Download Free Recent Taxation 1 Question And Answers For Section 4
Distinguish between tax evasion and tax avoidance. ( 5 marks)
Answer
- Tax evasion is an illegal means employed by a taxpayer in order to reduce his tax liability. This may be carried out by fraudulent or false tax, smuggling, hiding or non-declaration of incomes, claiming expenses or relief one is not entitled to, etc. The Tax Act usually states the penalties to be applied in case of evasion of tax.
Tax avoidance on the other hand is where a taxpayer uses methods to reduce tax liability but within the law. This could be done by studying the Tax Act and detecting loopholes in it to be exploited to the full advantage of the taxpayer. For example a taxpayer could operate business as a company or sole proprietorship or partnership whichever gives the best advantage. Pressure groups could be formed to influence legislation in taxpayers favour. Note that tax avoidance (tax planning) may or may not lead to loss of revenue to the government and is not punishable.
Suggest three possible ways in which the Government may prevent loss of tax revenue from imports.
- To prevent or curb loss of revenue on imports, Mombasa port should seal loopholes by:-
- Ensuring that import declaration procedures as well as pre-shipment inspections be improved and tightened. Offshore inspections and proper classifications of goods imported be done.
- Goods in transit must reach countries of destination and not converted into use in the country by ensuring that bond charges are imported to be refunded on proving that such goods have reached destination. This could also call for liaison with the authorities of the country of destination of the goods in question.
- Collusion between customs officers and taxpayers should be strictly policed and that heavy penalty be imposed on offenders.
CPA Section 4 Past Examination Papers and Answers
Download Other Education Resources From Our Sites
