Updated: Mar 14
For a socially and economically prosperous nation, an efficient tax system and collection plays an important role. The country has no means other than tax for the security, progress and welfare of the country and its people. Taxation is one of the ancient customs for the management and growth of state whereby it means the collection of contribution of the earnings of people by the state to use it for the purpose of development and to make it prosperous. The requisite capital received from taxes is used for the purpose of public infrastructure such as roads, bridges, parks, railways, highways, etc and for the purpose of security and defense for arms and ammunition, etc.
But people refrain from paying taxes to the state and find illegal means of escape from payment of tax. Stealing and hiding income in order to escape from tax payments and underpayment of taxes is called tax evasion. Today, tax evasion has become the biggest crime of our country because no one wants to give his money.
According to the definition of Law.com legal dictionary tax evasion means-
“Intentional and fraudulent attempt to escape payment of taxes in whole or in part. If proved to be intentional and not just an error or difference of opinion, tax evasion can be a chargeable federal crime. Evasion is distinguished from attempts to use interpretation of tax laws and/or imaginative accounting to reduce the amount of payable tax.”
These are just a few common examples of tax evasion, there are uncountable modes of it. Taxpayers are deliberately and intentionally hiding the net income and using forged methods to cheat and steal the income of the state.
Non-payment of dues
Black economy and benami transactions.
Manipulation in records.
Providing false income and returns
Creation of fake documents for exemptions
Hiding and savings of income beyond the jurisdiction of the government.
Causes of Tax Evasion: Indian Perspective
Tax evasion is high due to high tax rates with social psychology and government policies. Tax rates are so high i.e. up to 30% of total income in India. This percentage is so frightening that it raises a question as to why we should give such a large part of our earnings to the state. People refuse to pay taxes because they feel injustice from the tax system because the government misuses the right and legitimate use of the given tax amounts. The funds to be used by the government for better infrastructure do not know when it goes underground. Despite paying so much money to the state as tax, people do not get facilities and infrastructure from the state and the money given in the form of tax goes into corruption, seeing all this, hurts the common people to pay tax, due to which they find the means of tax evasion. Inflation and population are increasing day by day; on the one hand, people do not have jobs and income and on the other side the one who is bread earner for his family and dependents is obliged to pay taxes on time.
The second important cause is corruption and bribery because the officers and employees associated with the tax collection department are themselves so corrupt that they provide assistance and protection in tax evasion for consideration of bribes. The auditors and accountants are making false reports of income for a few bucks.
There is no provision or system related to tax awareness in India which creates the stress between government and taxpayers. Tax education plays an important role in bringing tax awareness and in establishing a better tax system because a conscious taxpayer fully understands his duties and is well aware of the sense of being a responsible citizen of the country, in compliance with which he remits his share of tax to the state for the development of the state.
Impact of tax evasion
● Tax evasion brings down the economic growth of the country which results in inflation and loss of revenue to the state.
● The major impact of tax evasion is seen as a disparity among taxpayer’s or tax inequality.
● Loss in country’s GDP and national income
● Loss of the country's reputation due to savings of black money in foreign banks.
● Poor infrastructure with poor standards of living of peoples of below poverty line because of absence of government measures due to low budgets.
● It directly affects the public infrastructure, development of the country and losses to national funds, defense systems, medical infrastructures, etc.
● It leads to the increase in tax percentages which adversely affects the middle class peoples and to those who promptly pay taxes on time.
● It creates the disequilibrium of balance due to which the rich become richer and poor become poorer.
The most important need for change is in the investment and infrastructure policies of the government. Revenues should be used wisely for the welfare of the state and to provide the quality structure and facilities with safety and security.
The second important thing is that the tax rates should be reduced so that it becomes affordable for everyone to pay taxes without any second thought.
To enforce the penal laws and strict punishments along with penalties so as to create fear for tax evasion.
To reduce the prices of goods and services and maintain the market stability so that everyone can get things at cheaper rates and there is no need for anyone to steal national revenue.
Everybody should be provided with jobs according to merit and eligibility mandates or to any work which creates a source for income to them, so that no one is dependent on anyone and everyone can give some part of their earnings without any burden for the development of the state.
The assessment of taxes should be free from any kind of discrimination and should be equal for everyone irrespective of their caste, religion, or gender.
Tax is a source of revenue to the state which is collected by the people, for the people. It is the liability of every citizen to pay some part of the earnings to the state for development and management of the state. Income tax evasion is an offence in India and can attract penalties and punishment for such acts and omissions. But then also, people do not like to pay taxes and keep looking for ways to escape. There are indeed some flaws in the part of government too which is to be fixed.
If we all wait for the changes to happen it would never be possible, so we have to take a step and to feel proud in discharging our duties. It is the moral and fundamental duty of every one of us to support the government by complying with tax procedures and payments. And there is a dire need of tax education and awareness among all the taxpayers to pay due taxes and to avoid tax evasions.
Author - Aadarsh Kumar Shrivastava Student at GOVERNMENT NEW LAW COLLEGE INDORE M.P.