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Difference between tax evasion and tax evasion

Each assessee wants to avoid paying taxes, which encourages them to use various means of avoiding such payment. And when it comes to savings if taxes, the two most common practices that can be seen around the world are tax avoidance and tax evasion. Tax avoidance an exercise in which the currency legally tries to defeat the basic intention of the law, taking advantage of the shortcomings of the legislature.

In reverse, tax evasion a practice of reducing tax liability through illegal means, i.e. suppressing income or inflating expenses or showing lower income. In other words, tax avoidance is entirely lawful because only those means are employed that are legal, while tax evasion is considered a worldwide crime, since it uses various types of intentional manipulation. For more information on specific topics, read the article below.

Comparative chart

Basis for comparison Tax avoidance Tax evasion
Sense The minimization of tax liability, adopting such means that do not violate tax rules, tax avoidance. Reduce tax liability by using illegal methods known as Tax Evasion.
What is it? Tax coverage Concealment of taxes
attributes Immoral in nature, which implies the bending of the law without breaking it. Illegal and questionable, both in the script and in the moral.
Concept Take unfair advantage of the shortcomings of tax laws. Deliberate manipulations in the accounts resulting in fraud.
Legal implication Use of justified means Use of such means which are prohibited by law
happened when Before the occurrence of tax liability. After the tax liability arises.
Type of act legal Criminal
consequences Deferral of tax debt Penalty or imprisonment
Objective Reduce tax liability by applying the law script. Reduce tax liability by exercising unfair means.

Definition of tax avoidance

An agreement made to beat the intent of the law by unfairly taking advantage of the shortcomings of tax rules known as Tax Avoidance. It refers to the search for new methods or tools to avoid paying taxes that are within the limits of the law.

This can be done by modifying the accounts in such a way as not to violate the tax rules and the tax impact will also be minimized. Previously tax avoidance considered legal, but now it is the category of crime in some special cases.

The sole purpose of tax avoidance is to postpone or move or eliminate tax liability. This can be done by investing in government schemes and offers such as tax credit, tax privileges, deductions, exemptions, etc., which will result in the reduction of tax liability without any crime or violation of the law.

Definition of tax evasion

An illegal act, made to escape the payment of taxes known as Tax Evasion. Such illegal practices may be intentional concealment of income, manipulation in the accounts, disclosure of unreal expenses for deductions, indication of personal expenses such as commercial expenses, overestimation of the tax credit or suppression of profits and capital gains, etc. This will result in the disclosure of income than the actual income earned by the entity.

Tax evasion is a criminal activity for which the councilor is subject to penalties provided for by law. It involves acts such as:

  • Deliberate distorted representation of material facts.
  • Hide relevant documents.
  • Do not keep complete records of all transactions.
  • Make false claims.

Key differences between tax avoidance and tax evasion

The main differences between tax evasion and tax evasion are listed below:

  1. A planning made to reduce the tax burden without violation of the legislator known as Fiscalit. An illegal act, done to avoid paying taxes known as Tax Evasion.
  2. Tax avoidance refers to the coverage of the tax, but tax evasion implies the abolition of the tax.
  3. The immoral tax avoidance that tends to bend the law without causing any harm to it. Unlike tax evasion, which is illegal and questionable both under the law and morality.
  4. Tax avoidance aims to minimize the tax burden by applying the legal text. However, tax evasion minimizes tax liability by exercising unfair means.
  5. Tax avoidance involves taking advantage of the gaps in the law. In contrast, Tax Evasion includes deliberate concealment of material facts.
  6. The tax avoidance agreement made prior to the occurrence of tax liability. Unlike Tax Evasion, where agreements for it are made after tax liability occurs.
  7. Tax evasion completely legal, however tax evasion is a criminal activity.
  8. The result of the tax avoidance is the postponement of the tax, while the consequence of the tax evasion if the councilor is found guilty of doing so, imprisonment or punishment or both.

Conclusion

Tax avoidance and tax evasion are both intended to reduce tax liability ultimately, but what makes the difference is that the former is justified in the eyes of the law in that it does not commit any infringement or break any law. However, biased because honest taxpayers are not insane, they can also make arrangements to defer unnecessary taxes. If we talk about the latter, totally unjustified because a fraudulent activity, because it involves acts that are prohibited by law and therefore punishable.