TAX AVOIDANCE AND ETHICS IN THE FINANCIAL WORLD
- Short distinction between tax evasion and tax avoidance (about 100 words)
Tax avoidance is a legal measure of using the tax regime to reduce the total amount of income tax entitled to a taxpayer. For instance, an individual might choose to put his savings using his partner’s name in order to take advantage of their low tax band. On the other hand, tax evasion is a process of taking illegal methods to avoid paying taxes, such as not declaring the actual income to a taxman. Tax avoidance is achieved by taking advantage of loopholes in law but observing with law provisions. Tax evasion is achieved by employing unlawful methods for nonpayment of tax. Payment of tax is essential and compulsory for all individuals in a country even though no one likes to pay taxes, but taxation is a law.
- Explanation of the pros and cons of tax avoidance from an ethical point of view. Use at least 3 different ethical principles in your arguments! (about 900 words)
Pros of tax avoidance
Tax avoidance saves a lot of money for the involved organization if done right. Honesty is required in such a company running its business operations with a tax avoidance mechanism. Even though it saves the company a vast amount of money, it is an expensive method that could lead to a bad reputation if mistakes are made. Avoidance of tax payments may lead to the expansion of a business enterprise, thus making huge profits—the lower the tax bill rate, the higher the ability to fund its activities. Good circulation of money in an organization boosts higher the business and may encourage new customers as the company is capable of producing high-quality goods. Tax avoidance in small business entities will result in higher production, raising the local economy’s standards.
Moreover, tax avoidance boosts higher employment levels, especially to countries having fewer resource bases and are known to have chronic unemployment problems. The relationship between the accumulation of human capital and tax avoidance shows incredible growth in a business. Hence, creating more jobs may as well raise standards of living of a particular local economy. For inequality dynamics, tax avoidance might be an essential mechanism as it affects tax progressively. Moreover, the rate of tax avoidance mainly differs from various types of income. Dependency levels will minimize with the creation of new jobs hence enhancing economic stability. However, being kind and loyal to employees will also be an essential aspect of success. Motivating the workers increases their morale; thus, the company will note a higher production of commodities. Tax avoidance may create a good relationship and respect within the businesses since as tax payment lowers, the company may decide to increase salary to their workers.
Furthermore, integrity virtue helps individuals produce quality, transparent, open communication, and good relationships since they encounter low taxation of commodities. However, tax planning is an important method that helps evaluate how to run a business and determine personal transactions to eliminate or minimize tax liability. Basically, tax avoidance reduces the tax bill by organizing transactions so that a business can reap the highest tax benefits. The avoidance here is entirely legal and wise; hence the theory of deontology should be applied. Quality products may boost the industry as more people would shift to that particular business, making a more massive profit. Enough money in a business is vital so that the business can meet its expenses and have sufficient leftovers that can be used to pay investors and grow the entire business. Moreover, tax avoidance will increase the business’s cash flow, which is necessary to run a business smoothly.
Cons of tax avoidance
Tax avoidance comes with the cost of tax mitigation. The entire process of coming up with a new consolidated organization and an offshore bank in a business tax haven sequence is expensive in facilitating tax mitigation. Tax mitigation is a process whereby a taxpayer takes the merit of a fiscal incentive provided by the tax legislation by submitting to the economic consequences that the tax legislation entails. The company will hence experience charges from the government, banks, and other partners for the non-residents. Tax payment is compulsory to all individuals and businesses as a way of being fair and just to all. Besides, accountants performing the tasks are also entitled to a basic salary and keeping in mind that mitigating taxes in such a manner needs the best-skilled accountants who as well charge expensively.
Nonetheless, though the process is legal, a simple mistake can get someone charged with hefty penalties. As many businesses try to avoid tax payment, the taxman, on the other hand, tries various ways to obtain evidence to attack you and a tax evasion charges in court for years while the person continues to prove his or her innocence. Before reconstructing and filling an individual’s account, effective checking and diligence are important. Tax avoidance might be a legal way to minimize tax, but it can still be apprehended under strict remarkable tax rule avoidance. It is a challenging process that requires a hardworking individual since one is needed to balance the cost of professional fees and complexity against the tax savings.
Another disadvantage is the freedom of public accounts and press. For instance, if a news company performs an investigation and examines out that the business is working offshore evading to pay tax, the company might expose you to the public. Basing on the issue that most people are on social media, this could result in negative publicity for the company hence creating a negative impact on the business. Some virtues, such as being loyal to the government’s tax payment, are required to run the business appropriately. When a company is run without fear of the taxman, the business is entitled to prosper it can do all tasks to make the business thrive since they have already paid the tax.
Avoiding tax payment in business may not always be a good option, even though it is a legal process. An individual might encounter penalties during the year, and hence the following year, one might be required to pay twice. Besides, one may be audited, and errors made might cost a person much more. In this case, the company should apply the utilitarianism principle as it advocates actions that encourage happiness and opposes actions that result in harm. Being caught on the wrong side should not make an individual lose hope, but rather one should learn from the mistake and move on. Unless one’s tax mitigation scheme is entirely allowed by the law, an individual might get caught and sent to jail for evading tax payments. Hence if not well handled, tax avoidance can be a significant risk factor for the entire business.
- Conclusion with your own opinion about the tax avoidance and give your CEO a clear judgment. (about 100 words)
In my view, tax payment should be based on the amount of money that a business or an individual is worth. Tax is compulsory, and an individual should work hard and be loyal to the payment since it helps the government finance its expenditure smoothly. I think that the government should consider tax avoidance and evasion as a felony and a severe crime to those who fail to pay. The government should also incur stiffer penalties and fines to prevent people from running away from it. From the ethical judgments discussed above, tax avoidance will boost the business, hence preventing the organization from competition risks. I also tend to believe that ethical principles increase the overall performance by increasing the workers’ morale making sure it’s a long-term success. Taxpayers should use ethics as a guide for moral values that judge whether the behavior can be justified.