Tax evasion

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Taxation 2
(Mr) Muthaloo Subramaniam
Tax evasion
DEGREE: B. ACCOUNTING (HONS) & B. ACCOUNTING AND FINANCE (HONS)

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PRESENTATION ASSESSMENT CRITERIA AND MARKS ALLOTMENT
No. Assessment Criteria Weights Marks
Allotted
by
Lecturer
Report
Breakdown
A  Possible reasons for tax evasion.
 The extent that tax evasion different or
similar to tax avoidance.
 Examples/case laws
20 marks
 Tax offences and penalties.
 Relevant legislations and case laws.
20 marks
B Presentation of the analysis:
 Appropriate citation and references. 2 marks
 Style and readability including proper
organization of answers.
2 marks
 Overall presentation. 2 marks
 This coursework must have a Cover Sheet,
Table of Content and Page Number and Proper
Heading/Title for each part answered, list of
references (Use any referencing system that
is suggested by the faculty)
4 marks
Total 50 marks
Comments:
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
____________________ ___________
Lecturer Signature Date
* 50 marks will be converted into 10% of the coursework weight.

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PRESENTATION ASSESSMENT CRITERIA AND MARKS ALLOTMENT
No. Assessment Criteria Weights Marks
Allotted by
Lecturer
Presentation
Breakdown
1
Presentation material / audio - visual aids used
- topics clearly stated
- creativity & attention getter
- clarity (design & font size)
- Not confined to slides only.
15 marks
2 Audibility
- clear voice and precise pronunciation
- language proficiency
5 marks
3 Presentation & organization
- logical flow of presentation and time management
- ability to capture attention & retain interest of
audience
10 marks
4 Non verbal communication
- maintain eye contact,gesture and posture
- able to control speech anxiety
- formal attire
10 marks
5 Participation
- able to answer the questions from the audiences
- able to questions the presenters
- Able to provide comments to agree or disagree on
opinions.
10 marks
Total 50 marks
Comments:
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
____________________ ___________
Lecturer Signature Date
*50 marks will be converted into 10% of the coursework weight.

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Table of content
N title Page
1.0 Introduction …………………………………………………………………. 5
2.0 The factors give rise to tax evasion …………………………………………. 5
2.1 Tax burden………………………………………………………….. 5
2.2 Weak system in the government……………………......................... 6
2.3 Tax Morale………………………………………………………….. 6
2.4 Tax Deductions Offering Loopholes to Tax Evaders……………… 7
3.0 The different and similarity between tax evasion and tax avoidance ……… 8
3.1 Tax evasion ………………………………………………………… 8
3.2 Tax avoidance ……………………………………………………… 8
4.0 Cases of tax evasion ………………………………………………………. 9
5.0 Penalties and offences……………………………………………………… 10
5.1 Incorrect return ………………………………………........................ 10
5.2 Wilful evasion………………………………………………………... 10
5.3 Understatement of tax ………………………………………………. 11
5.4 Leaving Malaysia without payment of tax …………………………. 12
6.0 Conclusion …………………………………………………........................ 13
7.0 Reference …………………………………………………………………... 14

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1.0 Introduction
Tax avoidance and tax evasion are both situations that are most likely as old
as taxation itself. Wherever and at whatever the government asked for the taxes paid,
people and firms endeavour to abstain from paying them. In spite of the fact that this
issue has dependably been available, it turns out more urgent over the span of
globalization as this procedure stretches out the scope of chances to circumvent tax
collection while at the same time lessening the danger of being identified. so
government should research of the variables that influence tax avoidance and attempt
to tackle it or diminish it in the general public. tax avoidance prompts many issues, for
example, it cost the government a great deal of cash. Moreover, Tax avoidance is
being considered as unlawful practically in entire nations over the world, so those
including a part in it have every inspiration to hope to cover what they are doing.
2.0 The Factors Give Rise to Tax Evasion
2.1 Tax Burden
One of the main causes of tax evasion is a tax burden. (Bayer, 2004) examined
the relationship between tax evasion and the tax burden is that high tax burden will
lead to high tax evasion among the people. Looking at tax burdens, this can be
depending on how people are looking at the tax according to how much their income,
the rate of the tax and the benefits that they will get from paying the tax etc. therefore,
when the citizen feels that the tax is higher than the individual absorptive income, for
example when the tax burden are surpassed the aggregate sum of money deducted
from the time of the taxable period. This makes individuals endeavouring to escape
from paying the tax, or he feels that there are no benefits of paying the tax to the
government as long as he hasn't seen any benefits conversely from the government.
Schneider and Savasan (2007) “explain how an increase in tax burden effects in a
more active shadow economy, which will lead to rises in levels of tax evasion” (Zaidi,
Jusoh, & Nor, 2013).

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2.2 Weak System in The Government
Tax evasion is additionally caused by the span of the government and force of
controls. As the span of the administration expands, so do the quantity of government
controls will increase as well. The administration, however, might experience
difficulties in successfully controlling and dealing with each of the areas, particularly
when the government doesn't have any appropriate system that can be utilized to
ascertain the tax or also to determine the taxpayers in the country who have to pay
the tax, which tends to lead to an increase in tax evasion. Moreover, an expansion in
the span of the administration and power of direction prompts an increment of activity
in casual economies, Reports in India by Jain (1987) finds that "complicated tax
structures; dishonest staff; high tax rates; and high sales tax rates are factors that
contribute to the black market, underground markets and shadow markets in India"
(Zaidi, 2013). Malaysia also has an underground market such as night market, street
food, etc. where they are not provided any receipt to the customer which will make it
easy to for them to avoid the tax, this is not because there are no rules or strict
penalties in Malaysia but there is weakness in implementing this rules and penalties.
Sameti et al. (2009) further mentions that “increased activity in the underground
economy can also lead to high levels of tax evasion” (Zaidi, 2013).
2.3 Tax Morale
Tax moral can have to two affect to tax evasion, it can as intrinsic motivation to
pay tax by the taxpayer according to Cummings et al. (2006). In the other side, many
research has come with the opposite where high tax morale does not surely come with
low tax non-compliance, which this also apply to other variables in affecting tax non-
compliance.
There are two techniques stated by Mittone and Bosco (1997) in defining the
concept of tax morale. First, the ‘Kantian’ morality approach, as a starting point in
perceiving justice of the tax regime, taxpayers may think of themselves first, if they
perceived injustice, or more precisely is, if they do not expect any profits to themselves,
they are most likely to engage in tax non-compliance and rationalized this action as
self-defence. Second, the altruistic approach, one may show unselfish concern for the

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welfare of others, in the general society. For this reason under this approach, the
taxpayer may evade tax if the non-compliance brings benefits to society as a whole
(Ching, 2013).
2.4 Tax Deductions Offering Loopholes to Tax Evasion
Numerous organizations utilize donations and religious bodies for investment
to generate profit. In view of Inland Revenue Board (IRB) encounter, huge numbers of
these religious bodies are effectively engaged with speculation and some of them as
often as possible purchase and offer properties by using the religious bodies' funds.
They win huge benefits and some of them are paying tremendous stipends to the
advisory groups. Also, when the size of government extends the regulations and laws
of the administration increase too. Nonetheless, the government may have difficulties
in overseeing and controlling all sectors in a powerful way, which is one of the reasons
that lead increment the level of tax evasion. Also, the expansion in government size
and force of laws cause to ascend in casual economies rehearses like shadow market
and secret markets as well as rise in tax evasion. for instance, trade openness prompts
an expansion in tax income but when the government applies complex guidelines and
directions for trade, the smuggled products will rise because of the troublesome
limitation and laws connected to exchange and along these lines, the tax evasion will
increment as well.

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3.0 The Different and Similarity Between Tax Evasion and Tax
Avoidance
3.1 Tax Evasion
Tax Avoidance and Tax Evasion are having a similar idea of escape paying the
tax, however, one of them is legal and the other is illegal. Richardson (2008)
characterizes tax evasion as "purposeful illegal conduct or activities including an
immediate violation of tax law to sidestep paying the tax. To this end, people tend to
hide the real amount of income or any benefits or activities that can be taxable, or
impose lessening tax, for example, exemptions, deductions or credits are intentionally
exaggerated (see Alm and Vazquez, 2001 and Chiumya, 2006). Tax avoidance can
happen as a detached occurrence inside activities that are – in different perspectives
– lawful. Or, tax evasion happens in the unofficial economy where the entire action
makes put in an unofficial way – this implies the business is not only dodging tax
payments as well as is not enlisted as a formal undertaking. In businesses, tax
evasion can happen in connection with income taxes, employment tax, deals
and excise taxes, and other government, state, and local taxes.
3.2 Tax Avoidance
While tax evasion is unlawful, Tax avoidance, conversely, happens inside the
legitimate setting of the tax system of diminishing the taxation rate (Kim 2008) that is
people or firms exploit the tax code and take advantage “loopholes”, i.e. take part in
activities that are legitimate as per Sandmo (2004) but run counter to the purpose of
the tax law. Normally, tax avoidance envelops exceptional activities with the sole
reason to decrease tax liabilities. for instance, tax avoidance is strategic tax arranging
where budgetary affairs are organized such keeping in mind the end goal to limit tax
liabilities by e.g. utilizing tax derivations and exploiting tax credits (Siehl, 2010)

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4.0 Cases Of Tax Evasion
4.1 Lahad Datu Timber Sdn Bhd v DGIR1
.
In this case, an organization has engaged in two agreements that marked on
similar information by similar gatherings concerning timber extraction and the offers of
timber. The revenue confirmed that the assertions marked on similar information were
exclusively for the reason to avoid time profit tax and consequently invoked Section
140. close to different contentions raised by the income, s140 had been viewed as just
as an option contention and it was just examined at the high court level however not
specified in ensuing government court and privy committee decision. In conclusion,
the company hasn't break the law it just did smart moving to reduce the tax burden
(Fatt, 2014).
4.2 Yeoh Eng Holdings Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri 2
in this case, the organization gave out free interest loans to managers without
a term of reimbursement. The cash was put in fixed deposit under chief’s name.
Interest income gain by managers is exempted from tax by uprightness of an income
tax exemption arrange. At whatever point the organization needs the money, the chiefs
will draw the cash and put into the organization. The high court attested the IRB's
accuracy in invoke Section 140 to treat the interest income of the managers from
monetary establishments be interest income of the organization. In this case, the
organization has executed a plan intended to avoid the firm's tax of 28% (Fatt, 2014).
1 [1978] 1 MLJ 203
2 (2002) MSTC 3,390

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5.0 Penalties and Offences
Taxpayers owe an obligation and duty to the Legislature in connection with
income tax payable under the Demonstration. Keeping in mind the end goal to deter
Taxpayers from rebelliousness with such obligation, the act has enacted particular
arrangements to force fines, punishments, and detainment on defaulting taxpayers
and from the tax evasion. The DG or the Court is engaged to implement such offenses
and levy punishments where it is necessary.
5.1 Incorrect Return
Under S 113 (1)(2) of the Income Tax Act 1967, state that making any incorrect
return by deleting or minimizing any income of which he is needed by this act to make
a return in the best interests of himself or another person or by giving an incorrect
information that can affect directly or indirectly to his own liability to tax or another
person liability to tax he will be guilty under this Act and DG may asked that person to
pay a penalty equal to the tax that has not been settled. Unless he proved that the
incorrect return or the wrong information was made in good faith otherwise he will be
liable of 1,000 to 10,000 and 200% of tax undercharged if it come under S 113 (1)(2).
As the case of KT Co v Ketue Pengarah HDN 3
state that “the taxpayer is not
entitled to claim good faith as a defense under S113 (2). Good faith is a defense for S
113 (1) but not provided for under S 113 (2)” (Fatt, 2008).
5.2 Wilful Evasion
Under S 114 of the Income Tax Act 1967. This section applies in respect of
wilful evasion and other related offences, effective from 1 January 2001. Wilful evasion
of tax means any deed or action intentionally done or performed with the intention or
purpose of escaping under S 114(1) or assisting any other person to evade tax by
giving some advice in the preparation of a return that can be regarded as an offence.
3 (1991) MSTC 2594

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Moreover, under S 114 (2) makes incorrect statement or entry, prepares the
preparation of the false books of account or other false book account on behalf of him
self or to any other person statements. However, in order to sue the taxpayers for
breach of the law under Section 114, the prosecutor has to support its case by
reasonable doubt first the act was done ‘wilfully’, second it has done with the intention
to avoid tax or help other to avoid tax. Individual and company will be sued and be
guilty if they get caught for avoiding the tax or if they also get involving in helping others
to avoid paying tax. Therefore, he will guilty and fine around RM1,000 and RM 20,000
or imprisonment up to 3 years or it can be both; jointly with another penalty of up to
300% of the amount that wasn’t charged it will be depending on the case.
In the case of Ww Brovom v Commissionersof Inland Revenue 4 the High Court
held that husband who purposely leaving out certain dividends paid from his Income
tax to his wife was guilty of deliberate default. Stamp J. mentioned at p. 589 “"The
Appellant takes the seeing that it is wrong in precept for a wife's income to be
aggregated with her husband's in for the aim of Surtax. He takes the seeing that it is
constitutionally wrong come and contrary to what he calls the provisions of the
Nuremberg decisions (Kwai, 2008).
5.3 Understatement of Tax
Under section 114 (1A) of the Income Tax Act 1967 state that anyone who help
in or give advice with respect to the arrange of any return where this return results in
an understatement of the duty for the tax of another person, he will be guilty of an
offense and shall on conviction to liable of the act. The invocation of Section 114(1A)
will result in the high court trial. The burden of the evidence would be on the tax
authorities to submit proof which should be contain. first, the help or advice was without
reasonable care. Second, the advice or help given had caused in an understatement
of the duty for tax of the other person. If it is approved the taxpayer will fine between
2,000 to 20,000 or it can take him to jail or it can be both (Kwai, 2008).
4 [1982] 1 NZLR 449

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5.4 Leaving Malaysia Without Payment of Tax
Malaysian law has also covered the people who attempt to leave Malaysian
without paying their obligation from tax under S 115, however under S 115 (2)
immigration officer and police officer can arrest any person without any warranty
before to whom might be suspect to be committing or about to commit an offence
under this section. Hence, if person attempts to leave Malaysia to avoiding paying tax
he will be liable to a fine of RM 200 to RM 2000 or could be send to jail for not more
than 6 months or it can be both under S 115 (SOON , 2008). Moreover, under section
121 (2) state that anyone who assists or encourages other people to commit an
offence for ‘leaving Malaysia without payment of tax’ will be have committed the same
offence and will be fine to the same penalty (Kwai, 2008).
As the case of TcY v Government of Malaysia & Ors 5 the meaning of leaving
Malaysia' has studied in a Supreme Court decision “the DG issued a certificate under
s 104 (1) of the Act to the Director of Immigration requesting the latter to take action
to prevent the taxpayer leaving Malaysia until he his tax amounting to RM239,335”
(Kwai, 2008).
5 (1994) 2 MSTC 3,373 ii)

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6.0 Conclusion
Tax is considering to be a revenue to the government for its spending to
developed the country and provide good service to the people inside the country.
However, avoiding paying the tax by people will decrease the revenue that the
government used to got from the citizen which will affect on the government spending
on the improving the facilities in the country. Therefore, the government should keep
tracking on taxpayers and to determine the factors that can affect the tax evasion and
try to over come this problem by applies the penalties and punishment strictly to whom
trying to avoid paying the tax or by implementing new rules and penalties.

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7.0 Reference
Bayer, R. C. (2004, August 3). The Excess Burden of Tax Evasion - An Experimental
Detection-Concealment Contest. Retrieved Septmper 19, 2017, from
https://economics.adelaide.edu.au/research/papers/doc/wp2004-07.pdf
Ching, S. P. (2013, December). Determinants of Tax Non-Compliance in Malaysia.
Retrieved september 20, 2017, from http://eprints.utar.edu.my/1085/1/BA-2013-
0902338.pdf
Fatt, C. K. (2014). Advanced Malaysisa Taxation Principles and Practice (16th ed.).
Kuala lumpur, Selangor, Malaysia: InfoWorld.
Kwai, C. (2008). Malaysian Taxation Principles And Practice (14th ed.). Kuala
lumpur, Selangor, Malaysia: Info Word.
Siehl, E. ( 2010). Addressing Tax Evasion and Tax Avoidance in Developing
Countries. Germany: Internationale Zusammenarbeit (GIZ) GmbH.
SOON , T. T. (2008, August 21). Malaysian Taxation. Retrieved Septmper 19, 2017,
from http://www.malaysiantaxation.com/2008/08/tax-penalties.html
Zaidi, M. A., Jusoh, M., & Nor, N. G. (2013, January 1). Causes Of Tax Evasion And
Their Relative Contribution In Malaysia: An Artificial Neural Network Method
Analysis. ResearchGate , 108.
Wilful EvasionOf Tax And Related Offence. (2000, December 30). Retrieved
Septemper 19, 2017, from
http://www.ctim.org.my/download.asp?cat=14&file=DEIKG_jvys7y%20R8n5v10%20
1s%20gnA%20n0q%20eryn6rq%20bssr0pr5%20-%20ce%20DL-
FDDD%20(GDEFDD).2qs

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