Tax Evasion is a national pastime that is growing ever more popular.
Nick Montague defines taxation as the means by which a civilised society performs that sometimes-uncivil task of taking money from one group in order to give it to another. This definition highlights an important purpose served by taxes. As it is already known, that taxes are a fiscal policy instrument used by the government to achieve broad macroeconomic goals.
Generally speaking, taxes are a means used by the government to provide its residents with amenities and facilities like hospitals, safety and education. Thus, any shortage in revenue means that the people wouldn’t be able to avail the benefits. From this perspective, as law-abiding citizens, it is imperative for people and corporations to pay taxes. Despite, this common knowledge, tax evasion is prevalent in the society, even worse, individuals and corporations go through great length to devise tactics of evading taxes. The main reason why individuals and corporations engage in tax evasion activities is that it increases the level of disposable income and profits respectively.
Tax evasion is defined as the failure to meet tax liabilities by illegal action, such as not declaring income. Needless to say tax evasion is a criminal offence. Prior to starting a discussion on tax evasion it would be essential to briefly highlight that in the UK, tax administration is divided between two departments of state, the Inland Revenue and Customs and Excise. The Inland Revenue administers Income Tax, Corporation Tax (on company profits), Capital Gains Tax, petroleum taxation (relating to oil exploration and extraction in the UK and surrounding waters) and Stamp Duties (e.g. on land transactions). The levying of VAT, tax on gambling and customs and excise duties is the responsibility of the Customs and Excise Department. In addition to these two revenue departments, local authorities levy the new Community Charge (poll tax) and the Department of Social Security is responsible for national insurance contributions. Often tax evasion is confused with tax avoidance. According to Denis Healey, former UK Chancellor of the Exchequer: The difference between tax avoidance and tax evasion is the thickness of a prison wall.
This paper will aim to present an in depth analysis of why individuals/companies engage in tax evasion. It will also analyse whether the self-assessment system encourages or discourages tax evasion. And, finally the paper will conclude by evaluating the efforts made by the government to combat tax evasion. It must be highlighted that taxation is used for many other purposes than raising revenue. Some writers have argued that the purpose of taxation can also be seen as an instrument of economic and social policy to influence behaviour. In other words, it can therefore be the intention of the tax that it is avoided. For example, it has been argued that higher taxes on alcoholic drinks (Cook and Moore, 1994, Irving and Sims, 1993) and tobacco (Viscusi, 1994) would reduce the consumption of those products and lead to improvements in the health of the population. In the UK, Inland Revenue has, traditionally, had a deferential approach towards income. With the introduction of self-assessment system from 1996/7 there has been a movement away from that stance in recent years.
Tags: accounting, economy, legislation, national, revenue, tax evasion, taxation, taxpayers, VAT
