Question

Explain the causes of tax evasions.

Answer 1

1.  Tax evasion resulting in black money prevents the resource mobilization efforts of the Union government. Shortage of funds distorts implementation of developmental plans and forces the government to resort to deficit financing in case public expenditure is inelastic.
2. Tax evasion interferes with the declared economic policies of the government by distorting saving and investment patterns and the availability of resources for various sectors of the economy.
3. Tax evasion undermines the equity attribute of the tax system. Honest taxpayers willingly bear a disproportionate tax burden, feel demoralized, and lured to join the tax evaders’ camp.
4. Tax evasion and black money encourage the concentration of economic power in the hands of undeserving groups in the country, which, in turn, is a threat to the economy in its way.
5. Evasion of tax consumes time and energy of tax administration to disentangle the intricate manipulations of tax dodgers.