Tax evasion versus avoidance

11 March 2019 | Business

There is a thin line between tax evasion and avoidance as they both result in reducing taxes or not paying taxes at all.

Tax evasion refers to illegal activities deliberately undertaken by a taxpayer to free itself from a tax burden. The commissioner of inland revenue needs no special powers to counter tax evasion, which is in essence a fraud against the fiscus and if discovered, could result in heavy penalties being imposed.

Tax avoidance, in contrast, denotes a situation in which the taxpayer has arranged its affairs in a perfectly legal manner in order to minimise the amount of tax payable by the taxpayer.

For example, not declaring income arising from an all-cash business, foreign source or illegal activities (such as drug dealing or prostitution) may constitute tax evasion. However, increasing your retirement fund contributions or donating to an inland revenue registered welfare organisation in order to reduce your taxable income is regarded as tax avoidance or planning.

Guidance indicators are established under section 95, which enables the receiver of revenue to disregard a transaction for tax purposes if it can be proven that;

• The transaction, operation or scheme has the effect of avoiding, postponing or reducing the liability for the payment of any duty, levy or tax.

• It was entered into for the sole purpose of avoidance, postponement or reduction of any liability for the payment of any duty, levy or tax.

• It was entered into a manner that is abnormal when considering similar transactions, or

• It was entered into in a manner, which creates rights or obligations that would not normally be created between persons that are an arm’s length under similar transactions.

It is important to note that the provisions are not limited to the Income Tax Act but to any tax, duty or levy administered by the minister of finance.

According to section 95 for an impermissible avoidance arrangement to exist, the main purpose of the arrangement must be to obtain a tax benefit. However, at the same time for section 95 to be applied, all the above characteristics needs to be present to empower the commissioner to evoke the taxpayer’s taxability while inflicting penalties as per section 65 and 66.

Despite the fact that the Income Tax Act has specific and general avoidance provisions, it is not illegal for a taxpayer to plan their tax affairs in a manner that is the most beneficial to them as there is no obligation for a taxpayer to pay more tax than is legally required under the Income Tax Act.

The commissioner of inland revenue seeks only to disregard those transactions, which have been arranged with the intent to defraud inland revenue purposefully and within the criteria set out in Section 95 above.

Johan Nel is a partner: corporate tax service at PwC Namibia. This series on tax is published in Market Watch bi-monthly on a Monday.

Similar News

 

Palladium hits record high

3 hours ago | Business

Palladium surged to a record yesterday as the risk of a ban on some Russian exports added to supply concerns for the autocatalyst metal. Spot...

State supports non-compliant security firms

3 hours ago | Business

Employers and trade unions agree that one of the major issues facing the Namibian security services industry is that some government institutions continue to appoint...

Company news in brief

3 hours ago | Business

Steinhoff ex-chairman open to talksFormer Steinhoff chairman and top shareholder Christo Wiese is open to negotiations over his US$4 billion claim against the company, he...

Audit to determine local stake in construction tenders

1 day - 19 March 2019 | Business

ONHUNO – The ministry of works and transport is currently undertaking an audit process to identify Namibian-owned companies which was awarded tenders in the last...

Company news in brief

1 day - 19 March 2019 | Business

Antitrust watchdog raids Glencore businessIndia's antitrust watchdog raided units of global commodities trader Glencore and two other firms in Mumbai on Saturday in an inquiry...

Strong kick in NamBrew results

2 days ago - 18 March 2019 | Business

Jo-Maré Duddy – NamBrew’s jump of nearly 53% year-on-year in its profit for the six months ended 31 December 2018, and especially the performance of...

Boost effectiveness, fight corruption

2 days ago - 18 March 2019 | Business

Although government’s effectiveness, as measured by the International Labour Organisation (ILO) and the Namibian Employers’ Federation (NEF), has improved from 2009 to 2015, its latest...

Company news in brief

2 days ago - 18 March 2019 | Business

PwC investigation finds accounting fraud at Steinhoff South African retailer Steinhoff said an independent report had found it had overstated profits over several years in...

Massive jump in NamBrew’s profit

4 days ago - 15 March 2019 | Business

Namibia Breweries Ltd reported a profit of nearly N$366.7 million for the six months ended 31 December 2018. Compared to the same half-year in 2017,...

Dimmer production year for Otjikoto

5 days ago - 15 March 2019 | Business

Jo-Maré DuddyThe Otjikoto mine in the North last year contributed nearly 18% to majority shareholder B2Gold Corp's record annual consolidated gold production of 953 504...

Latest News

Africa Briefs

3 hours ago | Economics

No end date for Eskom’s power cutsSouth Africa's public enterprises Minister Pravin Gordhan said yesterday he cannot say yet when rolling blackouts will end, as...

Cob plundering suspects nabbed

3 hours ago | Crime

Leandrea Louw Two men arrested on Saturday for allegedly being in possession of 60 large cob made their first appearance in the Walvis Bay Magistrate’s...

Unfinished pipeline impacts 7 000...

3 hours ago | Infrastructure

About 6 932 people and 33 790 large and 18 395 small stock units are facing thirst, as the agriculture ministry battles to finish the...

Apple unveils new iPad, updates...

3 hours ago | Technology

Sonam RaiApple Inc, in a surprise move on Monday, launched a new 10.5-inch iPad Air and updated its iPad Mini ahead of a March 25...

Climate change and productivity

3 hours ago | Agriculture

Climate change is a long-term change in climatic/weather patterns of the earth or region. Such change is observed in temperature and rainfall patterns, amongst others....

Palladium hits record high

3 hours ago | Business

Palladium surged to a record yesterday as the risk of a ban on some Russian exports added to supply concerns for the autocatalyst metal. Spot...

State supports non-compliant security firms

3 hours ago | Business

Employers and trade unions agree that one of the major issues facing the Namibian security services industry is that some government institutions continue to appoint...

Company news in brief

3 hours ago | Business

Steinhoff ex-chairman open to talksFormer Steinhoff chairman and top shareholder Christo Wiese is open to negotiations over his US$4 billion claim against the company, he...

Agri ministry sidesteps timber issues

3 hours ago | Agriculture

The ministry has sidestepped key questions on whether it will re-implement the ban on the export of unprocessed timber until a local value addition processing...

Load More