Question

What is tax avoidance and tax evasion? Do you think the distinction is clear-cut? Why or why not?

Answer 1

Tax avoidance is the result of actions taken by assessee, which is not illegal or forbidden by law. Tax avoidance uses the techniques of legal exploitation of tax laws to taxpayer's tax advantage. Tax payers try to find loopholes in tax laws to pay the least tax possible.

Tax evasion includes the act of deceit, misrepresentation of facts, falsification of accounting books and downright fraud. Tax evasion is illegal as it uses unlawful ways to reduce the tax liability.

There is clear cut distinction between tax avoidance and tax evasion. Tax avoidance is considered legally acceptable while tax evasion is considered as an offence and illegal. Tax avoidance is meant to take advantage of loopholes in tax laws while tax evasion is meant to evade taxes through deceit and fraudful means.Tax avoidance includes using setting up tax deferral plans and using tax credit. Tax evasion includes reporting lower income, reporting higher expenses than actual and not paying taxes through fraudful means.

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