Tax Shifting and Tax Evasion
The connection between tax shifting and tax evasion lies in the strategies employed by economic agents to manage the economic burden of taxes. Tax shifting involves the legal or legitimate practice of transferring the tax burden from one party to another, such as from producers to consumers or between different entities within a supply chain. However, when taxes become excessively burdensome, some parties may resort to tax evasion as a means to escape or reduce their tax liability. Tax evasion is an illegal activity where individuals or businesses intentionally underreport their income, overstate deductions, or engage in other fraudulent practices to pay less in taxes. Tax evasion is often driven by a desire to avoid the high costs associated with tax shifting, especially when tax incidence is primarily forward, leading to higher prices for consumers. The connection between the two is that while tax shifting aims to manage the legitimate economic burden of taxes, tax evasion represents an illegal effort to entirely escape that burden, and it can have serious legal and financial consequences.
Incidence and Shifting of Tax : Effect, Importance and Theories
Tax incidence refers to the distribution of the burden of a tax among different parties in an economy, typically between producers and consumers. It examines how the imposition of a tax, whether it is an excise tax, sales tax, or income tax, impacts the prices of goods and services and how the burden of the tax is shared between producers (suppliers) and consumers (buyers). In essence, tax incidence reveals who ultimately bears the economic cost of the tax. The actual incidence can vary depending on factors such as the elasticity of supply and demand for the taxed goods or services, and it is an essential consideration in tax policy analysis and understanding how taxes affect individuals and businesses in an economy.
Table of Content
- Tax Incidence and Effects of Taxation
- Importance of the Study of Tax Incidence
- Shifting of Tax
- Direction of Tax Shifting
- Tax Shifting and Tax Evasion
- Money Burden and Real Burden of Tax
- Theories of Tax Incidence