Tax is one of the formal monetary obligations for any person living under certain country or jurisdiction. Tax is usually a compulsory contribution to the government that is imposed to fulfil in the common interest of all people in the country for the purpose of defraying the expenses incurred out to the public functions. In most cases taxes are imposed for the intention of regulations, without references or guarantee to the special benefits.
One of the most fundamental descriptions of tax is that it is discriminatory in nature where people are taxed according to their income; those who earn less pay less while those who earn more pay more (Brunner, Eckerstorfer and Pech 107-124). The main aim of tax is to distribute wealth among individual and make life to be affordable for all people in the society. Due to this discriminatory nature of tax, issues of tax evasion are common in many countries around the world. Individual and corporations may find themselves facing the problem of tax evasion either by accident or by choice. Thus, in general, there are two types of tax evasion, total tax evasion or partial tax evasion. In total evasion, people do not pat tax at all while in partial evasion a person may pay a percentage of what is required for him to pay (Hanlon, Maydew and Thornock 257).
Most of the total tax evasions incidences occur in individual with low income which is necessary to pay significantly small amounts of taxes. On the other hand, partial tax evasion occurs for people who are required to pay huge sums of money but only pay a certain amount which may still be large compared to what other individuals are require to pay. Most of the partial tax evasion exists due to the loopholes that exist in the tax system due to incomplete regulation or conflicting tax regimes. However, one should take note of these issues as it is closely related to tax avoidance which is accepted by law.
Many countries have highlighted tax evasion as being both a serious criminal and civil crime. One of the most common practices of tax evasion is that an individual may deliberately hide his income details n order to pay low taxes. There are various reasons for tax evasion. The fist reason is the perception that people have towards tax regimes. Many people will consider paying tax as extortion by the government. These negative attitudes on tax regime make the tax appear injustice to the individuals subjected to it. This is one the primary reasons that make people evade taxes. One of the major reasons behind these poor perceptions is when people fail to strike a balance between taxes the pay and the services they get from the government. When people see that the services they get are poor of less compared to the taxes they pay, they will tend to avoid and evade taxes.
On the other hand, regulations on the tax regimes may make people evade taxes. Many countries with high rates of tax evasion have poor laws and regulations on taxes. Besides, there are poor enforcement of tax laws characterised by high levels of corruption and impunity in the tax regimes. In countries where tax laws are strict, the problem seems to be controllable and less than those countries with less developed tax structures and enforcement. Therefore, in countries with poor enforcement of tax laws, people have the propensity to evade if they can. Poor enforcement of tax laws and regulations enhances the belief that people can evade tax, and nothing can be done about it.
Another misconception of tax evasion is that people believe that they can cheat on the formal taxes imposed by the government. Many people, especially in the high and middle income, believe that cheating taxes is the best way to avoid paying taxes. As a result, these people tend to believe that this process is ethical or moral. Many people believe that by evading tax, they are not stealing from anyone or even the government.
Another factor that contributes significantly to tax evasion is the unethical sources of income. Some people have unethical sources of income which are not taxable. Thus, such person may continue to accumulate wealth without paying taxes. Some of the unethical sources of income include selling drugs, human trafficking, and corruption gains such as bribes.
There are various methods that people may use to avoid evading tax. One of the methods employed by many countries around the world that enhance transparency is self-assessment and ensures that tax payers file their returns as soon as possible (LINECKER). In this case, the government gives individuals a chance to assess themselves and report their income to the taxman, by doing so they will evaluate the amount of taxes they are willing to pay to the government.
Another significant measure that governments can make for people to pay taxes is to ensure that there is transparent communication between the tax system and the citizens on how the government will use their money in the economy (LINECKER). As seen earlier many people evade taxes because they feel that the government is not doing enough with their money.
Other mechanisms that have been suggested by the government to reduces the instances of tax evasion include the knowledge used given by experts such as accountants and legal officers who are knowledgeable on the issues of taxes. Most of these experts often guide their client on illegal means that they can use to evade taxes. Therefore, the removal of such people from the tax system will do great ways in reducing the incidences of tax evasion. The government should be involved directly in the taxing process and should offer help to all taxpayers on the issues of taxation.
Finally, the issue of tax evasion is one of the broad areas that require transparency and negotiations between tax payers and the government. Moreover, there are other methods such as privatisation of the tax system that have been proposed by some scholars. Scholars with this view such as hood (1986) argued that the privatization of the tax regime will help the government in controlling tax evasion. The private tax collectors will be maximizing on the process of tax collection by ensuring that all people have paid the necessary tax they are obliged to pay by the government. Besides the privatization of taxation system will lead to increased efficiency of the tax regime.
Work cited
Brunner, Johann K., Paul Eckerstorfer, and Susanne Pech. "Optimal Taxes On Wealth And Consumption In The Presence Of Tax Evasion". J Econ 110.2 (2012): 107-124. Web.
Hanlon, Michelle, Edward L. Maydew, and Jacob R. Thornock. "Taking The Long Way Home: Offshore Investments In U.S. Equity And Debt Markets And U.S. Tax Evasion". SSRN Electronic Journal n. pag. Web.
Linecker, Adelia. "Here’S How You Can Avoid Becoming A Tax Fraud Victim". Investor's Business Daily. N.p., 2016. Web. 26 Apr. 2016.
