Tax Avoidance Vs Tax Evasion

'The difference between tax avoidance and tax evasion is the thickness of a prison wall.' - Denis Healey

Tax Avoidance

Tax avoidance is the legal usage of the tax structure in a country to one's own advantage. It involves a situation where the taxpayer organizes his financials in a form that would make him pay the least possible amount of tax. It is basically to reduce the amount of tax that is payable through means that are within the law. While tax avoidance is legal, many businesses that take part in the practice often experience backlashes if it doesn't work out as planned. Tax avoidance can be achieved only through "Tax Planning".

 

Examples of Tax Avoidance

- Timing of fixed asset acquisition or disposal (Purchase or dispose your asset at the right period to enjoy full capital allowance)

- Hiring of asset instead of purchasing. Hire Purchase fee is tax deductible

- Identifying and complying with critical dates (VAT, WHT filing deadline) to avoid payment of penalty.

 

Tax Evasion

Tax evasion, on the other hand, is the general term for efforts by individuals or business entities to evade taxes completely. It is the act whereby a taxpayer aims to minimise tax through illegal means. Tax evasion is considered as a fraudulent and deceitful act and is punishable under the law.

 

Examples of Tax Evasion

- Overstating your expenses

- Understating your income etc.

 

Source: Richard Okunola

Alot of people do nit know the diffrence between.both. Thank you for sharing this!