Tax fraud is a common problem internationally. Many countries have lost a lot of money through tax fraud. For instance, about $190 billion is spent every year by the US government on tax fraud. Tax fraud is a complex matter countries have to handle with no exception. Identifying the factors influencing tax fraud gets us closer to dealing with the bigger problem. Now, let’s identify the factors causing tax fraud in 2021.
1. Tax System Structure
The tax systems of different countries determine the rate at which citizens may evade paying tax. Some tax systems with defects offer opportunities for people to commit tax fraud. Imagine a country having an easy-to-access system by individuals when the tax rate is high. Such individuals, for example Americans living in the UK, will likely find a way to falsify information on their tax returns to limit tax liability.
While we may blame the tax system or people’s cunning behavior, sometimes citizens lack knowledge on tax. Nations with an uneducated citizen on tax matters are highly likely to record high rates of tax fraud. Some may not know the tax days or how to go about filing returns. Well, countries should invest in educating their people on tax matters. Illiteracy costs more, like it’s commonly said, “If you think education is expensive, try illiteracy.”
3. High Tax Rates
High tax rates are tough on citizens. Taxpayers find it hard to pay high taxes while they have low income. In such cases, people find ways to reduce the burden of taxes on them to avoid bankruptcy. One easy solution is to avoid paying their dues. Eventually, tax evasion may cause lawsuits that lead to the small business going bankrupt. Governments should strive to have low tax rates to accommodate low-income earners and reduce tax fraud.
4. Taxpayers’ Mindset
Have you ever come across someone so mad at the government for one reason or another? Every so often, people fail to pay taxes due to their mindset. One main reason could be the government’s failures in the provision of social amenities. Also, some may lack allegiance, let alone be truthful to their countries. Taxes are essential for government productivity. So, change your mindset and pay your dues even when you don’t see the need. “Give the devil his due,” as it’s usually said.
5. Complex Tax Laws
People are likely to deal with the law the best way they understand. Simple, accurate tax laws offer citizens an easy time. Well, understood rules are straightforward. Complex laws give citizens a reason to take advantage. Occasionally, citizens may spend more time figuring out how to go about the law than they would do to understand it. Therefore countries ought to help their people understand tax laws and be committed to paying taxes.
6. The Inefficiency of Tax Administration
The inefficiency of tax administration occurs when people persistently oppose existing tax rates and fail to comply with the administration; tax collection depends on the efficiency of tax administration. Every so often, compromised tax administration leads to inefficiency.
Also, after complete administrative transformation, a realization of the efficiency of tax collection must be registered. Failure of such reforms means so much still needs to be done. Corrupt tax officials in tax administration are another reason for tax fraud presently. To uphold effectiveness in tax administration, critical analysis and evaluation of employees and backup input are essential.
How to Reduce Tax Fraud in 2021
Well, Betty Williams said it, “there is no use talking about the problem unless you talk about the solution.” So, here’s how to reduce tax fraud in 2021:
- Lower tax rates. A high tax rate limits the economic productivity of people. Therefore people tend to commit tax fraud more when rates are high. Higher tax rates result in low tax collection.
- Dutiful declaration. Nations like the US ought to create laws compulsory for organizations to state offshore accounts and those related to the company. Consequently, conducting audits ensures tax fraud is limited in big companies.
- Invest done in tax-compliant companies and individuals. Companies should aim to do business with financial institutions that have well-kept records of their finances. Also, employers hiring ought to recruit employees who are tax responsible.
- Tax Reform. Countries’ tax systems modification to avoid easy hacks by taxpayers. The tax reforms ensure the development of tax systems in the interest of the public.
- End tax secrecy on the wealthy people. Formation of a centralized register that contains data of all people benefiting from a given property. The system automatically shares all the needed ownership and financial information to avoid tax fraud.
Tax fraud robs off the economy of a country. As nations look into increasing taxes earned by reducing tax fraud, employers are encouraged to conduct a job background check on each job applicant. It will help sieve the best candidates and at the same time help curb tax fraud cases.