TAX EVASION VS. TAX AVOIDANCE 2. 20% annual interest.
3. Other penalties as imposed in R.A. 8424 (NIRC)
Taxes emanates from necessity. You pay
taxes; the government in return gives you
protection and security. Taxes are the lifeblood of the government.
It is the price of progress and civilization. A government or state
cannot survive without revenue from taxes. It cannot perform its
duties and responsibilities to its subjects.
Taxes are imposed through Taxation. The power to Tax is inherent in
all sovereign states. It doesn’t need a constitutional provision in
order to impose and collect taxes to all its territorial subjects. The
constitution itself just only limits taxation to avoid abuse of taxing
power. The power to tax is the power to destroy (Marshall Dictum)
but taxation power is also the power to build (Holmes Doctrine).
Taxation is also a Police Power of the state. It destroys through its
police powers by discouraging certain acts (e.g. import duties, tariffs,
fees, penalties, and fines) and enterprises inimical to public welfare.
Can we cheat this certain thing in life to lessen the burden of
taxes?
There are two ways of cheating taxes: Tax Evasion and Tax
Avoidance.
The Question: what is the best way, Evasion or Avoidance?
Tax Evasion
Defined as an illegal practice where a person, organization or
corporation intentionally avoids paying his true tax liability. Those
caught evading taxes are generally subject to criminal charges and
substantial penalties.1 That is to say that Evasion is a crime.
In the Philippines, the NIRC states that, the government through its
administrative bodies, the BIR can assess taxes of fraudulent tax
returns of up to 10 years from the date such fraud was discovered.
In lay man’s term, if you’re going to use this method then pray that
the BIR will not discover it’s a fraudulent return. Moreover, crime is
imprescriptible, so evasion will always be a crime until it is
discovered and the BIR can assess the proper taxes.
What are the consequences of doing tax evasion?
1. 50% penalty for intentional misstatement.
4. Criminal penalty of not less than P10,000 and
imprisonment of not less than one (1) year but not more
than 10 years.
So basically, don’t use tax evasion unless you are willing to
gamble.
Tax Avoidance
Defined as the use of legal methods to modify
an individual's financial situation to lower the
amount of income tax owed. This is generally
accomplished by claiming the permissible
deductions and credits. This practice differs from tax evasion, which
uses illegal methods, such as under reporting income to avoid paying
taxes.2
It is using ones knowledge of the tax code in finding loopholes to
lessen the payment of taxes. It is not illegal but others question if it
is ethical. So what are some of the ways to avoid paying large
amount of taxes? You can either decrease your income or increase
your deductions.
First, track all itemized deductions. These are expenses which are for
tax purposes are deductible. Keeping records of all expenses
together with supporting documents enhanced your claims for
deductions. Moreover, the NIRC gives you the choice to choose
between Optional Standard Deduction (OSD) and the Itemized
Deduction. From here, you choose whichever gives you more
benefit.
Second, disseminate income. By disseminating income you are also
spreading the burden of paying taxes (E.g. the use of Irrevocable
Trust). In irrevocable trust, you are simply transferring all the rights
and rewards of an asset to a grantor including ownership. You might
just simply create an irrevocable trust to all your heirs, children or to
whoever you like. And by this, the Tax Code recognizes that the
income the trust accrues belongs to the grantor. In the NIRC, the
grantor and the grantee will be entitled to their own personal
deductions (that will be equivalent to two personal deductions)
unlike without irrevocable trust there will be only one personal
deduction (revocable trust)
Third, employing and giving discounts to
Senior Citizens and PWDs. Yes, employing
Senior Citizens to your business gives you an additional deduction of

an equivalent of 15% of their salaries and wages while employing

Persons with Disabilities entitles you to an additional deduction of

an equivalent of 25% of their salaries and wages. Also, giving

discounts equivalent to 20% of their purchases less VAT can be

claimed as additional deduction.

Fourth, make donations. He who gives shall be

rewarded. Donations to entities specifically
identified in the NIRC can be claimed as deductions subject to ceiling
as long as they are backed with supporting documents. Also,
donation to government agencies and instrumentalities that are very
essential in giving the needs of the people are deductible.

There are many ways to lessen taxes, but for now I’ll leave it up to
here.
What do you think is better?
Source:

Philippine Taxation: Evasion or Avoidance?