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You are here: Home Blog Posts Taxation Blog Tax Evasion under Ethiopian Tax Laws - Conceptual Introduction
21 Oct
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Tax Evasion under Ethiopian Tax Laws - Conceptual Introduction

INTRODUCTION

Taxation is as old as history of early state formation. As tax remains essential source of public finance, states used to collect taxes for public funding. Apart from its extant condemnation by modern governments, one can strongly argue that tax evasion remains persistent challenge from the very inception of state. Nowadays, following the advancement of public finance the concept of tax evasion get emphasis by tax scholars. It is now condemned and categorized as anti-social behaviors as well as criminal act.

What is tax evasion then?

 Even though it’s helpful to provide conventional definition of tax evasion, as the concept more of relies on the tax laws that regulate it, which is territorial and jurisdictional by nature, providing universal definition at the outset remains a challenge. However based on definitions given to the term in different legal systems if not universal, one can come up with comprehended definitions of the therm. To come up with few, the United States revenue service sector (IRC), defines tax evasion under section 7201,-“as willful attempts in any manner to evade or defeat any tax or the payment thereof”.

The definition given above by IRC clearly depict any intentional attempt to defeat assessment of true tax liabilities which in turn end in tax Deficiency(evasion of assessment) and non-payment of tax due and owing(evasion of payment)as tax evasion. Among others a comprehensive definition of tax evasion was given by Canadian department of national revenues-as-

“The commission or omission of an act knowingly with intent to deceive so that the tax reported the tax payer is less than the tax payable under the law or a omission of revenue, fraudulent claiming of expenses or allowances and the deliberate misrepresentation, concealment or with holding of material facts.”

According to the Canadian revenue department, Tax Evasion is intentional deceitful act/omission to reduce tax payable under the law and conspiracy to the effect. Likewise, the definition comprise essentials of tax evasion such as  existence of affirmative act/omission that ends in Tax deficiency or under reporting of the tax less than the tax payable under the tax law.

In nutshell, tax evasion simply refers to intentional effort by people, corporate body,trust and other institutions to illicitly refuse to pay their tax and reporting true and fair value of their earnings by means of evading.

TYPES OF TAX EVASION

Scholar’s such as Fakile and Adegibie (2011) classifies tax evasion as full and partial evasion. Partial evasion occurs when individual or corporate entity understated its earnings for the purpose of tax and declares low income. Whereas, full evading occurs when person or corporate entity qualified to pay tax fails to register with tax authority to enroll in the tax system.

FACTORS &THE RAISON D’ÊTRE OF TAX EVASION

Even though the nature and types of reasons differ, there are a lot of underlying factors contributing for tax evasions. Amongst:-

  • The domestic shadow economy
  • Foreign asset hold by domestic residents
  • Income shifting by multinational firms over transfer pricing
  • Tax competition among countries which derives up tax rates,
  • Nonpayment of taxes which are due but, which are not collected for few reasons like
  • Lack of essence of civic responsibilities
  • Out right refusal(tax protest) or neglect to pay tax
  • Under reporting of income
  • Failure to furnish return
  • Fake invoice
  • Claiming refund for which one is not legible for. etc.

TAX EVASION UNDER ETHIOPIAN TAX LAWS

Under Ethiopian tax laws, even though, tax protest have longevity which goes back to imperial regime, tax evasion in its contemporary mannerism was first introduced in the year 1994, which comes with well advanced income tax proclamations 285/94 and value added proclamation 286/94.

Saving the noticeable difference in the method and nature of fraud, the concept of tax evasion was regulated in the same manner under both proclamations.

Here in below I will discuss synopsis of tax evasion as introduced under both income and value added tax proclamations in comparison with the new tax administrations proclamation 983/2008.

 

TAX EVASION UNDER ETHIOPIAN INCOME TAX LAWS

Ethiopian Income tax proc. no.286/94 was among the first laws that introduce the concept of tax evasions with its contemporary development. Section 9, art 96 of the proclamation comes with definition of the term.

Accordingly, “A taxpayer who evades the declaration or payment of tax commits an offense and, in addition to the penalty for the understatement of income referred to in Article 86, may be prosecuted and, on conviction, be subject to imprisonment for a term of not less than five (5) years”

Pursuant to the above article tax evasion is regulated having two (2) aspects.   Those include:

  • evasion of declaration(assessment)
  • evasion of payment

EVASION OF DECLARATION:-

Unlike the case of value added and turn over tax where the epicenter of tax evasion discourse bases itself on whether we declare or pay the tax we collect on behalf of the government, under income tax law regime what can be evaded in the sense of evasion of declaration  is tax payers income.

Proclamation no. 286/94 here after called the proclamation, though not peculiar to tax legislations, introduces evasion of declaration (assessment) in its newest sense to Ethiopian income tax law regime with the phrase “a taxpayer who evades the declaration…”.

As majority of tax evasion cases fall under this category of evasion, I do believe tax professionals should be well versed with it. Other than the above phrase, the proclamation does not clearly define what evasion of declaration mean. Hence, we have no option than being persuaded to discuss what evasion of declaration meant under developed tax jurisprudence.

In legal parlance evasion of declaration “Entails an attempt (actions) to prevent the government from calculating tax payers’ true tax liability”

The most common attempt to evade or defeat a tax is the affirmative act of filing a false return that omits income and/or claims deductions to which the taxpayer is not entitled. Consequently, such willful under reporting or overstating of costs constitutes an attempt to evade or defeat tax by evading the correct assessment of the tax.

To establish evasion of declaration the government (prosecutor) must prove that:

  • The defendant committed an affirmative act to defeat or evade tax.
  • There must be a material amount of tax due and owing.
  • The defendant must act willfully.

 

  1. The defendant committed an affirmative act to defeat or evade tax

Affirmative action is an action taken by the tax payers for the purpose of tax evasion. Taxpayer must undertake some action, that is, engage in an affirmative act for the purpose of attempting to evade or defeat the assessment of a tax.

This might be in the form of:-

-Filing false tax return that omits income, or

-Claiming deductions to which the tax payer doesn’t have entitlement etc.

 Needless to mention, both prosecution office and courts must view the requirement of affirmative conduct broadly and all the means to do it. According to IRS, There are a lot of  acts that constitute affirmative conduct as established by the Supreme Court of united states in the seminal case of Spies v. United States, 317 U.S. 492 (1943). Those nonexclusive lists of acts by the court that constitutes affirmative conduct includes-

  • “keeping a double set of books,
  • making false entries of alterations, or false invoices or documents,
  • destruction of books or records,
  • concealment of assets or covering up sources of income,
  • Handling of one's affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or to conceal.”

Is a failure to act or omission such as failure to file a return on due date in itself establish affirmative conduct and suffice condition entailing evasion of declaration under Ethiopian income tax proc- 286/94?

In the writer’s opinion mere failure to file a tax return on due date can’t cause criminal tax liability. Things should go more than the passive failure to file a tax return. It should rather require a positive act of commission designed to mislead or conceal tax. The failure to file a return must be coupled with other affirmative conducts that unequivocally indicate the fraudulent intent of the tax payer to evade tax. Under IRS, it is judicially established that A taxpayer cannot be convicted of tax evasion based merely on a willful omission (see United States v. Romano,1991).

Apart from the above discussion, the new tax administration proclamation no 983/2008 clearly regulate failure to file a tax declaration/return as tax evasion. The proclamation peculiarly comes with the phrase “with intent to evade tax” which clearly depicts the duty of the government to unequivocally show the fraudulent intent of tax payer to evade tax with the shadow of failure to file tax return.

In nutshell, the existence of affirmative act remains an essential element of Evasion of declaration under income tax law regime.

  1. There must be a material amount of tax due and owing.

In every jurisdiction where tax evasion is regulated as tax crime, the existence of a tax deficiency is a required element of evasion of declaration. Under IRC, Even if a defendant intentionally failed to report income and took affirmative steps toward evasion, the suspect is convicted of tax evasion if and only if the government is capable to prove that additional tax was owed. The “no tax due defense”  is often used by the suspect in developed tax regimes. Trial with an idea of convicting the tax payer, where there is no tax due and owing results in making criminal prosecution looking a lot like the civil tax case. Needless to mention, Ethiopian tax law is not an exception to the above lines of arguments. Therefore to bring tax evasion charge Pursuant to art-96 of proc-286/94(the now art 125 0f TAP) the prosecutor is expected to be assured of the prevention of true tax liability (underpayment of true tax liability). This may possibly result from filing a false return that omits income or making statement which is false or misleading in material particular/that misleads in calculation of true tax liability.

To clinch, prosecutors are expected to prove the existence of tax due and owing before filing the criminal charge at court of law.

  1. Tax payers acted with willfulness or intent to defraud.

Fraud is an essential element of tax evasion and tax evasion is in turn never conceived without fraud. However, the very critical point here is the delineating point and parameters one use to distinguish what constitute intent to defraud in tax evasion? Is that the mere prove that the law imposed a duty on the tax payers, that the tax payers knew of this duty, and that he voluntarily and intentionally violated that duty or the need to prove bad faith or evil intent on the side of tax payers?

Enjoythe extracts

In Cheek v. United States, 498 U.S. 192 (1991),the Supreme Court set forth the standard for establishing willfulness: Willfulness, as construed by supreme courts prior decisions in the criminal tax cases (see United States v. Pomponio), requires the Government to prove that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty. The government is not required to prove “bad faith or evil intent” or “evil motive and want of justification,” but certainly may introduce such evidence in a tax prosecution. In response, a defendant may attempt to establish a good faith misunderstanding of the law or a good faith belief that he did not violate the law to negate willfulness, even if his belief or misunderstanding is objectively unreasonable.(see United States v. Abboud, 438 F.3d 554, 581 (6th Cir. 2006) (“[b]ecause of the complexity of the tax system, tax law is one of the few areas where the Supreme Court has held that ignorance of the law is a defense.”) (citing Cheek, 498 at 199-200).

On the other hand, a defendant will not be permitted to argue that the Internal Revenue Code (“the Code”) is unconstitutional, as that argument simply demonstrates an erroneous conclusion of law and not a good faith belief that the defendant was not willfully violating the law. (See United States v. Beale, 574 F.3d 512 (8th Cir. 2009); United States v. Simkanin, 420 F.3d 397 (5th Cir. 2005).

 A related concept in criminal tax prosecutions is “willful blindness.” If a defendant challenges willfulness on the grounds that he did not review his return prior to signing and filing, the government may introduce evidence to establish that the defendant acted with a conscious purpose to avoid knowledge of clearly false information reported on the return. In other words, a defendant may not avoid criminal liability by intentionally putting himself in a position where he does not have actual knowledge of the facts. (seeU.S v.Martin, 773 F.2d 579, 584 (4th Cir. 1985).Because a refusal to see what is clearly present is inconsistent with a good faith misunderstanding of the law, the government frequently requests willful blindness instructions in criminal tax trials. However, a willful blindness instruction should not be given without evidence that the defendant deliberately ignored relevant facts.(seeUnited States v.Miller).

In nutshell, in first scenario of tax evasion charge (evasion of declaration) the prosecutor and the courts should show the following ingredients of the offence before court of law.

  1. There should be certain affirmative act either in the form of filing false return or making misleading or false statement.
  2. The affirmative act should result in underpayment of tax (tax deficiency should exist).
  3. Existence of fraud/intent to defraud (inferred from cassation decision volume 15 file no-84623 and clearly indicated under Art 125 of the new TAP.)

EVASION OF PAYMENT INCASE OF INCOME TAX

Unlike evasion of declaration, evasion of payment can’t deal with income. It is all about evasion of income tax due and owing by the tax authority.

Under income tax law evasion of payment entails an action by the tax payers to evade payment of tax due and owed by the revenue authority. In this kind of evasion the government must demonstrate the existence of a tax due and owing, i.e. existence of tax deficiency, to prove tax evasion.

Unlike the differences in tax regime, the legal philosophy underlying tax evasion coincides in evasion of payment. Under income tax law 286/94, value added tax proc 285/94, turn over tax proc 308/95 and the new tax administration proc 983/2008 evasion of payment appear fashioned the same.

To sue the tax payer for crime of evasion of payment the prosecutor is expected to show the following three essential elements of evasion of payment to the court of law:-

  1. The existence of a tax due and owing, e., a tax deficiency, to prove tax evasion.
  2. There should be an affirmative acts to evade or defeat payment of tax.

This Affirmative acts of evasion of payment almost always involve some form of concealment of money or assets with which the tax could be paid or the removal of assets from the reach of the authority. Affirmative acts of evasion of payment generally involve schemes to deal in currency, place assets in the names of others, transfer assets abroad or omit assets on a form to be filled by the authority. Those includes

  1. concealment of money or assets with which the tax could be paid or
  2. The removal of assets with which the tax could be paid from the reach of the authority.
  3. 3. Tax deficiency must be with intent to evade (with intent to not to pay due and owing tax evade and conceal assets/property to be discussed by the authority. Roughly interpreted by the writer from Federal Supreme Court cassation decision volume 15 file no-84623 and Art 125 of TAP/.

 

TAX EVASION UNDER ETHIOPIAN VALUE ADDED TAX LAWS

Like all taxes VAT is also subject to evasion. Unlike the case of income tax ,where the bottom line of evasion commence from concealing income, in case of VAT, Evasion is all about fraudulent act done  by the legal tax payer on tax collected from the ultimate tax payer.

  VAT fraud takes different forms. Among the most common one includes:-

  • Failure to register for VAT being qualifying for it
  • Failure to file VAT return
  • Under reporting of sales
  • Where different goods are taxed for VAT at different rates reducing tax payments by misclassifying sales in to the category subject to a lower rates(or zero rate) of tax.

Even though in some respects, VAT offers distinctive opportunities for tax evasion through VAT credit and refund mechanisms, the particular structure of VAT may reduce its exposure to evasion.Under Ethiopian legal system, proc. no 285/94 is the pioneer law that regulates VAT and proscribe VAT evasion.

Under art 49 of the proclamation….A person who evades the declaration or payment of tax, or a person who, with intent to defraud the government, applies for refund he is not entitled to,
commits an  offence….

Under this article the breakdown of tax evasion doesn’t limit itself to evasion of declaration and payment. Rather it includes applying for a refund one is not entitled to.

As evasion of payment is fashioned the same in every tax types, I need not discuss evasion of payment under this section. I would rather narrate on evasion of declaration in case of VAT.

EVASION OF DECLARATION IN CASE OF VAT.

The first line of art 49 deals with evasion of declaration. It proscribes evasion of declaration of tax. Then what it meant?...the Amharic equivalent of the art reads

ህግን በመጣስ የሰበሰበውን ታክስ ያላስታወቀ”… unequivocally both the Amharic and English terms of the provision entails that in case of VAT what is evaded is collected tax.

As I have expounded elsewhere in the same article, VAT Evasion have nothing to do with income of the tax payer rather it goes with a legal duty imposed by law.

The epicenter of VAT evasion is tax. The law imposed the duty on tax payer to collect VAT and file a return of it. It is a rejection of this duty to declare tax collected which ripe for evasion of declaration in case of VAT. In VAT we evade declarations mainly through under reporting of sales of taxable transactions.

In such cases we evade taxes that we have collected from the ultimate tax payers on behalf of the government.

It also occurs through preparing fake invoices. This happens in situations where buyers conspire with their seller customer to inflate their input VAT (happen in Custom where importers over invoice their goods value). In internal revenues this happens through cutting the values of goods less than the market values so as to cut off the would be VAT paid.

Likewise, Evasion of declaration in case of VAT also occurs in cases of failure to file Vat return, and failure to register.

Being qualified to be registered for VAT some tax payer fail to do it and fail to collect a lot of VAT to be collected on behalf of the government.

TAX EVASION AS INTRODUCED UNDER ETHIOPIAN TAX ADMINSTRATION PROCLAMATION NO- 983/2008

Unlike the former Ethiopian tax laws such as income, VAT, TOT &others which regulates tax evasion distinctly, the new tax administration proclamation no-983/2008 introduced the concept comprehensively with a single legislative provision under chapter three of the proclamation. As tax administration proclamation aims to govern all domestic taxes with a single tax administration system under single codified body of law, tax Evasion as a criminal offence and immoral act defeating tax administration system was introduced under art 125 of the proclamation with a single statutory language.

Here in below I will dispose tax evasion as introduced under art 125 of proc-983/2008.

STATUTORY INTRODUCTION (TAX EVASION AS INTRODUCED BY THE LANGUAGE OF LAW)

As depicted under art.125 (1) of TAP, Who so ever, with intention to evade tax, conceals his income or fails to file a tax declaration or pay tax by the due date shall be punishable with a fine of birr 100,000(one hundred thousand birr) to 200,000(two hundred thousand birr) and rigorous imprisonment for a term of three to five years.

As the statutory language of this article matters a lot to grasp what tax evasion mean, here under I will provide explanatory notes on this statutory language criminalizing tax evasion.

  1. WHO SO EVER:-the word “his” in the above article clearly show whom the proposition “who so ever” intends to mean. The phrase intends to criminalize the tax payers who conceal his income in order to defraud Tax. Then who are tax payers pursuant to TAP? Pursuant to art 2/41 of TAP, tax payers includes…

All having earning to be taxed as per the income tax law including persons who has zero taxable income and tax holiday under income tax,

Person registered and required to be registered as per value added tax proc and TOT tax payers.

Those persons might be individual tax payers, tax representatives, agents and body corporate.

Legally speaking with holding agents are not tax payers. They are agents with legal duty to withheld taxes from tax payers.

  1. WITH INTENTION TO EVADE:-unlike the former tax laws, the new tax administration proclamation clearly introduced intent to defraud in the statutory language criminalizing tax evasion. As clearly understood, before the introduction of this proclamation, intent to defraud was not hosted in the languages of Ethiopian tax evasion legislations. However, the very nature of the crime and the evolving jurisprudence of tax law used to dictate both the prosecutors and the judiciary to take intent to defraud as vital constituent of tax evasion.
  2. TAX:-as evasion in no means conceived without tax, it remains the epicenter of fraud. For obvious reasons, all fraudulent acts done by tax payers ends in evading taxes. Tax is defined differently under different tax law regimes. Under Ethiopian TAP, pursuant to art-2/31…tax means tax imposed under tax laws…under art 2/36 tax law is defined to mean Federal income tax proclamation, Tax administration proclamation, Value added tax, turn over tax proclamation, ETP,STP,….”

In nutshell, the cumulative reading of article 2/31 and 2/36 along with article 125 0f TAP proclamation gives article 125 a meaning of…….who so ever with intent to evade tax(tax imposed under tax law) conceals his income or fails to file a tax declaration or pay tax by the due date shall be punishable with a fine of birr 100,000(one hundred thousand birr) to 200,000(two hundred thousand birr) and rigorous imprisonment for a term of three to five years.

If more illustrated and condensed the article is meant..who so ever with intent to evade tax imposed under tax laws such as federal income tax, value added tax, turn over tax, excise tax, stamp duty tax and etc.) Conceals his income or fails to file a tax declaration or pay tax by the due date shall be punishable with a fine of birr 100,000(one hundred thousand birr) to 200,000(two hundred thousand birr) and rigorous imprisonment for a term of three to five years.

For reasons dealt above under TAP, the word tax which is the core statutory language of the provision criminalizing tax evasion is inclusive of all kinds of tax’s imposed pursuant to tax laws.

  1. CONCEAL HIS INCOME:-unlike the cases of VAT and TOT, where evasion concerns taxes collected from ultimate consumers and buyers rather than income, the phrase “conceal his income refers to a method by which income tax payer’s under report their true income to evade tax. As VAT and TOT never deal with income, this part of the article announces evasion of declaration in case of income tax. Income can be evaded through different techniques. Amongst:-
  • Underreporting of income
  • Overstating of costs/deduction of claims for false expenses
  • Income shifting by multinational firms &Transfer pricing
  • Failure to report sources of taxable income
  • Artificial bank loans .etc.
  1. FAILURE TO FILE TAX DECLARATION WITH INTENT TO EVADE TAX:-

Failure to file a tax declaration is among the new notions that got legislative recognition under the Ethiopian tax administration proclamation 983/2008 as criminal offence. To discuss the detail of the concept it is needed to define what tax declaration is meant under TAP.

Under art 2/35 of TAP tax declaration is defined as ….a tax declaration required to be filed under

  • Federal income tax
  • Value added tax return
  • Turn over tax return and tax declarations required by pursuant tax laws.

Under the above article to bring a criminal charge the prosecutors should proof the existence of the elements of the offence. As can be inferred from the statutory language of the law failure to file tax declaration ripe to criminal charge if and only if:

  • The tax payer fails to file his tax declaration pursuant to the substantive tax law that require him to file on certain clear due date.
  • Tax payers fail to file his tax declaration on this due date.
  • The act is done willfully with intent to evade tax.

To exemplify pursuant to art 83/4 category A tax payers whose tax year is similar to individual tax year, should declare its income four months from the end of the tax year and the end of tax year for an individual is defined to be sene 30. Then if a company whose tax year accords the above illustration fails to bring income tax declaration until tikimt 30 and fulfills the above ingredients of the offence the company can be charged pursuant to art 125 of TAP.

  1. WILLFULL TO PAY TAX BY THE DUE DATE:-

Even though I deal with the meaning of tax above here again to illustrate whether evasion of payment is included under art 125 of TAP one should ascertain what tax mean under TAP. The cursory reading of art 2/31 and 2/36 of TAP elucidates the definition of tax “As the tax imposed under tax law”. The word imposition indicates the existence of tax authority with the power to impose tax and with the power to collect tax due and owing. These can be done following self-assessment offered to the tax authority by the tax payer.

As stipulated on art30/1 of proc.no 983/2008, the phrase failure to pay tax by the due date clearly indicates the tax due and owing which is imposed by the tax authority following self-assessment by the tax payer.

If then, one can clearly understand that failure to pay tax on the due date refer evasion of tax due and owing by the tax authority.

Besides, one should be assured that a mere non-payment can’t ripe for evasion of payment. There must be intent to evade tax on behalf of the tax payer. Therefore failure to pay on due date must be with intent to evade tax due and owing.

It is not unusual to see a lawyer who argues the phrase entail VAT evasion. However, it should be noticed that VAT is neither income nor tax due and owing while in the hand of VAT registered persons(the tax payers).VAT needs to be declared by the tax payers (in legal sense not the ultimate consumers) and assessed by the tax authority. Therefore VAT can’t only be declared but also paid to the tax authority. In the writers opinion the last phrase of art 125/1 of TAP, includes only VAT due and owing that are failed to be paid by the tax payers.

 

WITHHOLDING TAX EVASION UNDER TAP NO-983/2008

Unlike the former tax law regimes which don’t clearly criminalize withholding tax evasion the new Ethiopian tax administration proc-983/2008 criminalize withholding tax evasion under art-125/2 of TAP.

Accordingly “ A withholding agent who withholds tax from a payment but fails to pay the withheld tax to the Authority by the due date with the intention to evade tax shall be punishable by rigorous imprisonment for a term of three to five years.’’

Regarding withholding tax different jurisdictions criminalize both a willful failure to withheld tax and a willful failure to truthfully account for and pay over tax withheld. U.S remains typical of such legal system. Unlike that of U.S the new Ethiopian federal tax administration proc.983/2008 article 125/2 can’t criminalize willful failure to withheld tax. However, any willful failure to account already withheld tax to the tax authority with intent to evade tax is plainly criminalized.

Elements of the Offense25

To establish a violation of article 125/2 of TAP prosecutors must proof the following elements:

  • Tax payers should have a duty to collect, and/or to truthfully account for and pay over;
  • collection/there must be withheld tax from payment
  • There must be failure to truthfully account for and pay over taxes.

COMMON TAX EVASION METHODS

Tax evasion methods are affirmative acts which tax payers use to evade taxes. Different tax payers use different methods of evasion. Amongst the well-known affirmative acts of evasion includes-

  1. Filing of a false return and a false amended return.

Failure to file return coupled with an affirmative act of evasion is commonly referred to as a "Spies evasion." Passive failure to file tax returns is not tax evasion. If the taxpayer failed to file a return, an evasion case can be maintained only if the taxpayer engaged in an affirmative act to conceal or mislead. (see Spies v. United States, 317 U.S. 492,498-99 (1943). By way of illustration, and not by way of limitation, the U.S Supreme Court in Spies set out examples of conduct which can constitute affirmative acts of evasion:

  • Keeping a double set of books.
  • Making false or altered entries.
  • Making false invoices.
  • Destruction of records.
  • Concealing sources of income.
  • Handling transactions to avoid usual records.
  • Any other conduct likely to conceal or mislead.

 

  1. Filing False tax exemption plus Failure to file a Return Equals Evasion(U.S).

Filing false and fraudulent Forms W-4 claiming to be exempt from federal taxation in combination with failure to file tax returns for each year can constitute an affirmative act of evasion.(See, United States v. Brooks, 174 F.3d 950, 954-56 (8th Cir. 1999); United States v. King, 126 F.3d 987, 991-94 (7th Cir. 1997)

Beside the above methods, tax can be evaded by:-

  • Making false statements to tax authority officer which relates to fraud.
  • Corporate officer's diversion of corporate funds to pay personal expenses.
  • Sluicing (washing) off corporate income to principal shareholders in the guise of commissions or salaries out of proportion to the value of service rendered to the corporate taxpayer.
  • Consistent pattern of overstating deductions.
  • Concealment of bank accounts.
  • Holding property in nominee names.
  • Representing political gratuities as gifts.
  • Doing business in diverse names and keeping large sums of cash in safe-deposit boxes in numerous banks.
  • Failure to file declaration of estimated tax, concealing or attempting to conceal true income, failure to pay income tax due, and filing frivolous returns.
  • Structuring cash transactions etc.

CONCLUSION

As I try to pinpoint in the outset of the article, despite advancement of a given tax system, tax evasion remain pervasive challenge of taxation long ago. Therefore to come out of this challenge, tax authority should work a lot critically in instilling the evil effect of tax evasion on national economy. To do so, tax officials must be well versed with law and practices. In this article I have discussed essential elements of tax evasion crime, methods of tax evasion crimes and essential yardsticks for prosecutor’s in filing tax crime charges briefly. Overall tax lawyers, officials, and tax authority should work toward creating vibrant tax law regime in Ethiopia.

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Wondiye Birhanu

The writer earned his LLB from Adama University in 2006 with great distinction and served as junior prosecutor at ERCA from 2007 E.C onward. Besides, the writer instructed business laws, investment laws and other public laws at Oromia State University (OSU) on per-time basis. Now he is serving as public prosecutor at Federal attorney General.