• Means of avoiding or

minimizing the burden of

taxation
What are the means of escaping
taxes?
 Escaping the tax burden
• Six ways of escaping the tax burden
• 1. Shifting
• 2. Capitalization
• 3. Transformation
• 4. Evasion
• 5. Avoidance
• 6. Exemption
 Shifting
• Shifting is the transfer of the burden of a tax
by the original payer or the one on whom the
tax was assessed or imposed to another or
someone else.
• What is transferred is not the payment of the
tax but the burden of the tax.
• Impact of taxation– is that point on which a tax is
originally imposed.
• Statutory taxpayer– is the person who must pay
the tax to the government. The one on whom the
tax is formally assessed.
• Incidence of taxation– is that point which the tax
burden finally rests or settles down. It takes
place when shifting has been effected from the
statutory taxpayer to another or someone else
who cannot pass on the burden further.
 Shifting
• A purely personal tax cannot be shifted when
it has no relation to any business dealings of
the taxpayer, like estate tax and community
tax.
• Direct taxes are usually absorbed by the
statutory taxpayer.
 Kinds of shifting
• 1. forward shifting– takes place when the
burden of the tax is transferred from a factor
of production through the factors of
distribution until it finally settles on the
ultimate purchaser or consumer.
• From the manufacturer, to the wholesaler, to
the retailer, and finally to the purchaser or
consumer.
 Kinds of shifting
• 2. Backward shifting– is effected when the
burden of tax is transferred from the
consumer or purchaser through the factors of
distribution to the factor of production.
• 3. Onward shifting—occurs when the tax is
shifted two or more times either forward or
backward.
 Capitalization
• Reduction in the price of the taxed object
equal to the capitalized value of future taxes
which the purchaser expects to be called upon
to pay.
• Capitalization may be considered as a special
form of backward shifting.
 Transformation
• The manufacturer or producer upon whom
the tax has been imposed, fearing the loss of
his market if he should add the tax to the
price, pays and endeavors to recoup himself
by improving his process of production
thereby turning out his units of products at a
lower cost. The loss occasioned by the tax
may be offset by the gains resulting from the
economics of production.
 Tax evasion
• Use of the taxpayer of illegal or fraudulent
means to defeat or lessen the payment of a
tax. Also known as tax dodging. It is
punishable by law.
• Ex. Deliberate failure to report taxable income
or property
 Tax avoidance
• Is the use of the taxpayer of legally
permissible alternative tax rates or methods
of assessing taxable property or income, in
order to avoid or reduce tax liability. Also
called tax minimization.
• Ex. Changing of residence to avoid some taxes
• Tax evasion is illegal while tax avoidance is
permitted.
• The tax evader breaks the law while the tax
avoider sidesteps it.
• A man approaches a river which can be
crossed by two bridges, 1 a toll bridge and 2 a
free bridge. If he crosses it with 1 and fails to
pay, that is tax evasion. If he crosses it with 2,
that is tax avoidance.