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Escape-from-Taxation
BS accountancy
University of Cebu
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TAX 1Preview text
ESCAPE FROM TAXATION
- Shifting
- Capitalization
- Transformation
- Avoidance – or Tax Planning.
- Evasion
- Exemption
SHIFTING – the transfer of the burden of a tax by the original payer or the one whom the tax was assessed or imposed to another or someone else.
It should be borne in mind that what is transferred is not the payment of the tax but the burden of the tax.
Taxes that can be shifted Only indirect taxes may be shifted; direct taxes cannot be shifted.
Ways of shifting the tax burden
- Forward shifting When the burden of the tax is transferred from a factor of production through factors of distribution until it finally settles on the ultimate purchaser or consumer.
Example: Manufacturer or producer may shift tax assessed to wholesaler, who in turn shifts it to the retailer, who also shifts it to the final purchaser or consumer.
- Backward shifting When the burden of the tax is transferred from the consumer or purchaser through the factors of distribution to the factor of production.
Example: Consumer or purchaser may shift tax imposed on him to retailer by purchasing only after the price is reduced, and from the latter to the wholesaler, and finally to the manufacturer or producer. The burden is shifted backward to the one who is selling. From the point of sale, it is the seller who shoulders the burden. The tax in fact is shouldered by the seller, not anymore the buyer.
- Onward shifting Onward shifting is a series of shifts. The series of shifts will be either two or more forward shifting or two or more backward shifting or a combination of forward or backward shifting.
Thus, a transfer from the seller to the purchaser involves one shift; from the producer to the wholesaler, then to retailer, we have two shifts; and if the tax is transferred again to the purchaser by the retailer, we have three shifts in all.
CAPITALIZATION – reduction in the price of the taxed object equal to the capitalized value of future taxes which the purchaser expects to be called upon to pay; by not selling property which has increased in value, the owner avoids the income tax paid on the gain if the same is sold. An increase in the value of an asset is merely an unrealized increase (gain) in capital.
TRANSFORMATION – the manufacturer or producer upon whom the tax has been imposed, fearing the loss of his market if he should add the tax to the price, pays the tax and endeavors to recoup himself by improving his process of production thereby turning out his units of products at a lower cost.
AVOIDANCE – OR TAX PLANNING. It is the use by the taxpayer of legally permissible alternative tax rates or methods to avoid or reduce tax liability. The taxpayer uses tax saving device or means sanctioned or allowed by law. Politely called “ TAX MINIMIZATION ”
It is the lessening of tax liabilities through maximization of deductions, exclusions, and exemptions and minimization of income by legal means. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arm’s length. (CIR v. The Estate of Benigno P. Toda, G. No. 147188, September 14, 2004)
To avoid is legal but to evade is illegal.
EVASION – a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. (CIR v. The Estate of Benigno P. Toda, ibid)
It is also known as “TAX DODGING.” It is punishable by law.
Tax evasion connotes the integration of three factors: (1) the end to be achieved, i., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being “evil,” in “bad faith,” “willful,” or deliberate and not accidental;” and (3) a course of action or failure of action which is unlawful. (CIR v. The Estate of Benigno P. Toda, ibid)
Tax fraud is the use of deceit in order to evade taxes.
The willful neglect to file the required tax return or the fraudulent intent to evade taxes, considering that the same is accompanied by the legal consequences, cannot be presumed. The fraud contemplated by law is actual and constructive. It must be intentional fraud consisting of deception willfully and deliberately done or reported to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to
Escape-from-Taxation
Course: BS accountancy
University: University of Cebu
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