Sample Essay on Impact of Tax Evasion on government Revenue
Tax evasion is not a new problem for governments yet, it causes serious economic repercussions. Because of evasion, the government loses a lot of revenue and this leads to an increase of debts. As most countries struggle with deficits, they are trying to find ways through which they can crack down on evasion of taxes.
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The revenue gathered through collection of taxes is important and there are varying ways through which it is collected. Tax is important because it is the major source through which countries generate cash which is used to fund developmental projects. It is also the only means through which governments are able to free themselves from the dependence of handouts and other punitive conditions which are attached to offered aid.
Through tax collection, countries are able to determine the route to take in order to get out of poverty. Yet, majority of citizens choose to evade payment of tax because they believe that when they pay less tax, they have more and they can make use of it to build the economy. This scenario however can only work well in rich nations and other segments of society that are wealthier.For poor countries, tax evasion is a major problem and it poses another major serious situation to deal with. For instance, such countries have to deal with political pressure from rich countries so they can receive aid.
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Countries like Greece in 2013 came up with an autonomous and powerful office model on the United States Internal Revenue Service which would detect tax evasion. Recently, the United States also extended its information reporting system which requires use of payment processors to inform the Internal Revenue Service whenever businesses make payments. This enables the Revenue Service to match the reports to business receipts.
Poor countries are especially known to collect the least revenue because of tax competition, trade liberalization and tax havens tolerance. As the tax from businesses, earnings of the wealthy and trade diminish, Value Added Tax (VAT) increases and this leads to shifts and regressive conditions which place heavier burdens on poorer people within the society.
Though VAT goes high, it does not help replenish the tax revenue that is lost through other means and this only makes the economic situation of the affected country worse. Now, most governments that are collecting less revenue as a result of tax evasion are looking for ways through which they can detect evaders and ensure the same is collected in order to avoid the effects this has on the economy as a whole.
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