ABSTRACT:
Taxation plays a very important role in the development of Indian economy. Tax evasion and Tax avoidance occur when individuals fail to comply with Tax obligations. Tax avoidance is the legal way of escaping from paying tax by using the loop holes in the law. Taxing evasion is involving in illegal activities to avoid paying the tax. Both tax evasion and tax avoidance lead to the loss of revenue to the government. It affects the tax burden and it leads to the disproportionate tax liability on the honest tax payers and low economic families. The disruption of tax system will not encourage the voluntary compliance of tax and pay a way to inefficiency.
Though there are various policy measures to curb tax evasion and tax avoidance still it is more prevalent in India. Tax which is being collected from people is used for the welfare of the people in the country. If there is no proper tax collection it eventually affects the Indian economy and further affects the welfare of the people. This study deals with the causes, effects of these two and the legal measures taken by the government to prevent them. It also includes how Indian economy is being affected and my suggestions to overcome it.
KEY WORDS: Tax evasion, Tax avoidance, Indian economy, Loop holes, Tax burden.
INTRODUCTION:
A tax is a fee collected by the Government from individuals and business entities to provide public service. Tax is the Government’s main source of income. Tax evasion is the illegal way to avoid paying tax. Tax avoidance is the legal way to avoid paying tax using loopholes in the statute. Both of these are dangerous to our Indian Economy. The impact of it leads to the loss of sustainable amount of income that the Government is generating. This leads to budget deficits and increased rate of borrowing by the country from the World Bank. The Indian economy mainly depends on the tax revenue to execute social welfare policies and the infrastructural developments of the country. Tax majorly divides into two categories direct tax and indirect tax. A direct tax is levied directly to the individuals’ income/ wealth. An indirect tax levied directly to the individuals who consume goods/services.
AIM AND OBJECTIVE :
AIM:
The primary aim of the study is to analyse the impact of tax evasion and tax avoidance on the Indian economy and the legal measures available to curb them. The study seeks to explore the causes and the ways of tax evasion and tax avoidance occurs.
OBJECTIVE:
The objective of the study is to focus on the disparity created among tax payers, the voluntary compliance and public awareness. It overall covers the reasons and effect of tax evasion and tax avoidance and its preventive measures.
HYPOTHESIS:
H1 The effective implementation of existing laws and the new reforms in taxing system lowers the impact of tax evasion and tax avoidance in the Indian economy.
H2 Tax avoidance mechanisms benefit the high-income groups and thus shifts tax burden on the low-income groups.
LITERATURE REVIEW:
Gupta, P., & Sharma, A. (2017)-Estimating the Size of the Shadow Economy in India. Economic and Political Weekly- It discuss about how the India’s economy impacted by the tax evasion and unreported income.
Sandmo, A (2005) – The Theory of Tax Evasion: A Retrospective View. National Tax- This paper focuses on the theoretical framework of the tax evasion and it explains the poor enforcement mechanism.
International Monetary Fund (2018) – Illicit Financial Flows and Tax Havens: Impact on developing economies- This paper talks about the global tax evasion and tax haven. It emphasizes on the urgent need to make legal framework
Kumar, A (2018) – Tax Evasion in India: A Legal Perspective. Journal of Financial Crime-It focuses on the enforcement challenges in curbing tax evasion and tax avoidance. It also discusses the corruption and the importance of transparency in taxing system.
OECD (2021) Addressing Base Erosion and Profit Shifting (BEPS): Implications for India–It explains how Base Erosion and Profit Shifting used by the multinational companies to avoid tax liability.