Tax Avoidance: The Good or Bad?
All of you should pay the required taxes to the government on right time. That is a fact. However, that doesn’t mean you are not allowed to avoid paying tax.
So, is tax avoidance good or bad? And, the answer is it can be both depending on your intentions.
Good tax avoidance is when people take up government incentives to do the things that can help them avoid tax. For instance, giving away shares to employees, donating to charity or childcare and putting money in a pension before the taxman visit can actually help to reduce the share of taxman. These tax breaks can help you avoid some amount of tax, so taking advantages of such scheme is a good idea.
Even though many people follow good avoidance, there are still some people who find loopholes to use bad tax avoidance. Bad tax avoidance is when people start doing things that claim to be within the letter of law but in reality they actually aren't. It might involve playing one country’s tax system off against another country, using complex and artificial arrangements to make business in loss to reduce the tax bill.
For carrying out good avoidance, HMRC always encourages people to do so and overlooks bad tax avoidance. That is why GAAR (General Anti-Abuse Rule) has been introduced in the UK tax system to report the abusive arrangements and to know whether a tax arrangement is within the spirit of the law or not. The GAAR aims to report highly abusive and artificial schemes to prevent some blatant tax schemes.
At present, tax avoidance is mainly addressed in three main ways:
• Interpretation of statutes by the Courts
• Specific anti avoidance legislation
• Rules required for the disclosure of tax avoidance schemes (DOTAS).
Through these ways, the government is seeking to control the avoidance nowadays.
To make tax avoidance a good or bad practice is totally up to you. So, choose schemes wisely to be on the safe side.
There are other posts about tax avoidance in our blog catergory. If you want to learn more about them, click here.