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Tax Evasion, An Unacceptable Act

The document discusses the concepts of tax evasion, tax avoidance, and tax mitigation, highlighting their definitions and legal implications. Tax mitigation is legal and involves reducing tax liability through compliance with tax laws, while tax avoidance, though not illegal, is considered immoral as it exploits loopholes in tax legislation. In contrast, tax evasion is illegal and can result in penalties and prosecution for those who engage in it.

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11 views3 pages

Tax Evasion, An Unacceptable Act

The document discusses the concepts of tax evasion, tax avoidance, and tax mitigation, highlighting their definitions and legal implications. Tax mitigation is legal and involves reducing tax liability through compliance with tax laws, while tax avoidance, though not illegal, is considered immoral as it exploits loopholes in tax legislation. In contrast, tax evasion is illegal and can result in penalties and prosecution for those who engage in it.

Uploaded by

suraj
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Krishna P Bhusal

Tax Evasion, an unacceptable act


January 07, 2023

We tax professionals and students most of the time hear the word "Tax evasion" but do
we actually know the exact meaning of "Tax Evasion" and the consequences if we involve in
tax evading activities? Today we are going to see the meaning and the consequences. We do
know the meaning and the punishment we have to face if we involve in such activities but
most of the time we are confused with some other similar words "Tax mitigation" and "Tax
Avoidance". "Tax mitigation" and "Tax avoidance" are part of "Tax planning". Let's go through
the meaning of each word and the possible consequences if we involve in tax mitigation, tax
avoidance, and tax evasion. For that first, we need to understand the meaning of each word.

Let's start with the word "Tax mitigation". "Tax mitigation" is a part of tax planning.
Which involves the reduction of tax liability by availing all the exemptions, deductions, and
rebates provided by any tax act. That means we plan our income-generating or business
activities in such a way that results in low tax liability. The best example of tax mitigation is as
per the "Income Tax Act, 2058" if you as an individual buy a life insurance policy and pay a
premium then you can claim a deduction of up to Rs.40,000/- at the time of calculation of your
tax liability. Another best example of tax mitigation is as per the "Value Added Tax Act, 2052" if
you export goods or services you are required to collect tax at the rate of zero percent, and
further you will be eligible to claim input credit of the tax paid at the time of importation or
local purchase of raw material or services. Tax mitigation is legal and moral because those
exemptions, deductions, and rebates are provided in those tax acts to you so that you can
reduce your tax liability that means a particular provision of a particular tax act wants you to
reduce your tax liability by fulfilling the terms and condition mentioned therein. So, you will not
be liable for any punishment for tax mitigation.

Let's dig into the meaning of another word that is "Tax Avoidance". Tax avoidance is
also a part of tax planning but the difference between tax mitigation and tax avoidance is that
in tax mitigation you reduce your tax liability by compliance with the provisions of the tax act.
On the other hand in tax avoidance, you reduce your tax liability by studying the loopholes in
any tax act. In other words, though you do not breach the provision of the tax act. What you do
is breach the spirit of the provision of such an act. Though tax avoidance is also not illegal, it is
immoral.
Now coming into the last word "Tax Evasion", Tax evasion is an illegal activity in which
you reduce your tax liability by going against the provision of any tax act. In tax evasion what
you do is not act as per the requirement of the provisions of any tax act. The best example of
tax evasion is as per section 10ka and Rule 7ka of "Value Added Tax Act, 2052" if you want to
participate in any kind of fair or exhibition then you have to get temporary registration in VAT,
collect VAT on the taxable supply of goods or services in such fair or exhibition and deposit
such VAT with tax authorities. But if you participate in a fair or exhibition without such
registration and involve in the taxable supply of the goods or services then you are involved in
tax evasion. Another example will be as per section 5 of the "Customs Tax Act, 2064" customs
duty shall be levied on the export or import of goods, and as per section 18 of the same act
you should file a declaration of the goods you are going to import or export. If you file a
declaration by mentioning the goods at a lower value at the time of import then you are
evading customs duty. Tax evasion" is not only immoral but also illegal activity. If you involve in
tax evasion then you have to face various punishments like penalties and prosecution.

In conclusion, tax planning is legal. And if you are involved in tax planning you are not
going to be punished. But on the other hand tax evasion is illegal and immoral. And you have
to face the consequences of your involvement in such activities.

Thank you,

Meet you with the new article very soon !!

Krishna P Bhusal

(Member of ICAI)

cakrishnabhusal@gmail.com
Source:- Value Added Tax Act, 2052/Income Tax Act, 2058/Excise Duty Act, 2058
and Customs Act, 2064

Value Added Tax Rules, 2053/Income Tax Rules, 2059/Excise Duty Rule,
2059 and Customs Rules, 2064

Value Added Tax Directives/Income Tax Directives/ Excise Duty Directives


and website of Inland Revenue Department and Department of
Customs.

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