I.5. Negative impacts of Tax offences
I.5.1 Cost of non
compliance to tax offenders and the government
Expenses incurred by tax offenders to commit tax offences are
high. Also efforts to prevent detection and conviction are high and a burden to
the government.
I.5.2 Honesty loses
and offender wins
Tax evasion may drive some firms out of business as they are
unable to compete with owners that successfully evade taxes.
I.5.3 Additional
costs to honest tax payers
Additional compliance cost is borne by honest taxpayers in
terms of record keeping etc in view of the possible investigation.
I.5.4 Loss of
Government Revenue
Tax evasion deprives government of revenue for public
expenditure.
Also Government revenue is spent on the enforcement side
including investigation, prosecution and punishment of tax offenders.
I.5.5 Distortion of
market prices
Goods sold by tax offenders are often sold a lot cheaper than
goods brought onto market through the right procedures. Tax evasion therefore
deprives traders of free competition.
I.5.6 Collapse of
local industries
A country achieves better economic growth by developing its
own industrial base. Tax evasion in form of Smuggling undercuts prices of the
locally manufactured goods, thus destroying the market for local products.
This leads to collapse of local industries.
I.5.7 Unemployment
When there is unfair competition in the market due to tax
evasion and other related offences, compounded by the collapsing of industries,
the labour market (employment base) is eroded. Many professionals, skilled and
unskilled personnel remain jobless.
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