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What Is Fiscal Evasion?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 29 November 2016
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Fiscal evasion is the use of illegal tactics to avoid financial liabilities, usually in the sense of taxes. This contrasts with avoidance, where people use legal means to reduce their fiscal liability. While those means may sometimes fall into a gray area, they do follow the letter of the law. When an investigation reveals signs of fiscal evasion, people can be subject to harsh penalties, including fines and jail time, depending on the situation. It may also be a topic of interest in the media when it involves large sums or a high profile perpetrator.

People can use a variety of tactics to engage in evasion. One of the most common is hiding or not declaring income. Shuffling money around and moving it to locations like offshore bank accounts can make it difficult to accurately track, allowing people to conceal income. This also has the benefit of masking gains from illegal activities. The net benefit is a reduction in taxes due, allowing people to keep more of their money for other purposes.

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Other fiscal evasion can include keeping all income and refusing to file taxes, falsely claiming credits and other tax benefits, and so forth. All of these activities can reduce total tax liability and may cost governments large amounts of money annually. Even if people engage in relatively low-level fiscal evasion, it adds up across the entire population, particularly since this practice is especially common among people and companies with very high tax liabilities. While the government may not be worried about small sums, it will investigate and prosecute high-volume fiscal evasion and collect damages.

Governments can also use this type of evasion. While governments are held to regulatory standards when it comes to issuing debt and other activities, they may decide to incur financial liabilities without securing voter approval, or engage in other activities that fall outside the letter of the law. This can include making unsound investments and not disclosing them, or other things intended to limit public accountability and avoid fiscal responsibility.

Creators of fiscal policy work hard to make evasion as difficult as possible. Tight regulations govern activities ranging from transferring large sums of money to issuing public debt, with the goal of making it hard for people and institutions to avoid accountability for their actions. Regulators also set out penalties for practicing fiscal evasion, both with the goal of deterring this activity, and providing means for punishing people who choose to conceal or obscure financial activities to avoid liability.

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