Impact of Tax Evasion
Tax evasion is an illegal practice that has negative impacts like,
1. Loss of Revenue: Taxes are the main source of government revenue used to finance public services such as education, healthcare, infrastructure, and social welfare programs. Tax evasion leads to a loss of revenue for the government and causes budget deficits and imbalances.
2. Increases Economic Inequalities: Tax evasion widens the gap between the poor and the rich, causing inequalities in an economy. The richer section of an economy being more powerful can easily manipulate their profit and income statements and other relevant documents, creating more tax pressure on the other section.
3. Economic Inefficiency: A practice of evading taxes encourages people to engage in those activities that are against economic interest. This leads to misallocation of resources, reduced productivity, and hampers economic growth.
4. Increased Tax Burden: Tax evasion increases the tax burden on the shoulders of those who are responsible for their duty to pay the taxes honestly. This invites wealth equality, loss of responsibility, and budgetary imbalances.
5. Hampers Public Trust: Tax evasion adversely affects the trust of the public in the government and tax system. This further discourages the public from paying their tax liability and loyalty towards the government is also hampered.
6. Loss of Competitive Edge: Tax evasion leads to poor financial flows, money laundering, and corruption making the nation weaker at the global level. This decreases the competitive edge of the country and reflects the economic inabilities of the nation.
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