Speaking of taxation, it seems to be an endless topic. There are many aspects to be discussed, and one of them is tax violations. When discussing violations in tax matters, there are two common types of violations that need to be known: tax fraud and tax evasion. These two terms are often used interchangeably to describe tax violations. However, they have distinct criteria and regulations. So, what are the differences between tax fraud and tax evasion? TGS AU Partners' tax team will discuss the differences between tax fraud and tax evasion in general.

2 Criminal Tax Violations and its Differences: Tax Fraud and Tax Evasion

Based on its definition, tax fraud refers to the intentional violation of tax laws with the purpose of reducing the amount of tax that should be paid. Tax fraud typically occurs when a taxpayer provides false information during the tax reporting process on their tax return (SPT) to decrease their tax liability.

In essence, making errors in tax payments or reporting is not a criminal act. However, it becomes a violation when you intentionally make mistakes or falsify information. Taxpayers found engaging in such actions may face penalties, ranging from administrative sanctions to criminal charges.

On the other hand, tax evasion is defined as a violation of taxation by engaging in tax evasion schemes. Tax evasion involves reducing the amount of tax owed or even evading payment altogether through illegal means.

In reality, nobody wants to pay more taxes than what they are legally obligated to pay. Therefore, reducing or minimizing your tax obligations through legitimate means is considered acceptable. However, you can be deemed to commit tax evasion if it is discovered that you have used tricks, concealment, or other actions to evade your tax obligations.

From the explanations provided, you can understand that although both terms are sometimes used interchangeably, there are differences between tax fraud and tax evasion. According to Investopedia, tax evasion is essentially a type of tax fraud. Tax fraud encompasses any deliberate deception in tax payment, reporting, or refund claims with the intention of evading rightful tax obligations.

Furthermore, while both tax fraud and tax evasion are serious offenses, tax fraud carries heavier penalties. Tax fraud occurs when tax data or information is falsified, leading to criminal charges. On the other hand, tax evasion occurs when a taxpayer employs illegal means to avoid paying taxes, which can be considered noncompliance in managing their tax affairs.

Criteria for Actions to be Categorized as Tax Fraud

In general, tax fraud can be classified as civil and criminal tax violations. Civil tax fraud takes various forms, including the following:

  1. Filing false claims for tax refunds.

  2. Making false statements to tax authorities.

  3. Assisting someone in filing false tax documents.

  4. Failing to file required tax documents.

Meanwhile, criminal tax fraud involves intentional forgery or omission of data in tax reporting. However, the actions performed are generally categorized as criminal offenses because they violate applicable tax regulations. Here are some common tax fraud actions committed by individual taxpayers:

  1. Fail to report tax obligations through tax returns.

  2. Falsifying actual circumstances to claim tax deductions or credits.

  3. Fail to pay the due taxes.

  4. Preparing and filing false reports.

  5. Fail to report all received income.

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  6. Intentionally smuggling taxable assets to avoid tax burdens.

In addition to individual taxpayers, tax fraud can also be committed by companies, characterized by the following actions:

  1. Fail to report taxes in corporate tax returns.

  2. Fail to report partial or full employee salary payments.

  3. Fail to withhold income tax from employee salaries.

  4. Fail to remit and report withheld employee income tax.

  5. Opening and closing new businesses to evade taxes.

  6. Operating businesses using other individuals' names to avoid corporate tax obligations.

Conclusion

In conclusion, tax fraud is the intentional act of tax violation with the purpose of reducing the amount of tax payable. Tax fraud commonly occurs when taxpayers intentionally falsify information in tax reports or returns. Although tax fraud is said to have less severe penalties compared to tax evasion, both are illegal actions that significantly harm the state. Therefore, as a taxpayer, it is important to fulfill your tax obligations and avoid engaging in any fraudulent or evasive activities.

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