What are the Effects of Tax Frauds on Economy?
Taxes (Photo credit: Tax Credits)
Taxes are enforced financial charge levied on persons or property usually affected through a legislation or existing law. Taxes are assessed and collected because they are used to support various governmental projects and programs. It is through taxes that the government obtains funds to carry on its operations and purchase facilities intended to promote the welfare of the populace at large. Taxes also provides for funds to support various industries and promote commercialization.
The imposition of taxes is strictly observed. Individuals who default in paying their taxes or otherwise filed a fraudulent return may punished by law. Because of the enormous significance of taxes in government functions and world economy, fraud on tax returns and in payment thereof is gravely dealt with by law. More specifically, here are some of the harsh economic effects brought about by tax fraud.
Diminution of Governmental Functions
As mentioned, it is through taxes that governments are enabled to support its programs and projects. With taxes, governments are able to purchases armaments and equipment for national defense. With sufficient amount of funds derived from taxes, the state can provide for effective and useful policies for the poor, old aged, and the youth. Taxes are also utilized for the grant of scholarships to children and those unable to finance their schooling. With taxes, the government can construct health care facilities and afford the public health care and support free of charge. As such, non-payment of tax and the payment of insufficient amount of tax caused by tax fraud will be greatly detrimental to the government. Most significantly, it is prejudicial to the public, especially to people in need of financial, social, and medical aid.
Reflection of Poor Governance
The rampant commission of tax fraud in a given state is a reflection of poor governmental and economic policies. This is detrimental to the commercialization and in promoting investments and tourism in the place. If investors learn of massive and unregulated tax frauds in a state, it is hardly possible for them to make investments. The economy of such state will slowly deteriorate. In effect, annual government income diminishes, and funds for public purposes likewise become insufficient. Moreover, a high number of tax fraud cases mean that the government is not performing its functions properly. It reflects that the state lacks seriousness in combating tax frauds by not enacting laws imposing more harsh penalties for individuals committing tax fraud.
Tax Fraud Associated with Corruption
Tax fraud is often associated with corruption. Too often, some states find difficulty in controlling and averting cases of tax fraud because the officials themselves are committing the same offense. If not, government officials are supporting and encouraging individuals to do tax frauds instead of promoting state policies. Situations as these are detrimental to a government’s economy and will shy away investors.
Tax Frauds Deter Globalization
A state with high number of tax fraud cases may find it difficult to keep up with economic competition. This is obviously because tax collection is poor. Reluctantly a state will lack funds to support its economy and significant industries. It has no means of regulating such industries in the absence of sufficient equipment and workers sufficiently paid for.
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Category: Taxes
