Saturday, July 3, 2010


Taxation is a compulsory levy that the government of a state imposes on every taxable person in the state. Taxable persons are individuals and corporate bodies that meet all the requirements of being taxed i.e. making incomes that are taxable.

The government is not under any obligation to use the tax payers’ money to provide basic amenities but is required to judiciously utilize tax payers’ money. This makes it a criminal offence for any taxable person or entity to refuse to pay tax because the government has not been living up to expectation.

It is illegal for a taxable person to refuse paying tax. Refusing to pay tax illegally is known as tax aversion and is seen as fraud.

Tax fraud is a criminal act of hiding some of your properties and income source just to averse tax. Tax fraud is committed against government or governmental agencies / taxing authorities (the Inland Revenue services). The government has lost much revenue in the form of lost tax revenue that would have ordinarily accrued to the government.

Most countries like the US allowed their tax system to be hinged on voluntary compliance thereby giving room for unscrupulous people to take advantage of the opportunities given to them to file their taxes themselves. This is a worrying and growing concern.

Accountants have been called upon to help relief this situation. It was initially within the jurisdiction of accountants acting as auditors to audit the accounts of suspect but now, the forensic accountants now employ forensic tools to analyse complex taxation situation. Forensic accountants and auditors are trained to look for tax fraud.

Investigation of tax fraud includes areas of; tax underpayment (it could be honest mistake), hiding income, keeping two sets of accounts, claiming to have a disabled person as a dependant, the use of wrong social security number, concealing some business transactions in a computer.

The complex nature of tax law makes it possible for errors to be expected in every file returns. The law gives you the benefit of doubt by not going after you as a tax fraudster. This in fact is a loophole in the tax system that tax fraudsters take advantage of to deny the government the stream of revenue that would otherwise go into the pocket of the government.

The tack of insignificant percentage of penalty attached to careless mistake made on tax return is not enough to make people not to commit tax fraud hoping to claim it was an error. Notice that I did not state the actual rate of penalty as it varies from year to year.