Given the explosion in this work, a natural question to ask now is: what do
we really know about tax evasion? In this article, I give my own answer to this
broad question, by answering several other, more specific, questions. First, how
do we measure the extent of evasion, given that it represents behaviour that by
its very nature individuals and firms go to some length to hide? Second, how can
we explain these patterns of behaviour, via theoretical and experimental
methods? Third, how can we use these various insights to control evasion?
In the process, I illustrate my answers to these questions by highlighting
various specific examples of research. My main conclusion is that we have
learned much in last 40 years but that we also have many gaps in our
understanding of how to measure, explain, and control tax evasion. I also give
some suggestions and some predictions about where promising avenues of future
research may lie.
Tax Evasion is an illegal activity in which person or being knowingly avoids
paying a true tax liability. To willfully fail to pay taxes is a federal offense
under the Internal Revenue Service (IRS) tax code. Tax evasion applies to both
the illegal non-payment as well as the illegal underpayment of taxes. Generally,
a person is not considered to be guilty of tax evasion unless the failure to pay
is deemed intentional.
Causes of Tax Evasion:
- Low educational level of the population.
- Lack of simplicity and accuracy of the tax legislation.
- Tax pressure � high rates.
- A significant informal economy
- Permanent regularization regimes (moratoriums, whitewashing, etc.)
- Possibility of failing to comply without greater risks.
- Promotional regimes (tax incentives, exemptions and tax expenses).
- Lack of dissemination regarding the use of resources originating from
- Lack of citizens� tax integrity.
- Inefficiency of the Tax Administrations (AATT).
- Presence of multinational enterprises with aggressive tax planning.
- Tax havens � jurisdictions of null or low taxation or as it is said in
many countries, non-cooperating jurisdictions.
- Great weight of intangibles, which makes it difficult to assign them
their true value and determine their place of origin.
- Financial system with multiple sophisticated figures that allow for
mobilizing money in a speedy and simple manner.
- Proliferation of special tax regimes for attracting investments (e.g.
- Difficulty to control the transfer prices of related multinational
enterprises: currently over 60% of world trade is carried out through these
enterprises and 50% are intragroup operations.
- Digital economy, with the significant technological development:
electronic commerce, collaborative platforms, digital currencies and new
ways of commercializing goods and services, there are increasing
difficulties for taxing and controlling.
Tax Evasion in India:
In India there are various ways through which people evade tax are Smuggling,
evasion of sales and Value Added Tax, Evasion of Income Tax, Evasion of Wealth
Tax, Evasion of Customs Duty and Evasion of Excise Duty. Also, officials takes
bribery and helps in making fabricated statements instead of reporting to tax
authorities. Idealist wilfully fails to file return, submit false returns,
submits false certificates to get deduction, exemptions and claim low income,
charging personal expenses to revenue, fails to pay dues within due date and so
on to evade tax.
Effect of Tax Evasion in India:
Taxes are the major source of revenue of India government. Tax evasion causes
economic inequality that is how some people are getting richer and others are
getting poorer. Many reform measures and initiatives of government have to be
set aside and welfare activities are getting affected. Black money causes
inflation and value erosion.
Measures Taken by Indian Government to Curb Tax Evasion:
Several steps as below have been taken by Indian government to avoid tax
evasion. In India, tax evasion is regarded as a crime. Prosecution and Penalties
are imposed under different acts by government. Income tax reward scheme has
been introduced by Income Tax Department which gives rewards to informers about
tax evasion. Recently, India has entered into pact with US to avoid tax evasion
by Americans through Indian financial organizations. Special Bearer Bond Scheme
(Immunities and Exemptions Act, 1981) enable person in possession of black money
to invest in special bonds. Voluntary Compliance Scheme (Amnesty Scheme) was
Government increased the tax slab, reduced deduction rate, and increased legal
tax avoidance measures. Most recently, Tax Administration Reform Commission was
set up by Government to make structural reform to tax matters to simplify and
streamline tax procedures. Earlier India had set up several committees like
Taxation Enquiry Committee, Indian Tax Reforms Committee, and Direct Taxes
Enquiry Committees etc. Transfer Pricing Audit was introduced by Finance Bill to
audit undisclosed transactions to curb tax evasion.
Limitations of Indian Tax Structure which result in Tax Evasion:
- High rate of taxation:
High rate of taxation cause a burden to tax payer. So, they find ways to
- Failure to curb bribery:
There should be adequate system to curb bribery and corruption among
officials. They help taxpayers to avoid tax by taking an agreed share of
profit out of evaded tax.
- Lack of simplified procedures:
Tax structure in India is complex and people find it hard to go to different
departments for a single matter.
- Existence of large number of taxes:
Existence of large number of different type of taxes causes burden on
- Complex tax laws and loopholes to avoid tax in laws:
Indian tax law is complex. In the same law, people find provisions to escape
from tax liability.
- Lack of organized and systematic Administration structure.
- Frequent changes in Government and Political instability:
Frequent changes and political instability is another reason of
non-implementation of well-defined tax system. Different governments
implement different tax system and it becomes difficult to follow.
- Frequent changes in tax policies:
Tax policies in India are changed frequently by government. It creates
confusion among tax payers and officials about the relevant provisions.
- Deficiencies in implementing Penalty Provisions.
Best Ways To Avoid Tax Evasion
- Reducing tax rates.
- Make more simplified laws and simplified system.
- Design a well-organized tax administration structure.
- Strengthen anti-corruption policies.
- Increase awareness among taxpayers by conducting seminars, conferences
and through media.
- Design a permanent tax structure.
- Ensure the political changes do not affect well defined tax structure.
Make tax administration more independent and autonomous without losing final
control of Government.
- Audit, tax collection, depositing and filing provisions to be more
strengthened and updated.
- Make penalty provisions more stronger and avoid it�s non-implementation.
- Encourage taxpayers to pay tax by more friendly schemes.
- Give relief provisions to huge tax payers.
Recent Tax Evasion Cases in India:
The Goods and Service Tax (GST) department has registered over 1,470 cases of
tax evasion in the financial year 2018-19 and recovered around Rs 360 crore in
The Income Tax Department has seized paintings worth Rs 30 crore in connection
with its tax evasion and benami assets probe against Haryana Congress leader Kuldeep
The raids to unearth the large tax evasion nexus were conducted in the first
week of this month (November) on 42 premises in Delhi, Mumbai, Hyderabad, Pune,
Agra and Goa on a group of people indulging in issuing bogus bills and carrying
on Hawala transactions. Hawala denotes illegal transaction of funds by skirting
the legal banking channels.
Written By: Sunil Kumar
- The Economics Times (Online Edition)
- Principles of Taxation (Prof. Ullas Kumar Saha)