The effects of tax evasion and tax planning on society have long been a controversial issue, but governments around the world are still struggling to deal with it. It is believed that it all started from the beginning when trade agreements were drafted by the government or government associates to favor their family, friends or associates who are in business. Unfortunately, tax planning plans are legally accepted business practices for which tax professionals are paid huge sums of money to provide tax planning consultancy services for both decision making personal and corporate.
According to Investopedia, tax planning is the analysis of a financial situation or plan from a tax point of view. This is an exercise undertaken to minimize the tax liability by making the best use of all available resources, deductions, exclusions, exemptions, etc. to reduce income and / or capital gains (businessdirectory.com). Tax planning therefore encompasses many different considerations, including the timing of income, purchases and other expenses, the selection of investments and the type of retirement plans, etc. However, tax evasion or tax avoidance, unlike tax evasion, are not tax planning plans and are therefore considered illegal in the professional tax professional.
Businesses, both domestic and international, use many tax planning strategies to reduce their tax burden. A comprehensive review is impossible because the known strategies are numerous and many strategies are probably unknown to tax specialists. Some forms of tax planning include (a) reclassifying business income into non-commercial income (b) using transfer pricing to transfer income from high-tax jurisdictions to low-tax jurisdictions ( c) the employment of passive investment companies (d) the exploitation of tax credits, exemptions and / or concessions in tax laws (e) conventional purchases (f) use hybrids, etc.
Learned Hand J. in the Commissioner v Newman case in 1947 said:
"The courts have said time and time again that there is nothing sinister about organizing your business so as to keep taxes as low as possible. Everyone does it, rich or poor; and everything goes well, because nobody has a public obligation to pay more than the law requires: taxes are forced exactions, not voluntary contributions. To demand more in the name of morals doesn’t ; is not possible ".
Indeed, tax planning has invariably become an integral part of a financial plan, since reducing tax liability and maximizing eligibility to contribute to pension plans are both crucial for the success of the business, as they have gained importance in business planning strategies of today, all because tax laws have different provisions relating to entities in depending on location, type of activity or period, so invariably, each difference offers a planning opportunity to a taxpayer.
The question that then arises is: does tax planning have any advantages?
Appropriate tax planning is essential in national and international affairs to reduce the distortions that arise, for example, due to the lack of harmonization of national tax systems. Without tax planning, entities are likely to suffer from excess tax payments and additional tax compliance costs. Some of the reasons given for tax planning include:
(a) Offers the possibility of reducing the amount of taxable income, that is to say when the tax and financial planning strategies of a taxpayer aim to structure the expenses so that they are 39; enter in the category of eligible expenses.
(b) Serves as a catalyst to reduce the tax rate you are taxed on, i.e. set up business operations in locations or businesses to take advantage of the low tax rate or void in force in these jurisdictions, such as tax havens.
(c) It guarantees that you get all the credits available to you, i.e. by taking advantage of tax credits, exemptions and / or concessions available in a tax jurisdiction, e.g. the provision of the Stability Agreement for the holder of a mining lease in Ghana.
(d) It allows cash flow forecasts to be more efficient while minimizing tax liability. A business looking to embark on massive capital or productive investments or reinvestments will plan financial transactions with tax in mind to avoid impulsive maneuvers. With the resulting good cash flow, the entities are positioned to undertake more capital and productive investments. Effective tax and financial planning maximizes shareholder wealth and improves cash flow for capital and productive reinvestment, among others.
e) For the government, the granting of tax breaks, exemptions and / or concessions aims at increasing the productivity of the private sector, creating jobs and attracting investors and improving the cross-border trade.
Given these benefits, wouldn't you recommend more tax planning practices? Consider them.
Government efforts to improve the national economy have always been limited due to inadequate tax revenues, which account for a higher percentage of government revenues. This could be attributed to various tax planning plans as well as tax evasions. In 2005, the average ratio of tax revenue to GDP in developed countries was around 35%. In developing countries it was 15% and in the poorest of these countries, the group of countries with low tax income represented only 12% of GDP and tax planning via tax evasion is widely considered as an important factor limiting revenue mobilization.
ActionAid and Tax Justice Network-Africa (TJN-A) in their West African Giveaway report released in August 2005 indicated that West African countries lose approximately $ 9.6 billion in revenue each year by providing incentives tax to foreign companies and that three countries – Ghana, Nigeria and Senegal – lose about $ 5.8 billion a year due to the granting of tax incentives to companies, the share of Ghana being about 2.27 dollars.
Tax planning approaches such as tax evasion affect the extent to which the government can meet the basic needs of the population, that is, it results in an inadequate supply of equipment basics such as poor infrastructure, poor education and health systems, inadequate water and electricity supply as well as poor road networks. This could be one of the reasons why financing the budget deficit has become the order of the day in most developing countries.
Another negative effect resulting from increased tax planning is income inequality. Taxation aims to redistribute income, but the accumulation of wealth through tax evasion plans, for example, has further widened the gap between low income and high income.
At an international conference jointly organized by OXFAM International and the International Tax Justice Network, Africa in Accra in February 2014 for example, OXFAM deputy campaign manager, Mr. Stephen Hale, said , inter alia, that many developing countries encountered difficulties in their efforts. to mobilize domestic resources due to factors such as regressive tax regimes, a wide range of corporate tax incentives, etc.
But the question remains that, if the main source of revenue for each government is tax revenue while government revenue and capital spending depend heavily on that tax revenue, can we then conclude that governments are striving to reducing budget deficits and relying more on development partners to finance the national budget is a dead argument on arrival, as most of the tax revenue losses are attributable to tax planning plans such as tax evasion, tax incentives and poor tax education and awareness?
Tax planning probably isn't as good for the government as we think it is, but rather a sheepskin wolf that is gradually wresting billions of dollars in tax revenue from the government to meet its huge public spending and to conduct a reasonable economic policy. But who is to blame, the taxpayer, the government or both? I let you judge!
Tax planning has indeed managed to remain, however, I suggest that (a) the responsibility of governments and the efficient use of tax revenues will instill confidence in the government thereby encouraging the payment of taxes, (b) the anti – avoidance should be of general application or refer to specific tax havens or tax evasion schemes (c) the concept of ethical and responsible investment should not be limited to companies' products / services but also to their impact on society as well as (d) the unification of tax rates and (e) The Organization for Economic Co-operation and Development (OECD) and the United Nations, famous in their International tax models, should consider paying more attention to the proliferation of national and international tax planning plans.