1. High Rates of Taxation
The prevailing high rates of taxation are one of the main causes of evasion. The high tax rates in the top income brackets are said to be tolerated only because considerable evasion takes place here. The Government believes that "while it cannot be denied that higher rate of tax the greater will be the temptation" for evasion and avoidance. The tax rates themselves are not to be blamed for the larger extent of the evasion in the country. However, if the rates are reduced, evasion will still continue, because it exists at all levels of income.
2. Complexity in Tax Laws
The complicated provisions of Income Tax Laws, not all of which are easily understood, were also stated to be responsible, to some extent, for tax avoidance and evasion. The average tax payer has inevitably to seek the assistance of tax experts and their advice is not always unbiased but also helps the tax payer in evasion and avoidance.
3. Inadequate of Powers
The inadequacy of the powers vested in the personnel of the department is yet another cause for tax evasion. The facts relating to income, wealth, expenditure etc. are known only to the taxpayer and if he does not disclose all of them to the assessing officer, the task of the latter in determining the correct tax liability becomes very difficult.
However, whatever powers are vested in the assessing officers are also not used freely be honest officers, because of the fear that harassment is caused to the honest taxpayer. An honest man can only respect honesty.
4. Shortage of Experienced Personnel
Another reason for evasion is said to be the death of experienced personnel in the department. It is therefore, necessary to have in the department sufficient numbers of trained and experienced personnel and cope with the current as well as arrear load of assessment and investigation work. Simultaneously, the organization and procedures of the department should be improved so as to bring it with the highest pitch of efficiency.
5. Absence of Deterrent Punishment
One important reason for prevalence of evasion is stated to be that in actual practice no deterrent punishment like imprisonment is being imposed on tax evaders when they are caught. It is, therefore recommend that "unless it is brought home to the potential tax evader attempts at concealment will not pay but also actually send him to jail, there could be no effective check against tax evasion". The non-resort to prosecution and non-levy of deterrent punishment has undoubtedly encouragement the growth of tax evasion.
6. Lack of Publicity
Another reason for wide spread evasion is said to be the secret provisions of the Income Tax Acts. The Department does not disclose any information relating to a person's return or assessment, Thus even if a tax evader is caught and penalized for concealment, he can keep it as a secret from everyone and escape. The pressure of public opinion is a major deterrent against any offence and if the secret provisions of the Income Tax Acts are relaxed even to a limited extent, they will go a long way towards checking tax evasion.
7. Moral and Psychological Factors
Certain moral Psychological factors have also been pointed out as responsible for tax evasion in the country. Unfortunately, all citizens do not realize their duties to the state and the necessity of paying the correct amount of taxes and paying them in time. Only a reformed moral outlook and the development of better civic conscience can improve matters in this respect.
8. Attitude of Income Tax Department
It should also be agreed that income tax department is no less responsible for the present state of affairs. It has been said and not unjustifiably, that even when the assessee returns are corrected in respect of income, wealth, etc., and produce evidence in support, the assessing officers do not always accept them. Because of this attitude of the department, it is said that assesses sometimes understate their income and wealth etc. in returns.
This mutual distrust between the assessing officers and the tax payers also encourage to some extent, tax evasion, which should be broken. For this purpose the administration has to take the initiative and trust the assessee, and conduct itself with a high sense of justice and fair play.
9. Officers of the Department should be Men Of Integrity
It has also been said that lack of integrity in some of the officers of the department is partly responsible for tax evasion. It has also been stressed that, "not only should the department officials be honest but they must also be above suspicion and they should so conduct themselves in their private as well as official life that no wrong motives could be attributed to any of their actions"
Wilfykil answered the question on February 13, 2019 at 08:09