|An aspect of fiscal policy|
Tax evasion is the term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion often entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts actually earned, or overstating deductions. Tax evasion is an activity commonly associated with the informal economy. One measure of the extent of tax evasion (the "tax gap") is the amount of unreported income, which is the difference between the amount of income that should be reported to the tax authorities and the actual amount reported.
In contrast, tax avoidance is the legal use of tax laws to reduce one's tax burden. Both tax evasion and avoidance can be viewed as forms of tax noncompliance, as they describe a range of activities that are unfavorable to a state's tax system, although such characterization of tax avoidance is suspect, given that avoidance is lawful, within self-creating systems.
Economics of tax evasion 
In 1968, Nobel laureate economist Gary Becker first theorized the economics of crime, on the basis of which authors M.G. Allingham and A. Sandmo produced, in 1972, an economic model of tax evasion. This model deals with the evasion of income tax, the main source of tax revenue in the developed countries. According to the authors, the level of evasion of income tax depends on the level of punishment provided by law.
The literature's theoretical models are elegant in their effort to identify the variables likely to affect non-compliant behaviors. Alternative specifications, however, yield conflicting results concerning both the signs and magnitudes of variables believed to affect tax evasion. Empirical work is required to resolve the theoretical ambiguities. Income tax evasion appears to be positively influenced by the tax rate, the unemployment rate, the level of income and dissatisfaction with government. The U.S. Tax Reform Act of 1986 appears to have reduced tax evasion in the United States.
Evasion of customs duty 
Customs duties are an important source of revenue in the developing countries. The importers purport to evade customs duty by (a) under-invoicing and (b) misdeclaration of quantity and product-description. When there is ad valorem import duty, the tax base is reduced through underinvoicing. Misdeclaration of quantity is more relevant for products with specific duty. Production description is changed match a H. S. Code commensurate with a lower rate of duty.
|This section requires expansion. (June 2008)|
Smuggling is importation or exportation of foreign products by unauthorized means. Smuggling is resorted to for total evasion of customs duties, as well as for the importation of contraband items. A smuggler does not have to pay any customs duty since the products are not routed through an authorized customs port, and therefore are not subjected to declaration and payment of duties and taxes.
Evasion of value added tax (VAT) and sales taxes 
During the second half of the 20th century, value added tax (VAT) emerged as a modern form of consumption tax through the world, with the notable exception of the United States. Producers who collect VAT from consumers may evade tax by under-reporting the amount of sales. The US has no broad-based consumption tax at the federal level, and no state currently collects VAT; the overwhelming majority of states instead collect sales taxes. Canada uses both a VAT at the federal level (the Goods and Services Tax) and sales taxes at the provincial level; some provinces have a single tax combining both forms.
In addition, most jurisdictions which levy a VAT or sales tax also legally require their residents to report and pay the tax on items purchased in another jurisdiction. This means that consumers who purchase something in a lower-taxed or untaxed jurisdiction with the intention of avoiding VAT or sales tax in their home jurisdiction are breaking the law in most cases. This is especially prevalent in federal countries like Nigeria, US and Canada where sub-national jurisdictions charge varying rates of VAT or sales tax. In Nigeria, for example, some federal states enforce VAT on each item of goods sold by traders. The price must be clearly stated and the VAT shown separately from the basic price. If the trader does not comply (e.g. by including the VAT in the price of the goods) this is punishable as attempting to siphon the VAT.
It is not usually practicable to enforce tax collection on goods carried in private vehicles from one district to another with a different tax rate, and states often only seek to collect the tax on high-value items such as cars.
Government response 
The level of evasion depends on a number of factors, including fiscal equation[clarification needed]. Efforts to evade income tax decline when the amounts involved are lower. The level of evasion also depends on the efficiency of the tax administration. Corruption by tax officials make it difficult to control evasion. Tax administrations use various means to reduce evasion and increase the level of enforcement: for example, privatization of tax enforcement, tax farming, and Pre-Shipment Inspection (PSI) agencies. In 2011, HMRC stated that it would continue to crack down on tax evasion, with the goal of collecting £18 billion in revenue before 2015. In 2010, HMRC began a voluntary amnesty programme that targeted middle-class professionals and raised £500 million.
Corruption by tax officials 
Corrupt tax officials co-operate with the taxpayers who intend to evade taxes. When they detect an instance of evasion, they refrain from reporting it in return for bribes. Corruption by tax officials is a serious problem for the tax administration in many less developed countries.
Level of evasion and punishment 
Tax evasion is a crime in almost all developed countries, and the guilty party is liable to fines and/or imprisonment. In Switzerland, many acts that would amount to criminal tax evasion in other countries are treated as civil matters. Dishonestly misreporting income in a tax return is not necessarily considered a crime. Such matters are handled in the Swiss tax courts, not the criminal courts.
In Switzerland, however, some tax misconduct is criminal, for example, deliberate falsification of records. Moreover, civil tax transgressions may give rise to penalties. It is often considered that the extent of evasion depends on the severity of punishment for evasion.
Privatization of tax enforcement 
Professor Christopher Hood first suggested privatization of tax enforcement to control tax evasion more efficiently than a government department would., and some governments have adopted this approach. In Bangladesh, customs administration was partly privatized in 1991.
Abuse by private tax collectors (see tax farming below) has on occasion led to revolutionary overthrow of governments which have outsourced tax administration.
Tax farming 
Tax farming is an historical means of collection of revenue. Governments received a lump sum in advance from a private entity, which then collects and retains the revenue, and bears the risk of evasion by the taxpayers. It has been suggested that tax farming may reduce tax evasion in less developed countries.
This system may be liable to abuse by the "tax-farmers" seeking to make a profit, without being subject to political constraints. Abuses by tax farmers (together with a tax system that exempted the aristocracy) were a primary reason for the French Revolution that toppled Louis XVI.
PSI agencies 
Pre-shipment Agencies like SGS, Cotecna etc. are employed to prevent evasion of customs duty through under-invoicing and misdeclaration. However, in the recent times, allegations have been lodged that PSI agencies have actively cooperated with the importers in evading customs duties. Authority in Bangladesh has found Cotecna, a PSI agency of Swiss origin, guilty of complicity with the importers for evasion of customs duties on a huge scale. The same company Cotecna was implicated for bribing Pakistan's prime minister Benazir Bhutto for securing contract for importation by Pakistani importers. She and her husband were sentenced both in Pakistan and Switzerland.
United States 
|Total revenue lost:||$3.09 trillion|
In the United States, tax evasion is the purposeful, illegal attempt to evade the assessment or the payment of a tax imposed by federal law. Conviction of tax evasion may result in fines and imprisonment.
The Internal Revenue Service (IRS) has identified small businesses and sole proprietors as the largest contributors to the tax gap between what Americans owe in federal taxes and what the federal government receives. Small businesses and sole proprietorships contribute to the tax gap because there are few ways for the government to know about skimming or non-reporting of income without mounting significant investigations.
The typical tax evader in the United States is a male under the age of 50 in the highest tax bracket and with a complicated tax return. The most common means of tax evasion is overstatement of charitable contributions, particularly church donations.
Estimates of lost government revenue 
In the United States, the IRS estimate of the 2001 tax gap was $345 billion. For 2006, the tax gap was estimated to be $450 billion. A more recent study estimates the 2008 tax gap in the range of $450–$500 billion, and unreported income to be approximately $2 trillion. Therefore, 18-19 percent of total reportable income is not properly reported to the IRS.
See also 
- Tax amnesty
- Tax avoidance
- Tax noncompliance
- Tax information exchange agreements
- Taxation as theft
- tax resistance
- History of tax resistance
- Michael Wenzel (2002). The Impact of Outcome Orientation and Justice Concerns on Tax Compliance. Journal of Applied Psychology. pp. 4–5. "When taxpayers try to find loopholes with the intention to pay less tax, even if technically legal, their actions may be against the spirit of the law and in this sense considered noncompliant."
- Shafik Hebous (2011)"Money at the Docks of Tax Havens: A Guide", CESifo Working Paper Series No. 3587, p. 9
- Gary Becker (1968). "Crime and Punishment: An Economic Approach". The Journal of Political Economy 76: pp. 169–217.
- Allingham, M. G. and A. Sandmo  ‘Income Tax evasion: A Theoretical Analysis’, Journal of Public Economics, Vol.1, 1972, p.323-38.
- Richard Cebula and Edgar L. Feige, "America’s Underground Economy: Measuring the Size, Growth and Determinants of Income Tax Evasion in the U.S" http://ideas.repec.org/p/pra/mprapa/29672.html
- Chowdhury, F. L. Evasion of Customs Duty in Bangladesh, 2006: Desh Prokashon Dhaka.
- Spiro, Peter S. (2005), "Tax Policy and the Underground Economy," in Christopher Bajada and Friedrich Schneider, eds., Size, Causes and Consequences of the Underground Economy (Ashgate Publishing).
- Tomášková, Eva (2008): "Tax Evasion in the Czech Republic" In: A Brief Introduction to Czech Law. Rincon: The American Institute for Central European Legal Studies (AICELS), 2008. p. 111 - 121, ISBN 978-0-692-00045-8
- Chowdhury, F. L. (1992) Evasion of Customs Duty in Bangladesh, unpublished MBA dissertation, Graduate School of Management, Monash University, Australia.
- Stella, P.  Tax Farming - A radical Solution for Developing Country Tax Problem, IMF Working Paper No. 92/70
- Alam. D (1999) Introduction of PSI system in Bangladesh: Facts and Documents, Desh Prokashon, Dhaka.
- "Watch out, the taxman's about: HMRC ordered to bring in £18bn in government crackdown". Mail Online. dailymail.co.uk. March 17, 2011. Retrieved August 12, 2011.
- Russell, Jonathan (June 10, 2011). "HMRC opens 16 criminal cases over tax evasion". The Telegraph. telegraph.co.uk. Retrieved August 12, 2011.
- Hood, C. (1986) Privatizing UK tax Law Enforcement?, Public Administration, Vol. 64, Autumn, 1986, p. 319-33.
- Chowdhury, F. L.  Evasion of Customs Duty in Bangladesh, unpublished MBA dissertation, Graduate School of Management, Monash University, Australia.
- Stella, P. (1992) Tax Farming - A radical Solution for Developing Country Tax Problem, IMF Working Paper No. 92/70.
- NBR show Age
- New York Times, 06 August 2003
- 26 U.S.C. § 7201.
- Patricia Sabatini, Pittsburgh Post-Gazette, "Tax Cheats Cost U.S. hundreds of billions," http://www.post-gazette.com/pg/07084/772106-28.stm
- "IRS Updates Tax Gap Estimates". Irs.gov. Retrieved 2011-12-10.
- "Tax Gap for Tax Year 2006 Overview Jan. 6, 2012". U.S. Internal Revenue Service. Retrieved 2012-06-14.
- Richard Cebula and Edgar Feige "America’s Underground Economy: Measuring the Size, Growth and Determinants of Income Tax Evasion in the U.S" http://ideas.repec.org/p/pra/mprapa/29672.html
- Tax Evasion and Fraud collected news and commentary at The Economist
- Tax Evasion collected news and commentary at The New York Times
- Tax Evasion collected news and commentary at The Wall Street Journal
- United States
- US Justice Dept press release on Jeffrey Chernick, UBS tax evader
- US Justice Tax Division and its enforcement efforts