The ripple effect of tax evasion: A risk to everyone

People evade taxes for various reasons. One common factor is the desire to avoid financial burden, especially when tax rates are perceived as high or unfair.

Some individuals may also lack trust in how tax revenues are used by the government, leading them to believe that paying taxes is not beneficial. Others may feel that tax evasion is a victimless crime or that they can get away with it due to weak enforcement with in the system.

In some cases, complexity in the tax system and lack of awareness about tax laws may also contribute to unintentional non-compliance. Additionally, economic pressures or the desire for a higher standard of living can motivate individuals to evade taxes, viewing it as a quick solution to financial difficulties.

Nevertheless, if an individual or business considers evading taxes, they may not fully understand the extensive long-term impacts of their actions. While tax evasion might appear advantageous in the short term, it can ultimately jeopardize their own interests and negatively affect the overall welfare of society. Tax evasion represents a significant challenge with wide-ranging effects on society.

When individuals or businesses intentionally evade paying taxes, they not only deny the government essential funds needed for critical services such as education, healthcare and infrastructure, but they also create an uneven playing field for those who pay taxes.

This behaviour erodes the fairness of the tax system and imposes an unfair burden on compliant taxpayers. Furthermore, tax evasion can disrupt markets and stifle economic progress, ultimately affecting the well-being of society as a whole.

This article aims to highlight the widespread consequences of tax evasion, emphasising how it undermines public services, economic growth and social fairness, ultimately impacting every member of society.

The role of taxes in society
Taxation is a fundamental aspect of any functioning government, serving as the primary means for financing public services and infrastructure. Through taxes, governments fund essential programmes such as welfare services, knowledge aquisition, law enforcement, defense and social security which the services are crucial to the public welfare.

In addition to these core services, taxes support disaster relief efforts, road maintenance, scientific research and much more, contributing to the overall development of the nation. Without a consistent flow of tax revenue, the government would be unable to fulfill its responsibilities to the public, leading to gaps in services that are essential for daily life.

Paying taxes is not only a legal obligation but also a civic duty. It ensures that government can meet the demands of their population and invest in long-term societal growth.

For individuals and businesses, contributing taxes is an integral part of maintaining a stable and prosperous economy. In return, the government reinvests this revenue into vital sectors that directly affect the people’s quality of life. By fulfilling their tax obligations, citizens play an active role in shaping the future of their country and supporting the services that benefit everyone.

Repercussions of tax evasion
Tax evasion poses a significant threat to the smooth functioning of government services by depriving public institutions of the critical funds they rely on. As tax evasion increases, governments face budget deficits, forcing them to either cut essential services or raise taxes on law-abiding citizens, which creates an unfair burden.

When tax revenues decline, governments struggle to fund initiatives that drive economic growth, such as infrastructure development, technological advancement, research and innovation and the generation of new knowledge.

The lack of investment stifles job creation, limits business opportunities, hampers improvements in standard of living and undermines the economy’s overall competitiveness.

Consequently, economic growth slows, negatively impacting everyone from workers to entrepreneursm by reducing prosperity and limiting future potential.

Additionally, the frustration felt by honest taxpayers grows, fostering a sense of mistrust. This results in an environment where those who adhere to the law are unfairly penalised, while tax evaders continue to benefit.

This situation erodes social fairness and cohesion, ultimately harming society by depriving it of vital public goods and services that benefit everyone.

Additionally, tax evasion can have severe personal consequences, such as legal penalties, financial instability and a damaged reputation. It can also lead to increased stress, negatively impacting personal relationships and long-term financial security.

What steps can we take?
As tax evasion reverberates throughout the economy and society, its consequences extend far beyond the act itself. So, what can we do collectively to reduce the risk of tax evasion? Rather than waiting for policymakers to implement stricter measures or for tax authorities to conduct rigorous investigations and prosecutions, we can take individual responsibility by ensuring we fulfill our tax obligations.

This includes accurately reporting income and expenses, avoiding the creation of false invoices, declaring all assets and liabilities, refraining from hiding offshore income, and not manipulating transaction prices.

These actions are essential to maintaining compliance with tax regulations. By doing so, we not only contribute to the economic process but also experience a sense of moral satisfaction and self-fulfillment.

Paying taxes is our duty to society and instead of pointing fingers or blaming others, it’s time for us to act. Together, we can strengthen the economy and ensure a fairer and more prosperous society for all.

(Author- Dr. Nadee Dissanayake,Deputy Commissioner General Inland Revenue Department)

(dailynews.lk)