Escape From Taxation

ESCAPE FROM TAXATION
The doctrine of escape from taxation permits the taxpayer to minimize or even avoid the impact of taxation
Forms of Escape from Taxation
A. Those that result to loss of government revenue

i. Tax Evasion- also known as tax dodging
- refer to any act or trick that tends to illegally reduce or avoid the payment of tax
Under this method, the taxpayer uses illegal or unlawful means to defeat, evade or
lessen the payment of tax. It presuppose malice, fraud, bad faith or willful intent on the
part of the taxpayer
Examples:
A. Non-inclusion of sales
B. Deliberate fabrication of expense
C. Forming of artificial person to evade taxation or to deliberately reduce
taxable income
D. Malicious failure to report income to defeat tax liability
-Tax evasion can be deemed as a form of tax fraud that indicates illegitimate and deliberate
actions for not paying tax. Since employing such unfair means is fraudulent, any taxpayer
regardless of individual or business committing tax evasion behaviors would be prosecuted
for offense and must be subject to stringent punishments of a heavy fine or imprisonment.
ii. Tax Avoidance - also known minimization

- refers to any act or trick that reduces or totally excape taxes by any legally
permissible means
Example:
A. Selling share of stock through a stock exchange in order to avail of the
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lower tax rate
B. Estate planning within the means sanctioned by the Tax code
C. Using tax deductions for decreasing business expenses and business tax
bill
D. delaying the payment of tax until a later date with an appropriate tax
deferral plan
-Employing practices of tax avoidance if inappropriate in some cases may lead the taxpayer
to step beyond the line to tax evasion, hence a violation of the jurisdiction regulations.
-it is advisable that both individuals and corporations should gain a good hold of relevant
knowledge before using any tax strategies for minimizing taxes. Also recommended for
companies is that they had better engage financial experts for legal advice on how tax
avoidance can be utilized most efficiently.
iii. Tax Exemption- also known as tax holiday

- refers to immunity, privilege or freedom from being subject to tax which others are
subject to
B.Those that do not result to loss of government revenue

1. Shifting- transferring tax burden to other payer
A. Forward Shifting- this is shifting which follows the normal flow of distribution.
Example: the burden of tax is transferred from the manufacturer, then to the distributor
and finally to the ultimate consumer of the product
B. Backward Shifting- this is reverse of forward shifting.
C. Onward Shifting- this refers to any tax shifting in the distribution channel that exhibits forward
shifting or backward shifting
2. Capitalization- this refers to the reduction in the price of the taxed object equal to the capitalized value of
the future taxes which the purchaser expects to be called upon to pay.
Example: a reduction made by the seller on the price of the Real Estate, in anticipation of the
capital gains tax agreed to be shouldered by the buyer
3. Transformation- the producer absorbs the payment of tax to reduce prices and to maintain market share.
He recovers his additional tax expense by improving the process production. The tax ,therefore is
transformed into a gain through the medium of production.
TAX PLANNING
Tax planning, like tax avoidance, is totally legal.
Tax planning is the process of elaborating the company’s financial-related matters to maximize the tax benefits
under eligible provisions of the tax framework. The planning assists taxpayers to lessen their tax liability through a
variety of means, namely deductions, credits, rebates, and exemptions provided under the Income Tax Act or the
corresponding tax laws.
Examples:
A. incentives from tax planning by saving via retirement plans.
B. investments in fixed deposits, mutual funds, provident funds, or other similar accounts for the reduction of
tax liability.
A key feature of tax planning is its relation to the future. An efficient tax planner of the
company with good tax planning in hand may facilitate tax minimization in either the
short term or long term. To bring the best possible outcome for the tax perspective,
one’s tax planning should bring below some essential elements into considerations:
1. Choice of business entity
2. Timing of income
3. Size of business
4. Planning for expenditures and purchases
5. The owner’s residency status
6. Capital structure
There are many strategies for good tax planning of your company, the key of which
many startups and entrepreneurs have opted for incorporating an offshore company
thanks to its great benefits of tax efficiency.
Difference between tax evasion, tax avoidance, and tax planning
TAX EVASION TAX AVOIDANCE TAX PLANNING

Purpose Avoid or reduce tax Avoid or reduce tax Ensure tax efficiency
Legality Illegal Legal Legal
Nature Employ illegitimate means Avail loopholes in law Use law to reduce tax
liability
Exercise Done after the tax liability Done before the tax Done before the tax
liability liability
Impact Penalty or imprisonment Penalty or imprisonment if
violates tax rules

Escape From Taxation

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ESCAPE FROM TAXATION

Forms of Escape from Taxation

A. Those that result to loss of government revenue

ii. Tax Avoidance - also known minimization

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iii. Tax Exemption- also known as tax holiday

B.Those that do not result to loss of government revenue

B. Backward Shifting- this is reverse of forward shifting.

Tax planning, like tax avoidance, is totally legal.

Difference between tax evasion, tax avoidance, and tax planning

TAX EVASION TAX AVOIDANCE TAX PLANNING

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