Tax Evasion: A Major Threat For Developing Economies

Tax Evasion: A Major Threat For  Developing Economies

“Tax Evasion” is an illegal activity in this process individual & companies try to avoid the liability of paying taxes.

“Inflation is the one form of taxation that can be imposed without legislation.” – Milton Friedman

Taxation has its own role in Developing Economies. In Welfare Countries like India Taxation is the backbone of advancing the Country’s Infrastructure, Maintain policy balances & facilitating growth & development. There are many methods of tax evasion in India and the penalties & punishments are high.

Tax Evasion

“Tax Evasion” is an illegal activity in this process individuals & companies try to avoid the liability of paying taxes. It includes various types of illegal activities like Hiding or giving false income, not reporting the cash transactions, etc. It is a serious offense and comes under various criminal charges & penalties. This is the money that is to be invested in various Government projects & Developmental activities.

Common Methods of Tax Evasion

There are two methods of not paying the taxes. The first is Tax Evasion & the second is Tax avoidance. The difference between these two concepts has a thin line. Tax Avoidance refers to finding the loopholes that restrict the person from paying the taxes while evasion is generally illegal. Some of how people avoid/evade are given below:

1.   Failing in Payment: This is the most common way in which people evade taxes by not paying the dues.

2.  Smuggling: As we know that when goods cross the International border/borders there is taxation imposed on it. Some people transfer the goods in a superstitious manner to avoid taxes.

3.  Submission of False Tax Returns: In the process of filling the taxes some people submit wrong documents either to lessen the taxes or not willing to pay it at all.

4.   False Income Reporting: In some cases, there are certain amounts of money people do not want to pay and in these cases,they offer a bribe to the higher officials for disappearing the amount.

5.   Underreporting of the Income: It is also becoming a commonly used method as people do not give the exact amount of their income and underreport it.

Penalties/Punishment for Tax Evasion

1.  Collecting 100% to 300% of the tax when disclosure of income is not done.

2.  In case of failing the amount due the assessing officer can impose the penalty amount.

3.  Unable to filling of the tax statements within the time then Rs200 may be charged per day.

4.  In case when someone has concealed the benefits of their income penalty can range from 100% to 300% of the amount due.

5.  If a report provided by the account is not provided as directed then a fine of Rs1 lakh can be imposed.

Why Indians Evade Taxes?

Gary Becker, Nobel Laureate Economist developed various models and factors of the tax evasions. He contended that Tax evasion was determined by the trade-off present between tax rates & the cost of noncompliance for punishment. Higher taxation rates can increase the chances of tax evasion. In the United States Cheating on taxes is a criminal offense and many people are in jail for this offense. Economic factors can describe tax evasion. Some Scandinavian countries with high tax rates and comfortable prisons have low tax evasion.

Bottom Line

Taxation is an important factor in determining the financial situation of the country. It is fixed after doing extensive economic research on various factors & the Sizeable income of the residents. Undoubtedly many things accounted for Tax Evasion. We can also say that Tax evasion has become common in developing economies. It leads to various economic costs like Underdevelopment, Illegal activities with unaccounted money, etc. According to Garry Becker “Concept of “Citizen Trust” is an important determinant in explaining the pervasiveness of tax evasion in countries such as India.”

Edited By Team CLIQTAX

Want to get your business journey featured on CLIQTAX ? Send an email to us at