Reviewing the views
Unacceptable tax avoidance
THE citizen of a state use the state resources for his livelihood and business and pay tax for it; in exchange of the tax the state provides them with secure place of livelihood and business and also provides them with an assurance of good governance, rule of law, protection of fundamental rights, communication, international relation etc and the citizen are being and doing business on the basis of this every assurance. This is a circular system; in absence of one the other can't be assured.
Every citizen is under an obligation to declare his assets correctly and pay tax for that but has ample opportunity to avoid his tax liability as per legal provisions.
Individual citizen can avoid individual tax by creating association, firm or any corporate body; he can take credit of his insurance, contribution to his provident fund, purchase of technical books, donations to any charitable organisation or to Zakat fund, day-to-day expenditure etc. For the corporate world they can avail the opportunity of tax holiday, double taxation treaties, tax rebate and exemption in different heads, the list is not exhausted.
The tax avoidance within legal ambit is not blameworthy rather it could be practiced as of right; which is blameworthy is an effort to shade the tax liability to an illegal extent, where it becomes illegal tax evasion.
Legal tax avoidances become illegal evasion only when the people illegally avoids taxes, fails to report, or reports inaccurately the statement of his assets. That means only the deliberate misstatement of assets could amount to be an attempt to evade tax.
In short the facts which are to be proved to bring an allegation for tax evasion are first: That the person owned substantial income in addition to that declared in his tax return; and Second: That the person knowingly and willfully attempted to evade or defeat such tax.
Law can deal with these phenomenon with satisfactory certainty; but what happens, where the phenomenon can't be defined as deliberate misstatement by the assessee rather a deliberate attempt to avoid tax with the help of legal tools and the end result of that attempt is unacceptable because of its impact on the tax structure. This grey area between tax avoidance and evasion can be defined as 'unacceptable tax avoidance'.
Unacceptable tax avoidance is a phenomenon which is legal but unacceptable and should be avoided for the state interest.
If an individual tax payer is possessing properties out of a country or someone is holding some of his property on his behalf, he can be charged under the existing anti-corruption and anti-money laundering measures; but what happens when an individual over/under-pricing property at the time of registration or documentation and thereby evade tax or whiten black/undisclosed money?
This area is simply complicated in corporate field. One can shade his tax liability by using the loophole of corporate structure system; this structure, among others, gives the corporate body an opportunity to run business in one venue and show sell in or shed the profit to other lower tax-rate venue. Some of the foreign investors are over-invoicing their intermediates, imported from related companies and under-pricing at exports just to record a loss and escape taxes. Manipulation of the company account and audit has already attained the label of common practice; they are manipulating their sell records, declaring the product at low price and so and so on. Under ordinary circumstances these are being considered as acceptable and getting its recognition as 'legal'.
Documentarily the phenomenon is legal but illegal in its spirit as the documents are not telling the truth of its content and thus should be considered as illegal; even though this can't be tagged as illegal.
This tool of 'documentary truth' helps the assesse to hide some of his asset which remains out side the revenue structure. The money is actually flowing in the state economy but the state is being deprived from getting the benefit of that money just because those are non-existent in the revenue structure, this money is called black/undisclosed money.
The unacceptable tax avoidance is the inventor of black/undisclosed money and pushes the state economy towards manipulated liquidity crises. If we need to get hold on black/undisclosed money we need to get hold on the unacceptable tax avoidance through getting hold no the individual entities of the tax structure the assesse, the mediators, the tax administrators and the auditors. Otherwise every effort to get hold on the actual revenue of the country will be proved to vain.
Barrister Nazmus Saliheen is Chairman ANM Associates.