Tax Avoidance vs. Tax Evasion

• Tax Avoidance: Legal methods to minimize tax liability through financial planning
• Tax Evasion: Illegal practices to escape paying taxes, such as underreporting income
• Both undermine the integrity of the tax system
• Affect government’s ability to fund essential services and long-term development
• Purpose: Analyze their effects on economic development, especially in developing nations

Tax Avoidance:

• Legal strategy using loopholes, deductions, and exemptions
• Common in multinational corporations
• Reduces short-term revenue but operates within legal boundaries

Tax Evasion:

• Illegal practice involving concealment or fraud

Role of Tax Revenue in Economic Development:

• Funds public services: health, education, infrastructure
• Supports welfare programs and economic stability
• Encourages foreign investment through strong institutions

Effects of Tax Avoidance:

• Loss of Government Revenue
• Unequal Tax Burden on Small Businesses
• Distorted Market Competition
• Reduced Public Investment
• Exploitation of international tax loopholes by MNCs

Effects of Tax Evasion:

• Direct Loss of Tax Revenue
• Weakening of Public Institutions
• Expansion of the Informal Economy
• Erosion of Tax Morale & Compliance
• Reduced Investor Confidence

Impact on Developing Economies:

• Greater reliance on external debt
• Limited resources for poverty reduction
• Infrastructure gaps and poor human development indicators
• Stunted economic growth and inequality

Global Case Studies:

• India: Black money economy, Panama Papers revelations
• Greece: Debt crisis fueled by chronic tax evasion
• Sub-Saharan Africa: Tax base erosion by multinational corporations

Solutions and Policy Measures:

• Strengthening Tax Administration
• International Cooperation (OECD BEPS Project)
• Simplifying Tax Codes
• Whistleblower Policies
• Promoting Digital Payments and Transparency

• Harsh Goyal, BBA LLB - Faridabad Haryana &
• Vanshika Garg, BBA LLB - Faridabad Haryana