation of black money which leads to tax evasion. Since, considerable discretionary
powers lay in the hands of those who administered controls this provided them with a
scope for corruption – ‘speed money’ for turning a blind eye to the violation of controls.
All this gave rise to trading in permits, quotas and licenses, malpractices in distribution
and in the process; it generated sizeable sums of black money.” Price and distribution
controls have in the past led to the generation of black money on a significant scale.

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