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Introduction
Taxation is one of the powerful methods used by the government to take the money and other assets from citizens in order to operate the government and promote the well-being of its citizens. A taxation is a tool for controlling consumer purchasing power in relation to products and services by providing incentives for production, investment, and savings. Taxation can be used for resource allocation, income redistribution, and economic stabilization, in contrast to bridging the gap between savings and investments. These different taxing functions need that they are aligned with development strategies and changing economic structures, rather than being viewed only as a means of generating more money quickly or meeting urgent revenue needs. Every tax has a basis that is well defined. The tax authorities must explicitly define what will be taxed, as well as what will be included and excluded from the tax base when establishing the tax base. Furthermore, some components of the tax base may need to be allowed as deductions, and some taxes may need to be exempted. The tax rates must be provided once the tax base has been determined. Our government is committed to a socialist society. It is the government's primary responsibility to implement welfare and development initiatives that will close the gap between the affluent and the poor. The Central Board of Direct Taxes (CBDT), which is under the jurisdiction of the Finance Ministry of the Government of India, has direct control and oversight over the Income-tax Department.
The objective of the paper
The subject of tax evasion continues to be a concern for governments in every
country in the world. India is one of the countries that is affected by this issue
(tax evasion). Tax evasion is an unlawful activity in which a person,
organization, or business knowingly fails to pay their real tax due.
The main objectives of this paper are:-
● To study the impact and causes of tax evasion in India.
● To study the magnitude of tax evasion.
2.2. Causes of tax evasion
Reasons for tax evasion are common factors among all countries, both developed and developing countries. The reasons for tax evasion in developed nations differ from the reasons for tax evasion in poor countries, because tax awareness in developed countries is higher than in developing countries, and fiscal restrictions in rich countries have progressed. One of the consequences of tax evasion is a loss in government income, which tarnishes the tax system. Tax evasion results in lower government income, which leads to a greater deficit, requiring the government to borrow or print more money, which leads to inflation. The problem of tax evasion and reasons can be categorized into economic reasons, administrative, legislative causes and even social reasons and others 1- Level of tax rates:- The most important cause for tax evasion is the number of tax rates. High tax rates make tax evasion more appealing; every rise in tax rate is more likely to result in a decrease in tax revenue rather than an increase, therefore tax rates are the primary cause of tax evasion in all nations. However, decreasing the tax rate may not be sufficient to address the issue of tax evasion. 2- Social psychology for taxpayers:- The reasons why people dodge taxes may also be seen through the lens of social psychology. Social psychological factors such as stigma, reputation, and social standards, according to psychologists, have a significant influence on a taxpayer's decision to comply or not comply. Psychological reasons for tax evasion include a taxpayer's desire to keep his money rather than give it to the government, a person's dissatisfaction with government services, and a feeling that tax justice is not being applied fairly in society. The psychological burden of the tax also plays a role in the taxpayer's decision. 3- The complexity of the tax system:- For a range of factors, the complexity of the tax system and the level of taxpayer compliance are critical issues for taxpayers, governments, and policymakers. The economic and social context in which taxpayers operate, the formulation, implementation, and administration of tax policy, and a lack of understanding among community members are all variables that impact tax system complexity.
4- Misuse or mismanagement of revenue from taxes:- The news media frequently publishes stories about how government officials misspend taxpayer funds. Evidence of public funds being wasted abounds, whether in the shape of inflated contract pricing, uncompleted yet paid contracts, or criminal activities involving a variety of tactics. The cumulative consequence is that many honest taxpayers have resolved never to pay their taxes again. 5- Inequitable distribution of amenities:-When the government has been unjust in the allocation of facilities, citizens are reluctant to paying any type of tax or rate. Non-equality in the allocation of welfare benefits at the state level results in an unhappy taxpayer. 6- Nature of the economy:- Tax evasion is more common in developing nations than in industrialized countries, owing to their reliance on agriculture. Developing nations are linked with the distinctive characteristics of their economies, which are, in most cases, agricultural-based in the sense that agriculture provides a significant portion of the nation's GDP and employs the bulk of the workforce. 7- Complexity of Tax Laws:- The amount of tax evasion in the tax system grows in proportion to the complexity of tax rules and processes. In a highly corrupt environment, tax evasion is more likely. Due to a lack of necessary knowledge, taxpayers are ignorant of their rights and are more vulnerable to arbitrary treatment and abuse. 8- Unwillingness of Taxpayers to Pay Taxes:- The severe unwillingness of taxpayers to comply with the law in some developing nations, such as India, and hence their propensity to bribe tax collectors in order to lower their tax burden. If there is a clear benefit, many people are prepared to help tax collectors. This is a typical occurrence in many low- and middle-income nations. 9- Corruption in Tax Administration:- Tax evasion is considered a kind of corruption in and of itself. According to empirical research based on fieldwork performed in 1994–95, tax cheating in India is facilitated in part by collaboration between taxpayers and tax authorities. Corruption appears to be a government and government official problem, but tax evasion appears to be a private citizen one. With a bribe added to the official price, the government official is not selling a publicly provided private commodity. Instead, he is taking a private individual's tax money with that individual's knowledge. Tax evasion can be regarded a
can have substantial consequences and reduce tax evasion, the government imposes severe tax evasion sentences and penalties on offenders, including jail periods and large fines. However, if the tax penalty is insufficient, there will be no rigorous tax evasion, and the government would lose a lot of money, as in the case of underdeveloped nations. 14- Economic situation of the country:- High economic growth, recovery, prosperity, high quality of living, and greater investment result in a rise in individual and corporate income, as well as an increase in the transfer tax burden on the one hand. The burden of taxation will not be felt by the taxpayer in this case. When there is a recession or an economic downturn, the taxpayer will resort to tax avoidance. 15- Political corruption:- Tax evasion and political corruption are inextricably linked and reinforce each other. The one leads to the other. Tax evaders require protection from the rigor of the law. The majority of them likewise want a share of the government's wealth and patronage.^4 16-Economic conditions for the taxpayer:-If a taxpayer is unable to meet their fundamental necessities for survival due to a lack of income, the taxpayer may turn to tax evasion since tax deductions indicate a lack of financial ability to meet the taxpayer's vital needs. However, if the taxpayer's economic resources are sufficient, the withholding tax will not detract from his ability to meet his fundamental necessities, and the taxpayer will not turn, to tax evasion. 17- Overstatement and abuse of concessions- exemptions, deductions and allowances:- Individuals' total income is subject to various exemptions, deductions, and allowances under all tax codes. The income tax specifies such exemptions. For example, in India, income tax is levied in accordance with the Income Tax Act of 1961 for the fiscal year 2009-2010. There are around 43 tax exemptions, as well as several allowances such as children's education allowance, transportation allowance, and some deductions such as amusement allowance. When a taxpayer overstates his or her necessities in terms of exemptions, deductions, and allowances, the taxpayer is attempting to avoid paying taxes. Agriculture revenue is completely tax-free, regardless of the amount earned on the farm. In order to avoid paying taxes, some taxpayers combine agricultural and nonagricultural income. (^4) Black Income In India by Suraj B. Gupta 1992
18- Moral reasons for tax evasion:- This is the taxpayer's knowledge of tax and financial ethics; the taxpayer believes that the government takes more from him than it gives. The taxpayer's perception is that the government misappropriates tax funds, as well as the taxpayer's anger at a high tax burden, increased tax rates, or numerous taxes on the same income. Because the taxpayer perceives the tax system to be unfair, he resorts to tax evasion. 19- Inaccuracy of the number of taxpayers:- The tax administration must count the people who are subject to the tax and record their names in certain records. In this regard, they must count taxpayers in order to apply the concept of tax justice to all, and everyone must pay taxes in order to contribute to the growth of their nation. Tax evasion will be massive in the absence of enumerated taxpayers, and the government would lose vital financial resources. 20 - Double taxation:- When a taxpayer is taxed twice for the same asset or income, it is known as double taxation. Double taxation can be internal or external. As a result of the hefty tax burden, the taxpayer resorts to tax evasion. 21- Taxpayer Education:- Tax education is critical for raising tax awareness and cultivating a healthy tax culture. Taxpayer education also aids in reducing the tension that exists between the government and tax authorities on the one hand, and taxpayers on the other. This tension only leads to one thing: poor compliance levels, which are generally the consequence of tax evasion. When a taxpayer has a high level of education, he is fully aware of his responsibilities to his society and the spirit of civic duty. As a result, he pays his taxes on time, which reduces tax avoidance, and vice versa.
