Introduction
Tax evasion and avoidance are common phenomena across different economies as companies aim to maximize the profitability of their ventures. The principle of common good requires businesses and governments to carry out their activities responsibly such that the welfare of the citizenry comes first. The determination of effective tax brackets in a country occurs with the aid of government guidelines that helps decide the optimal amount to tax levied on businesses and other industry players. According to Bowden (2005), the selection of appropriate tax brackets in an economy ought to factor the good life ideology as fronted in Aristotle’s theory of virtues. McGee (2011) suggested that it is the role of governments to ensure maximization of the welfare of both investors and common citizens, hence, the need to establish strong legal guidelines with regard to the amount of tax and other contributions remitted by businesses to the government. Prebble (2011) argues that tax avoidance is a legal as it emanates from the existence of loopholes within a tax system while tax evasion is a criminal practice of companies designed to avoid paying the ideal amount of tax they owe the government. The provision of tax avoidance in an economy is regarded unethical in line with Aristotle’s theory of virtues despite being appropriate for economic development of the avoiders. To help ensure governments observe the common good principle, Hall (2014) notes that tax avoidance and evasion are unethical practises that should not be allowed to thrive in an economy. Indeed, governments should regulate tax evasion and avoidance by establishing appropriate guidelines that can help mitigate any criminal tax practises.
Tax Evasion
Prebble (2011) argues that tax evasion is a term used to describe the attempts of people or organizations to circumvent tax laws wilfully such that they illegally decrease their tax liability. Through tax evasion, businesses and organizations hide their real amount of taxable income in a bid to reduce the amount of tax they remit to the governing authorities (Kirchler et al., 2001). Tax evasion is an unethical practise that contravenes the common provisions of the theory of virtues in addition to going against the legal tax guidelines set by various governments. The wilful attempt to avoid paying the right amount of taxes results in the an unfair
The main types of tax evasion common in the modern world include; understating the actual taxable income, failure to record all transactions that help exhibit the actual income and the forgery of exaggerated invoices to help enhance the possibility of a company receiving higher amount s of tax deductions for incurred expenses (Prebble, 2011). Tax evasion is a both a criminal and an unethical activity as the perpetrators act against the provisions of the government and the societal ethical requirements. The mitigation of tax evasion is a complex process that requires governments to institute efficient measures that can help curb all loopholes that foster the activities of the tax evaders.
Macaro (2005) argues that tax evaders enjoy making high profits due the concealed incomes that fail to undergo taxation, which is against the good life principles fronted in Aristotle’s theory of virtues. Ethically, organizations and other businesses engaged in tax evasion ought to understand the uses of their taxes and the need to be transparent to help the government meet the needs of the citizenry. Production oriented organizations bring about some levels of environmental pollution that require proper management to help ensure the sustainability of the planet (Macaro, 2015). Managing the environmental dangers posed by industries requires money, whose source lies in the taxes authorities receive from the organizations. The decline in the level of revenues remitted to governments from organizations in the form of taxes thus hampers the ability of government to provide essential services to its people and the environment, prompting the need for change of tact to help mitigate tax evasion.
For the government to manage the process of mitigating tax evasion effectively, it has to undertake an elaborate analysis of the appropriate tax schemes that favour the sustainability of businesses (Sugden, 2004). The use of exorbitant taxes can lure businesses to engage in dishonesty to help them keep thriving in the economy as the taxes threaten their profitability. Fair tax schemes helps organizations remit their fair share of taxes, as they ethically oblige to abide by the set government guidelines. Some tax schemes used by various governments are outdated, prompting the need for governments to review their tax laws consistently such that they apply tax rates commensurate with the growth or decline of a country’s economic growth (McGee, 2011). The government should thus not highly commit to the use of force in the mitigation of tax evasion across the UK, US or in other regions but should rather couple up with the adoption of policies that help entice business players to being honest in their income statements.
Governments ought to do sufficient background checks to help establish appropriate tax rates that help business organizations remit their fair share of taxes. The administrative machineries owned by governments have the ability to monitor the income flows of various companies and can undertake detailed audits to help ensure all companies report their appropriate amounts of taxable incomes (McGee, 2011). Adoption of exorbitant fines for those caught in the practise of tax evasion can also serve as a tool of mitigating tax evasion. Additionally, the use strict use of imprisonment as a punishment for business owners practising tax evasion can equally help ensure organizations provide their actual taxable incomes. Taxpayers and citizens of various countries expect their governments to behave rationally and ensure efficient tax collection from all sectors to help enhance the level of available revenues that can help run the economy.
The ability of a government to ensure maximum collection of all legally stipulated revenues in a just and fair way is not an option but a mandatory requirement that facilitates government operations (Sugden, 2004). It is thus the moral obligation for governments to collect all stipulated taxes justly to help enhance equality in the economy such that some industry players do not enjoy preferential treatment at the expense of others. It is the responsibility of governments to ensure equality in the treatment of all their citizens, hence, mitigating tax evasion helps ensure everybody receive their fair share of incomes (Sugden, 2004). In the spirit of ethics, it should thus be the obligation of all governments to mitigate tax evasion for the sake of income equality in various economies and not just a primary focus on revenue collection.
Organizations taking part in tax evasion need to understand the need to not only focus on the profits they make by being unfair but should also think about the injustice they cause by being unfair. Morally, all organizations ought to pay attention to ethics in the consideration of their honesty when communicating their levels of taxable income. A consideration of Aristotle’s ethics and virtues guidelines will help organizations rise above the focus on profitability such that they give priority to ethical benefits of ensuring proper taxable income communication. The focus on ethics helps businesses enhance equal and just competition in an economy as no one enjoys undue revenues based on dishonest communication of taxable incomes.
Tax Avoidance
The distinction between tax avoidance and tax evasion lies on the legal paradigms of both, since they have a similarity of targeting tax reduction (Slemrod and Yitzhaki, 2002). The perpetrators of tax evasion do so with the intention of illegally reducing the amounts of taxes they remit to authorities, hence, making it a punishable offence as it goes against the tax guidelines of various countries. Tax avoidance as described by Pebble (2011) refers to the legal tax minimizing behaviour designed to exploit tax loopholes in an economy. The reduction in an individual or organization’s tax liability due to the existence of loopholes in the tax systems of a country helps them make higher profits, creating an inequality in the economy.
Murphy and Nagel (2002) argue that tax avoidance is the process of reallocating resources to the tax avoider from the society, hence, creating an inequality. The process of creating tax avoidance provisions is complex and requires a lot of legal processing to help avoid contravening the tax laws of an economy. Tax avoidance helps enhance the level of income of the avoider due to the huge benefits enjoyed in avoiding to pay income taxes and other forms of taxes. The implication of tax avoidance in a society the creation of inequality, hence, making the process unethical. McGee (2014) opines that taxes are an instrument of redistributing income in an economy in an attempt to create equality, hence, the need to abolish tax avoidance.
Through the moral philosophy of utilitarianism, McGee (2014) notes that governments should allow actions designed to enhance happiness among the people to thrive while stifling those that support the contrary. Tax avoidance promotes the welfare of the tax avoiders who benefit from the transfer of resources to their side to make huge profits with no little or no transfer of benefits to the society (Jones, 2008). The legal loophole that allows businesses to make profits at little or no cost in the form of tax avoidance highly promotes their welfare while depriving the government of valuable revenues that can be used to transform the society positively.
Hall (2014) argues that tax avoidance is a principle that goes against the ideologies of John Stuart Mill’s utilitarianism theory because the proceeds from taxes emanate from profits, which are re-distributed in an economy to help enhance equality. The realization of an equal and just economy occurs through the development of tax-financed programs that boost the common good of all citizens in an economy. In a utilitarian perspective, the inability of individuals or companies to remit taxes to governments from which they get distributed across an economy is unethical and ought to be largely abhorred (Hall, 2014). The establishment of welfare enhancing programs in an economy helps the people gain happiness and enjoy the proceeds of a just system that cares for them just like it does to the business owners.
Individuals and organizations that enjoy tax avoidance benefits remain unethical to both governments and the societies they operate in due to their inability to contribute to their social welfare. The legality of tax avoidance due to the lack of laws to prosecute those failing to remit their fair share of taxes should thus not be used as a profiteering loophole as the affected individuals or organizations ought to re-evaluate their responsibility to the government and the economy (McGee, 2011). Governments are there to provide for the needs of citizens with the support of tax incomes, hence, the failure to remit taxes cripple the government’s ability to address the welfare of the society. Based on Aristotle’s theory of virtue and Mill’s utilitarian theory, individuals or organizations taking part in tax avoidance need to understand their ethical requirements, hence, the need to think beyond the profits they make.
McGee (2014) asserts that business ethics ought to be integral to the operations of all businesses, which translates to the need for businesses to behave justly in their pursuit of profits. Avoiding tax may not be prosecutable in law since it contravenes no legal provisions but the ethical part of business operations ought to push tax-avoiding businesses to rethinking their business strategies such that they develop mechanisms to enhance the society’s welfare. The ability of a business to contribute to the happiness of a people is important in helping fulfil their ethical obligations under the guidelines of both Aristotle and John Stuart Mills.
Governments make laws and have the moral and legal obligation of providing for the welfare of their people. It is thus their responsibility to ensure maximum collection of tax revenue as provided by the law to help facilitate the process of caring for all persons. The inability of governments to institute strong and comprehensive laws creates loopholes in an economy through, which individuals and organizations make profits with little or no remittance of taxes (McGee, 2011). Tax avoidance is legal due to the lack of laws to seal existing loopholes; hence, governments cannot prosecute those engaging in the practice of making huge amounts of profits with little or no government interference.
The government has the ability to mitigate tax avoidance through the establishment of comprehensive laws that focus on all sectors and aspects of an economy. As argued by Pebble (2011), a lot of revenue is lost due to the lack of laws that facilitate the collection of due revenue, prompting the need for state agencies to act swiftly in sealing all tax loopholes. Governments not only miss the chance to boost their revenues through tax avoidance but equally fail in their moral obligation of ensuring equal and just distribution of wealth and incomes across an economy. Morally, governments understand the need to have all companies and individuals in business operate on a level ground to help ensure equality through the remittance of taxes according to ones’ income bracket (Pebble, 2011). The moral requirement for governments to fight for the common good of all persons within their societies prompts governments to use all the available state machineries to help enhance equality.
Governments are thus positioned appropriately to help mitigate the problem of tax avoidance with available state machinery and the development of laws designed to ensure sealing of all existing loopholes. The ability of governments to seal both tax evasion and tax avoidance loopholes emanates from the governments need to raise sufficient revenues that can help run the affairs of the economy in addition to its moral obligation to enhance equality. The ethical needs of a government to behave responsibly and meet the happiness of the people by ensuring all social services designed to enhance the welfare of society are upheld helps governments fight to seal all loopholes.
Mitigating Tax Evasion and Avoidance across various Regions
According to Murphy (2014), both tax evasion and tax affect the economies of several countries negatively due to the loss of vital taxes that could help spur economic growth in addition to enhancing the welfare of the society. A focus on the UK with regard to the cases of tax evasion and tax avoidance reveals that the United Kingdom suffers $ 80 billion losses in tax evasion while $20 billion is lost in tax avoidance incidents (Murphy, 2014). The revelation of the huge losses suffered by the a UK government due to the existence of both tax evasion and tax avoidance is an exhibition of the amount of development incomes that governments are missing out to help them achieve their social-economic agendas.
Hall (2014) notes that tax avoidance and evasion across the UK, US and other regions around the world is inevitable due to the existence of both small businesses and illegal businesses. Drug business in the US, UK or other regions around the world is an example of a highly thriving business through which individuals and organizations make billions of dollars yet the business cannot be taxed due to the legal loopholes that regard the business illegal. Drug business takes place across different regions around the world and the main problem is the inability of governments to tax such businesses due to their illegality, hence, leading to the development of tax avoidance.
Regions like the EU have taken the taxation issue seriously and set up groups to help monitor the existence of exorbitant taxes, double taxation, tax avoidance and tax evasion among member countries to help sanitize the tax schemes among member countries. Hall (2014) argues that the establishment of the Tax Policy Group in the EU helps the region identify tax avoidance and double taxation to help develop efficient counter mechanisms that can help governments boost their tax revenues. The European Commission (2017) notes that the Code of Conduct Business Taxation Group in the UN helps member countries identify the areas of tax weaknesses such that they can develop counter measures. The most commonly focussed issue in this group is the analysis of existing harmful taxes that discourage the remittance of fair share of taxes among the industry players across different economies within the European Union.
The EU serves as a good example of regions that have taken it upon themselves to fight for just and effective tax systems that boost both trade and the welfare of the society. Given the statistics of the amount of revenue being lost in the UK in the form of tax evasion and tax avoidance per annum, it is important to note that there is urgent need for governments to adopt effective measures to help counter tax evasion and tax avoidance across different regions around the world. Hall (2014) notes that other than the establishment of groups to help identify and design methods to eliminate tax evasion and avoidance in the EU, the region uses the tactic of educating individuals and organizations engaged in business in the region of the need to maintain high ethical and moral behaviours. The adherence to the principles of morality and ethics helps the business industry players in the region understand the need to state their actual amount of taxable incomes.
Conclusion
Tax evasion and avoidance are common phenomena across different regions around the world. The practises contribute to the loss of lots of revenue to governments that could help enhance the social welfare of the societies in various economies. The effects of tax evasion and avoidance are not only economic but also ethical based on the arguments of the utilitarian philosophy that aims at supporting actions that enhance the level of happiness in a society. Through the adoption of appropriate strategies, governments can help mitigate the proliferation of both tax avoidance and tax evasion with the help of effective counter measures and techniques. Various regions and economies have already established concrete mechanisms to help curb tax evasion and tax avoidance across the world.
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