2. How is it defined?
The American Heritage Dictionary defines Fraud as “a deception
deliberately practiced in order to secure unfair or unlawful gain”.
Fraud always requires
• a perpetrator,
• an act of deception by perpetrator with objective to enrich himself,
• a victim who suffers loss due to the targeted deception by the perpetrator.
Act of
deception
Victim
Perpetrator
3. What is tax fraud?
• Tax fraud is when someone pays too little tax or wrongly claims a tax
repayment dishonestly.
Such as declaring less income, profits or gains than actually earned; or
overstating deductions.
• Tax fraud is an activity commonly associated with an objective to
create parallel economy and has direct relationship to loss to the
Exchequer in its act of collecting due taxes by an entity chargeable to
tax in a country.
4. Understanding Fraud perpetrators
• Tax fraud is a world wide phenomenon and is practiced by persons
and entities who “HAVE” and not by those who are “HAVENOTS”
• Fraud perpetrators are usually very educated, intelligent and persons
of great means
• Tax fraud by individuals are normally driven by mass rationalization ,
pressure of high taxes and living costs and opportunity in any country
Falsification of medical bills for claiming 15000/- a year as deduction by some
employees from his gross income in many cases is an example of a simple
fraud by individuals in India.
5. Examples of Tax Frauds
Large enterprises (manipulation of the result with transfer price, cost increases such as provisions,
optimization)
Medium-sized companies (often hidden in presumptive regimes, simple evasion methods such as
false invoices)
Liberal professions: declaration of lower amounts and failure to declare
Providing false information to the I-T department about business income or expenses.
Deliberately underpaying taxes owed
India loses 14 trillion rupees ($314 billion) from tax evasion annually and 800 billion rupees a year
because of corporate tax incentives ( eg. Tax holiday)
6. Areas of Tax frauds In India
• In India , Department of Revenue , Ministry of Finance of the government of India regulates
the direct tax and indirect tax regime covering Union taxes such as Income Tax, Service Tax,
Excise and Customs, Stamp Duty. In addition the States also impose and regulate taxes like
VAT, stamp duty, entry tax etc. and Tax fraud can occur in connection with all these taxes.
• Weak Surveillance System
• Rampant corruption in Tax Department
• Complicated tax law and filing mechanism
Overbilling of purchase of raw material
Dummy salary entries created
False petty expense entries ( person expenses as business expenses)
Lobbying to government
Bribery of tax officials
Reasons & Methods
7. Economics of tax evasion
• In 1968, economist Gary Becker first theorized the economics of crime. It deals with the
evasion of income tax. According to them, the level of evasion of income tax depends on
the level of punishment provided by law.
Income tax evasion appears to be positively influenced by the tax rate, the unemployment rate, the
level of income and dissatisfaction with government.
Other forms of tax evasion (e.g. VAT) Major falsifications (increase of VAT credits, sales without invoices)
Indian Black Money - Black money refers to funds earned on the black market, on other taxes have not
been paid. The total amount of black money deposited in foreign banks by Indians is unknown. Some
reports claim a total exceeding US$12.4 trillion are stashed in Switzerland.[1] Other reports, including
those reported by Swiss Bankers Association and the Government of Switzerland, claim that these
reports are false and fabricated, and the total amount held in all Swiss banks by citizens of India is
about US$2
In February 2012, the director of the Central Bureau of Investigation said that $500 billion of illegal
funds in foreign tax havens, more than any other country.[4][5] In March 2012, the Government of India
clarified in its parliament that the CBI Director's statement on $500 billion of illegal money was an
estimate based on a statement made to India's Supreme Court in July 2011.[6]
8. Government Response
The level of evasion depends on a number of factors, one of them
being fiscal equation. tendency to evade income tax declines when
the return for due payment of taxes is not obvious.(Invisible)
Evasion also depends on the efficiency of the tax administration.
Corruption by the tax officials often makes control of evasion difficult.
Tax administrations try to decrease these corruptions. These include,
privatization of tax enforcement, tax farming, and institution of Pre-
Shipment Inspection (PSI) agencies.
9. Government Efforts in Reducing and
Controlling Frauds:
• Use of Laws like Prevention of Money Laundering Act, Black Money
Bill, FEMA, etc
• Active efforts by Regulators like SEBI, CBDT, CBEC, and Investigators
like CBI, Financial Intelligence Unit, NIA, Enforcement Directorate
• Pre-shipment Agencies like SGS, Cotecna etc. are employed to
prevent evasion of customs duty through
11. Black money: Sebi bars 260 entities;
suspects money laundering, tax evasion
In its biggest ever crackdown for suspected tax evasion and laundering of black money
through stock trading platforms...
By: PTI | New Delhi | December 19, 2014 10:34 pm THE Financial Express
In its orders, Sebi said that the modus operandi of the barred entities typically involved
stock market dealings aimed at evading long-term capital gains tax and showing the
source of income as legitimate from stock markets.
“… the schemes, plan, device and artifice employed in this case, apart from being a
possible case of money laundering or tax evasion which could be seen by the concerned
law enforcement agencies separately, is prima facie also a fraud in the securities market
in as much as it involves manipulative transactions in securities and misuse of the
securities market,” the regulator said.
12. Sebi bars 129 entities; suspects money
laundering, tax evasion
MUMBAI: In a fresh crackdown on suspected tax evasionand laundering of black money
stock markets, regulator Sebi today barred Mishka Finance and Trading Ltd and 128 other
entities from the securities market.
While the total amount involved could not be ascertained, these entities are estimated to
have shown fictitious capital gains to the tune of Rs 254 crore and just 29 of them made
unlawful gains to the tune of Rs 92 crore on an investment of just Rs 2 crore.
13. Rs 19k cr service tax, central excise duty
frauds in 2008-11: CAG
• NEW DELHI: Comptroller and Auditor General of India (CAG) today said that there over
10,300 cases of fraud involving over Rs 19,159 crore in service tax and central excise duty
during 2008-11.
• "In central excise, a total 3,690 cases of fraud or presumptive fraud were found during
2008-11 by the department involving duty of Rs 8,497.06 crore. In service tax, 6,655
cases involving tax of Rs 10,662.24 crore were detected during the same
period," CAG said in two separate reports.
14. Black money: ED freezes properties worth Rs
9,003 crore
• PTI | Apr 29, 2015, 06.40 PM IST The Times
• NEW DELHI: In a major action against black money hoarders and money launderers,
the Enforcement Directorate (ED) has attached assets to the tune of Rs 9,003 crore
and filed 173 chargesheets in the financial year 2014-15.
• The agency, as part of its efforts to crack down on illicit funds in India and abroad, in the
last year registered a mammoth 400 per cent rise in the numbers of assets attached,
over 500 per cent increase in the number of criminal FIRs lodged, over 600 per cent
more numbers of arrests made of people suspected to be involved in laundering crimes
and more than 200 per cent jump in the filing of prosecution complaints or chargesheets
as compared to the 2013-14 fiscal.
15. Rs 4,733 Crore Collected in Taxes via Non-Filer
Monitoring System: Jayant Sinha
• Press Trust of India | Updated On: May 08, 2015 21:40 (IST)
• New Delhi: Government has collected Rs 4733.61 crore in taxes since 2013 through the non-filer monitoring
system that tracks large value financial transactions, including those via credit cards.
• "30,68,662 new returns have been filed and additional tax of Rs 4,733.61 crore has been collected from
persons identified as non-filers by the Income Tax Department through its NMS in the year 2013, 2014 and
up to March 31, 2015 in the year 2015," Minister of State for Finance Jayant Sinha said in written reply in the
Lok Sabha.
• The non-filer monitoring system (NMS) analyses all databases of in-house and third-party information
available with the department to identify persons who have not filed returns even though they have carried
out large-value financial transactions.
• During 2013, 2014 and 2015 (up to March 31), NMS has identified 12.9 lakh, 22.09 lakh and 44.09 lakh cases,
respectively, as non-filers having potential tax liabilities.
16. Are We Responsible For It?
• YOUR PURCHASE ---VAT = WE DO NOT ASK FOR A BILL
• INCOME TAX- are you truly faithful in paying income tax?
• Tax evasion VS Tax Avoidance – Greedy are making hay till sunshines , that is taking advantage of
the thin line that separates tax evasion and tax avoidance
• In USA, tax evasion is a crime --shall be fined not more than $100,000 ($500,000 in the case of a
corporation), or imprisoned not more than 5 years, or both
• In INDIA,- shall be charged up to 3 times the amount of income concealed.
• In India --Only 2 to 3 percent of Indians pay any income tax. (around 36 million people)
• U.S., about 45 percent of the population pays taxes
17. Measures to reduce Tax Frauds
• GAAR though postponed is expected to be made effective to curb the menace of
blackmoney. The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015,
popularly known as blackmoney bill is now passed in Lok Sabha on Monday 11.05.2015
• Introduction of GST is expected to rationalize the tax impact on Indian public and entities
and reduce the involvement of multi layers and complexity in taxation so that
administration becomes simpler and allows less space for discretionary corruption.
• In India Economic Extortion and Bribery are the major contributors to tax fraud. With
simplification and online compliance, the impact is expected to reduce substantially
• Adoption of technology in tax administration and Simplification of laws with rational tax
structure is the goal for substantially reducing tax frauds in India. The first report by Tax
Administration and Reforms Committee has submitted its report on 30th May 2014.
