Do The Indian Tax Enactments & Fiscal Policies? Incentivise & Facilitate Tax Evasion? - A Critical Study.

Abstract

Tax evasion and the consequent money laundering is a chronic problem afflicting India. As a matter of fact, it can be asserted that India is perhaps the worst hit country when it comes to ensuring tax compliance by its people. This paper seeks to study the issue of tax evasion which quite often goes unnoticed by the Revenue Authorities and more importantly explores the reasons why India holds the dubious distinction of being the only major economy with subpar compliance of tax laws. Popular reasons for the evasion of taxes propounded by academics and economists include, the lack of deterrent punishments, high rates of taxes, corruption among the revenue authorities, unethical business practices, administrative inefficiencies etc. However, this paper intends to examine an oft-overlooked aspect of tax evasion – i.e. the very laws enacted to ensure compliance and revenue collections may be facilitating and enabling tax evasion through collusion, connivance and creative accounting by the parties. This form of evasion occurs due to the existence of certain glaring “loopholes” in the various enactments, which not only promotes evasion but also incentivises the tax assessees to participate in this exercise. The paper will explore how and why the laws in India make it imperative for a person to engage in evasion instead of encouraging compliance with the legislation's. Further, the paper intends to provide solutions to plug the said “loopholes” through rationalisation of the tax rates, broadening the tax base and through the adoption of certain changes within the tax administration which would go a long way in preventing and curbing this endemic practice of tax evasion.