All business owners have faced the point of asking themselves “is this tax evasion? Or is it simply avoidance. Am I not simply practicing my right to plan my taxes in an effective and legal manner to reduce my liability?”
As most taxpayers know, tax avoidance is when a taxpayer arranges his affairs in a legal manner to reduce his tax payable whereas tax evasion is illegal activities where a taxpayer frees himself from a tax burden.
When considering evasion vs avoidance, there are different tax reducing acts which will depend on the tax type at hand. For example, tax evasion in the customs duty sphere would be illegally smuggling goods into the country without declaring them. Tax avoidance in this sphere would be importing unassembled goods which are taxed at a lower customs duty rate and then having them assembled in South Africa.
When considering Value Added Taxes, evasion on such would be deliberately understating sales or overstating expenses. Avoidance would be making use of all the available provisions in the Value- Added Tax Act which rightfully allow for you as a taxpayer to claim VAT on certain goods and services.
The Income Tax Act has implemented specific provisions to circumvent avoidance schemes entered into by taxpayers to prevent certain loopholes that have previously been used.