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What is meant by tax evasion?

The concept of tax evasion refers to the use of illegal methods to circumvent the government from paying taxes due to companies and institutions, that is, it is an illegal activity carried out by either individuals or organizations to avoid paying their obligations in exchange for real projects or property towards the state, through Various methods, including: distorting the internal revenue rate for organizations, not disclosing the real numbers, or by inflating the amounts of discounts, while concealing documents that show the size of the funds and the benefits resulting from them, and of course this causes great losses to governments, and examples of this are: the United States of America, which The government's losses amounted to about 345 billion US dollars due to tax evasion.

From the above, we find that tax evasion is a tool of defrauding governments by individuals and institutions, with the aim of not being obligated to pay dues arising from assets and income.

What is tax evasion?
What is tax evasion?

What are the causes of tax evasion?

The causes of tax evasion are many and vary according to the different activities of individuals and institutions, and the size of their income and revenues, and in the following, we will review the most famous reasons behind this:
  • The weak structure of the tax system of countries: the lack of deterrent laws to limit the spread of this phenomenon, and this also includes a chaotic and unclear distribution of government levels.
  • Low awareness of citizens: the absence of awareness of the importance of the obligation to pay taxes, and this is accompanied by a low level of education for the population in some countries.
  • Imposing high rates of taxes on citizens: This is called tax pressure.
  • Existence of multinational companies: which have a system based on strict tax planning.
  • The huge amount of intangible assets: It is very difficult to determine the exact location of the original intangible assets, as well as their true value.
  • The emergence of the digital economy: In light of the recent great technological development, which was accompanied by the emergence of e-commerce (online commerce system), digital currencies, and modern ways to promote services and goods, as well as cooperative platforms, all of the above led to significant difficulty in oversight and prosecution in taxation.
It is concluded from the above that there is a direct relationship between the lack of awareness and educational level of citizens and the lack of commitment to pay taxes to governments.

What are the methods of tax evasion?

Methods of tax evasion vary between hiding data and facts in whole or in part or falsifying and manipulating them, and here we review the most famous:
  • Concealment of income data: This includes not disclosing the real income of organizations (revenue), and disclosing an amount much less than that. , especially in cases of cash income, in addition to concealing the true source of income.
  • Providing false information to the Tax Authority: This is related to the first point, as information about commercial and other expenses is misrepresented, or direct intentional failure to pay dues as taxes on companies and individuals.
  • Exaggeration in displaying expenses: such as entering personal expenses as business expenses and expenses, for example.
  • Forgery: by making incorrect entries in the tax records or books, concealing assets (tangible property) belonging to individuals or companies, and not disclosing them.
  • Manipulation of employee payroll: either through cash payment to employees and concealment of payroll tax returns, in addition to the so-called employment leasing, which according to the IRS is the hiring of a payroll service by various companies and organizations outside their premises. , so that the IRS cannot detect these funds in their correct numbers.
  • Marketing and electronic sales: so that the business does not have any headquarters on the ground, and therefore it is difficult to monitor the taxes resulting from sales resulting from such projects.
Despite the follow-up by the tax authorities to organizations and individuals, and the presence of monitoring committees dedicated to this, it is difficult in some cases not to monitor tax evaders, especially e-commerce projects, which are very difficult to pursue their owners and know the volume of their sales and the amount of taxes incurred by them.

Is the tax evader punished?

Tax evasion is classified as a criminal charge punishable by law, and the penalties for the evader vary, whether it is an economic entity, an individual, or a group of individuals, depending on the different laws in the country in which he is located. Late payment, and in some cases and countries, may reach the imposition of imprisonment on the tax evader, for example, the ways to combat tax evasion in the United States of America, in which the penalties include the payment of large sums of money, and the Internal Revenue Law there provides for imprisonment for five years for each willful tax evader or fined $100,000 for individuals and $500,000 for businesses.

How can the problem of tax evasion be solved?

Tax evasion results in many negative effects, and governments lose huge sums of money in exchange for this misdemeanor. Accordingly, there are many technical tools that are used to combat tax evasion, the most prominent of which require the following:
  • The problem of tax evasion can be solved by combating the previously mentioned causes, by spreading awareness about tax laws and the penalties for committing the crime of evasion, in addition to following up on e-marketing, considering it business activity in itself, and increasing control over companies and organizations and the volume of revenues they have, And follow up on expenses and salaries to avoid any expected tax evasion later.
  • Technology plays a prominent role in addressing the crimes of tax evasion in its various forms, and it has proven its effectiveness in this aspect for more than 21 countries, by detecting fraud and recovering revenues in a higher way. Examples include Rwanda, where the introduction of point-of-sale technology led to sales control This resulted in an increase in the government’s collection of tax dues by no less than 20% in the value-added tax collected on the percentage of sales.

What is the difference between tax evasion and tax avoidance?

It is resorting to the use of legally legitimate methods with the aim of reducing the amount due such as income tax due to an individual or organization, i.e. reducing the amount of tax by methods included in the government tax law, and also under the internal revenue laws, and among the forms of tax avoidance: obtaining tax deductions intended to reduce business expenses, Thus, reducing tax bills, in addition to preparing tax deferral plans, as well as obtaining special tax credits, such as the tax credit for granting employees paid family leaves, and the following we review the most prominent differences between tax evasion and avoidance:
  • Tax evasion is illegal, while tax evasion is legal and legitimate, and can be practiced within the permissible limits.
  • One of the forms of tax evasion is fraud deductions and failure to report the volume of revenues and income, while tax evasion is achieved by obtaining various deductions, such as the mortgage deduction, the tax credit for children, or even investing in a retirement fund.
There is a clear difference between tax evasion and tax evasion, as evasion is a legal matter, unlike evasion that holds its owner accountable, and each of them has different manifestations and methods.
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