Saturday, October 03, 2015

Tax evasion and tax avoidance

What is the difference between tax evasion and tax avoidance?

Here is the simple answer. Tax evasion is illegal and the taxpayer could be sent to jail or pay to pay a big penalty. Tax avoidance is legal.

Here is a fuller answer.

1) In both cases, the government does not receive any tax on the specific earnings of the tax-payer.

2) Tax avoidance is ethically wrong, as the tax payer is not paying tax on earnings that have been avoided.

3) The tax payer, who is usually a super rich person, can avoid the tax by paying large fees to accountants and lawyers to look for loopholes in the tax code and device schemes to avoid the tax. The loss of tax revenue to the government  is the gain of the accountants, lawyers and the tax payer.

4) The super rich person could include a wealthy, corrupt politician, who has a vested interest in creating tax loop holes that he can use. 

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