Tax Evasion And Tax Avoidance

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1.0 Introduction and Purpose of the Research Over the years, the government has tried to combat tax avoidance and tax evasion schemes through various approaches such as improvements to existing legislations, strict enforcements and collaborations with international counterparts. This is done in effort of protecting the government’s main source of revenue and the integrity of the tax system. However, clear and distinctive boundaries between tax evasion, avoidance and planning were never established in the legislation, hence, it has caused many uncertainties. In Australia, the Court provides the judicial interpretation as to the application of the tax law. Aim of this research is to discuss how the court interprets the application the law…show more content…
2.0 Concepts and Impacts of Tax Evasion, Tax Avoidance and Tax Planning 2.1 Tax evasion, tax avoidance and tax planning Distinctions between tax evasion, tax avoidance and tax planning are sometimes difficult to be drawn in clear and precise manners. In general, however, tax evasion typically relates to illegal practices done intentionally to avoid tax payment, whereas tax avoidance refers to legal exploitations on the shortcomings of the tax legislations (Barkoczy 2015, p. 721; Leow, Murphy & Hooper 2010, p. 1026). Generally, tax evasion involves concealment of tax liabilities, such as failure to disclose all taxable income earned, and improper claims, such as deductions for expenses not incurred (Barkoczy 2015, p. 721; ATO 2015a). Due to its legal implications, tax evasion is considered as criminal offence and attracts pecuniary penalties and jail terms for the offenders (Barkoczy 2015, p. 722). Conversely, tax avoidance, although uncommendable, is not illegal. Tax avoidance typically involves taking advantage of concessional tax rates, shifting funds through several entities to minimize tax payable (ATO 2015b), and exploiting tax breaks (ACTU 2011). Some examples of tax evasion and avoidance practices can be seen from the following figure. Figure 1 Source: GIZ 2010, p. 19 Unlike tax avoidance which tends to bypass the “spirit of tax law” (Barkoczy 2015, p. 721), tax planning is a legitimate way of minimizing tax liabilities, if done in
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