TAX EVASION VS.

TAX AVOIDANCE Tax Evasion occurs when the taxpayer resorts to unlawful means to lessen or to get away with his tax liability. This is also known as tax dodging. Tax Avoidance happens when the taxpayer minimizes his tax liability by taking advantage of a legally available tax planning opportunities. This is otherwise known as tax minimization. Distinction between Tax Evasion and Tax Avoidance 1. Tax avoidance is legal and not subject to criminal penalty WH !" tax evasion is illegal and subject to criminal penalty. #. Tax avoidance is minimization of taxes WH !" tax evasion always results in absence of tax payments. Classification of taxes 1. As to subject atte! o! object A. "e!sonal# "oll o! ca"itation$ tax of a fixed amount on individuals residing within a specified territory% without regard to their property% occupation or business. "x. &ommunity tax 'basic( $. "!o"e!t%$ imposed on property% real or personal% in proportion to its value% or in accordance with some reasonable method or apportionment. "x. )eal estate Tax C. Excise$ imposed upon the performance of an act% the enjoyment of a privilege% or the engaging in an occupation% profession or business. "x. ncome tax% *+T% "state Tax% ,onor-s Tax &. As to w'o bea!s t'e bu!den of t'e tax a. Di!ect$ the tax is imposed on the person who also bears the burden thereof "x. ncome tax% community tax% estate tax b. Indi!ect . imposed on the taxpayer who shifts the burden of the tax to another% "x. *+T% customs duties. (. As to dete! ination of a ount a. s"ecific . imposed and based on a physical unit of measurement as by head number% weight% length or volume. "x. Tax on distilled spirits% fermented li/uors% cigars b. Ad Valo!e of a fixed proportion of the value of the property with respect to which the tax is assessed. "x. )eal estate tax% excise tax on cars% non essential goods. ). As to "u!"ose A. *ene!al# fiscal# o! !evenue$ imposed for the general purpose of supporting the government. "x. ncome tax% percentage tax $. s"ecial o! !e*ulato!%$ imposed for a special purpose% to achieve some social or economic objective. "x. 0rotective tariffs or custom duties on imported goods intended to protect local industries. +. As to sco"e o! aut'o!it% i "osin* t'e tax a. national$ imposed by the national government ex. 1 )&% custom duties b. unici"al o! local$ imposed by municipal corporations or local governments ex. )eal estate tax% ,. As to *!aduation of !ates. a. "!o"o!tional$ based on a fixed percentage of the amount of the property% receipts or on other basis to be taxed ex. )eal estate tax% *+T b. "!o*!essive and *!aduated$ the rate of the tax increases as the tax base or bracket increases ex. ncome tax% estate tax% donor-s tax c. !e*!essive$ the rate of tax decreases as the tax base or bracket increases. d. de*!essive$ increase of rate is not proportionate to the increase of tax base.