Report on Tax Evasion and How It Will Effect Tax in GCC (Gulf Cooperation Council) Countries

Tax evasion is a kind of fraud that is happening by hiding its original income for nonpayment or underpayment of taxes by showing falsifying a return or wrong supporting documents or is income but didn’t report on a legal way. Tax evasion is considered an illegal act, and that individual that bears this act have to face some punishment in the form of fine, imprisonment or both according to tax law. Illegal means are going to use in tax evasion to avoid the payment of taxes. Many individuals or corporation use tax evasion scheme to hide or misrepresent their income from the tax sector and try to save their tax payment through illegal ways. Many ways are considered in the misrepresentation like interest in offshore accounts, hiding money, inflating deductions and underreporting income from the government. Many individuals are involved with enterprises in the tax evasion because they can get admission of guilt and also bear criminal charges if their true personal; income going to present in front of others.

Tax Evasion in GCC (Gulf Cooperation Council)

Governments of six GCC (Gulf Cooperation Council) states, in order to balance their budget, highly rely on oil but this is not a very long term model due to unstable oil prices. Therefore, the GCC countries have realized the importance of taxes and started pursuing their people to pay taxes they owe and file their returns. Money laundering charges can be faced by that individual whose earning come from the legitimate source as try to report about them. Tax evasion in various GCC states such as Saudi Arabia, Bahrain, and UAE etc. is considered a major illegal activity that may cause the imprisonment or money penalties or both according to condition and crime of the individual. Internal revenue code explains in section 7201 is that with the extra penalties that provided by the law, in the manner of attempts willfully by a person to defeat or evade the tax that is imposed on his payment or title then he will conviction and feel guilty of a felony and must be bear a fine of $100000 and the imprisonment of almost 5 years with the cost of prosecution collectively. The crime proof must explain that unpaid liability must exist for the attendant circumstances. By the defendant to evade or attempt to evade tax, the prosecution must need some affirmative act. To pay a well-known duty, it must be shown to the prosecutor that the specific intent possessed by the defendant. Beyond a reasonable doubt, of all of these elements, the jury considers that the defendant feels guilty (Cornell, 2019). Saudi Arabia and UAE have been first to implement VAT among other GCC states.

However, still, there are some GCC countries that have not implemented VAT yet such as Kuwait; Kuwait has announced not to implement VAT before 2021. In addition, the Ministry of Finance of Qatar announced that VAT will not be introduced in 2019. Oman also did not impose VAT yet but the state has announced to implement it from September 2019.

Effect on the Tax of GCC (Gulf Cooperation Council) countries

The GCC countries have largely depended on the energy sector, and they generate revenue in large amount from these sectors. In these countries, VAT is the most common method of consumption of taxes in the world. At the expense of exercise tax, the growth is going to at large level. With other indirect taxes, the value added tax is the best tool to collect revenue. A small administrative cost can be spent on its to operate it properly and manageable way. In the GCC, the existing tax rates are low and narrow bases to ensure the sustainability of the financial flow to the budget with the revenue generated insufficient. In the GCC no personal tax going to impose but only corporate tax is applied on their businesses. So the VAT is going to use to generate more revenue and also running the tax system more sufficiently.

The effect of Tax evasion is also very much on the GCC as they can prevent the payment of tax through their settlement, and they only pay corporate taxes according to law. So the effect of tax evasion is very much impact on the revenue of the GCC countries, and they can generate high revenue from their businesses. A sufficing rate of value added tax must be established for the GCC countries to receive the amount of tax and make stronger the tax system in such courtiers. So tax evasion also implements on their revenues and also present their income in most reasonable ways, but the value added tax can bring some changes and play a vital role in paying the taxes and make the tax system strong and beneficial for others (Abdulla, 2014).

Considerations of Tax Evasion in GCC (Gulf Cooperation Council) Countries

There are some considerations in the GCC states that are included in the tax evaded is the person doing to following actions:  claim personal expenditure as business expenses, used a wrong social security number, underreported earning, failed to report income, failed to pay tax, altered legitimate documents, created fake documents, claimed false exemptions or deduction on the tax return and accept kickbacks. These are all are considered as illegal acts because through these acts the actual payment of tax is going to stop and the individual or taxpayer are not giving proper tax that he has to pay on his actual income. And taxpayer adopts the scheme of tax evasion to save tax and not presenting its real income because when the real income is going to present then, he has to answerable for its all source of income and then he has to pay a huge amount of tax that is a loss for his income. So individual with proper planning hide its original income and save the amount of tax (Fresh Books, 2019).

Difference Between Tax Avoidance and Tax Evasion

No individual wants to pay taxes, but taxes are law, so this is a legal obligation of every individual to pay tax according to its share. Tax avoidance and tax evasion are the two terms that are normally utilized in the tax department. Tax avoidance is a legal action to some extent, but the tax evasion is illegal through its act. Tax avoidance means a legal act that performs for minimizing the tax rate by utilizing multiple techniques that specify in the tax code for the convince of the individuals or taxpayers. Different businesses are using acceptable by law means and under the internal revenue code or state tax codes by taking all legitimate from taxes the sheltering income or deductions by making different insurance and retirement plans for employees and also make different benefit programs for its employees that give a tax advantage to the business. Tax shield word is normally used in the tax that is different strategies of tax avoidance and provides a protective shield against higher taxes.

For example, tax credit for legitimate purposes for the spending money as work opportunity tax credit that spend business on hiring of the workers, tax deferral plan that are propeller settlement for the payment of taxes until a later date of paying tax and tax deduction that is taking legitimate to minimize the expenses of the business and also minimize true tax expense of the business through advantages. Tax loop is also used as tax avoidance that shows a loophole in which a person technically avoids the restriction or purpose of law without violating the law directly. Many tax experts used these type of loopholes to save the tax of their clients and taking advantage of the part of the law.

On the other hand, if we consider the tax evasion then it is known as not legal action for not submitting the tax through different means like not paying the taxes, reporting expenses not legally acceptable and not reporting the income. In this type of scenario, no excuse for the ignorance of law comes in mind for the taxpayers. By industries or state taxes and on employment taxes, the tax evasion is commonly used in the relation of income tax, and it is normally practiced. Failing to pay turn over taxes you have collected from others to the proper federal or state agency is one of the most common strategies of tax evasion. Trust fund taxes also come in this category because appropriate state or federal agency provided the turnover to the business with expectations. State taxing authorities and other federal, state and local taxes can mean high fines and penalties for failing to pay employment taxes to the IRS and sales tax. Soon all type of taxes that a business owes can be practice the tax evasion.

If you knowing to fail to report about income or not file the income tax return then the tax evasion can be applicable and few examples of the tax evasion are; hiding or transferring assets or income,  claiming false deductions,  claiming personal expenses as businesses expenses, in books and records making false entries , keeping two set of books, the amount of deduction overstated, omitting income or deliberately underreporting, failing to file these returns or filing false payroll tax report,  understating your taxes substantially, deliberately underpaying taxes owed, abut business income or expenses providing false information to the IRS, not reporting an income source and underreporting income. Sometimes the individual mistakenly conducts this offence that is negligence and avoid by the tax, but the intentional act for hiding the income comes in the category of fraud. Underpayment or nonpayment consider in case of mistake and almost 20 per cent of the penalty imposed in case of underpayment.

Recommendations to Avoid Tax Evasion

Tax evasion is considered an illegal act, and when it shows that this act is done willfully, then penalties and fines must be implemented by the IRS for tax strategies that consider illegal; and also no practice happen for such act before. Here are some recommendations that how tax evasions could be avoided:

·         The complete knowledge of tax law is the best way to avoid being charged with tax evasion for employment tax and income tax.

·         One example is that for avoiding the audit, knowing the deduction of legal and also recordkeeping requirements are a major factor. And the payment requirement and payroll tax reporting are also very helpful in this regard.

·         In this regard, the best professional tax consultant must be appointed in the business that keeps an excellent record for the income and expenses and prepares the tax carefully, and the article must be read that belong to tax evasion constitutions.

·         Some cases of tax evasion are reviewed in the court, but some are considered in the criminal division of the IRS for the prosecution to a state or local tax authority.

·         Crime belongs to all frauds for tax, and willful and intentional fraud consider in the tax evasion. Against these convicted for tax evasion, the IRS can bring criminal charges and also penalties applied to the business with proper fines (Murray, 2019).

Conclusion on tax evasion

At the end of the discussion, we can say that the tax evasion is a crime and many individuals held this crime for their benefit and also show their all records and information of business incomplete or hide the main information, so they have to pay less amount of tax through this way, and when the IRS gets proper investigation then they held for crime and proper fine and penalties for their illegal act and crime.

References of tax evasion

Abdulla, G. (2014). Is VAT the best choice for the GCC countries. Retrieved from https://blogs.lse.ac.uk/mec/2016/08/09/is-vat-the-best-

choice-for-the-gcc-countries/

Cornell. (2019). Tax evasion. Retrieved from https://www.law.cornell.edu/wex/tax_evasion

Fresh Books. (2019). What Is Tax Evasion? It’s a Crime. Retrieved from https://www.freshbooks.com/hub/taxes/tax-evasion

Murray, J. (2019, june, 21). What Is the Difference Between Tax Avoidance and Tax Evasion? Retrieved from

https://www.thebalancesmb.com/tax-avoidance-vs-evasion-397671