Global Tax Evasion Case Study

Document Type:Case Study

Subject Area:Economics

Document 1

Tax is not punitive but a compulsory levy by the government that the government places on properties and individual and corporation income within the territory. This money that is raised through taxes constitute a significant part of the government’s source of finance for general expenditure and the economy Zhu (2016) states that tax is the transfer of resources from the private sector to the public sector in order to accomplish economic and social goals of the country. However, there has been a development of a powerful industry since the 1980s in tax havens globally (Hassan, 2016). These territories impose a very high cost the economies of other countries. The current system of measuring household wealth and the profits of multinational corporations still has many weaknesses although improving.

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The problem of tax evasion has loomed so large because of the lack of a global system to deter these activities. Currently, there are no rule that govern cross order profits which promotes systemic tax avoidance because it allows profits to be shifted from their points of generation to another country that has a lower or zero tax rates (Hassan, 2016). This is done all as a matter of accounting rather than real economic activities. These rules often promote the economic interests of large and powerful multinational corporations. While this appears to be esoteric and technical, the effects are devastatingly real. This includes negative effects to schools, welfare, benefits to the senior citizens, among other important areas (Alldridge, 2015). Currently the United States has tax fraud penalties that it imposes against those that evade taxes regularly in the United States and other nations.

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Among the major causes of tax evasion in the United States is the fact that there is no national value added tax (VAT) making it easy for businesses to avoid paying taxes because they do not have to report it. Sales tax, however, is very difficult to avoid because customers pay this tax together with their bills while purchasing things in stores. Businesses, however try to evade through underreporting of tax to authorities (Hassan, 2016). This is often in regards, to rebates, allowances, exemptions, allowances, among others. Tax planning is legal because it is a tax compliant behavior but a grey are exists between this and tax avoidance. While tax avoidance can be legitimate,, it can be aggressive is financial instruments not intended or unanticipated by governments are used as instruments for tax advantage.

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For instance, the use of overseas tax havens is unethical despite operating within the law, but clearly against the spirit of the law. For many years, the question of tax evasion has captured the attention of researchers who try to find out the reasons for this problem. The second solution to the problem of tax evasion is providing funding to tax collection agencies. As earlier stated, almost half a billion dollars is not collected by the united states every year because of a lack of funding. Thus, it is important that measures are put in place in order to ensure that tax collectors at all levels are provided with enough funding in order to streamline their operations and promote a wider reach and efficiency.

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This will also improve the capacity of these officials to detect and investigate tax evasion cases for prosecution and enforcement of anti-tax fraud laws. At a global level, measures also need to be put in place to prevent tax evasion through tax havens. Therefore, all countries must be involved in the reform and should take place within the United Nations (UN) and the debate on taxation should have a human face. Public interests should be considered and be at the center of the debate rather than vested economic interests. This should involve discussions on the generation and expenditure of public revenues. The current system is lacking because it feeds the historical levels of inequality, which impedes human rights fulfillment, tears away global social fabric, and endangers future economic growth.

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