You have to face consequences for involvement in “Tax Evasion”

             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.

Comments

Post a Comment

Popular posts from this blog

You shouldn’t ask for a discount

Image
                 We are human beings and need freshness and enjoyment. Sometimes we need freshness after a long period of mind-blocking and body-jamming hard work; sometimes we want freshness by spending quality time with someone close to us. That person may be your friend, spouse, brother, etc. Let me tell you an interesting or I should say knowledge-sharing story shared by one of my friends Amitabh Adhikari. It was 2020 and Amitabh was living in Chitwan with his wife and two-year-old son. He was just in Nepal after spending almost 22 years of his life in India. As I said he was new in Nepal and desperately searching job. Those days were really painful for him. He didn’t know anything about laws and regulations and culture etc. of here as the almost entire first part of his life was in India. wherever he was facing an interview he was getting a rejection. He was really in pain with the responsibility of his family. After spending almost 3-4 months unemployed, he could at least make so
Read more

It’s your duty to collect and deposit VAT on the importation of services

Image
                We in Nepal import goods or services from different parts of the world.  Import can be goods or services. Import or export of goods is taken care of by the department of Customs, but the import of services that are not declared in the customs office is out of the preview of the department of customs.            Services can be of two types one is the service that can be declared in the customs office and the other is not declared in the customs office. On services declared in the customs office, the customs officer collects the tax. On the other hand, services not declared in the customs office come under the preview of the reverse charge mechanism.               In VAT, the duty of assessing and collecting tax is normally on the supplier of goods or services.  Opposite of that reverse charge mechanism is a system of collection of tax in which the receiver of the goods or services is liable to assess and collect tax from himself and deposit it with the taxation auth
Read more

Huge amount of trouble, little amount of “Tax Evasion”

               We in daily life hear some words like “Tax planning” and “Tax evasion”. But due to the lack of awareness or I should say knowledge of tax provisions of the country involve in tax evasion activities and think that we are planning our tax liability. But you must be aware that these two words have a huge difference. In simple words, if I define tax planning I would say tax planning means reducing tax liability by taking advantage of the benefits provided by the various provision of the tax act, in this we comply with the requirement of the provisions of the tax act. For example, as per section 1(12) of schedule 1 of the Income Tax Act, 2058 if we take a life insurance policy and pay a premium then we are allowed to deduct up to Rs. 40,000/- to arrive at taxable income. On the other hand, if we try to reduce tax liabilities by claiming those benefits which are not available in the tax act itself then it is tax evasion. For example, the provision of section 1(12) of Schedule
Read more