CHAPTER III. Types of tax evasion and methods used
III.1.1 Methods used by Tax offenders
Generally there are two ways of implementing tax evasion
decision by tax evaders. They are;
· The tax evaders cover up their actual financial
situation in case this would have tax implications;
· The tax evaders produce fictitious financial
situations which qualify for tax concessions. The apparent fulfilment of
condition of tax concession leads either to an effective reduction in the tax
paid or to a tax loan for a limited period.
The tax payers decide on these methods opting in favour of one
of these two ways of evading tax. Some more details of these methods are given
below;
III.1.2 General falsification and
deception method
In this method, the evader corrects entries on the basis of
falsified documents including fictitious business transaction. They use legal
falsification method using fictitious contract i.e. preparing of fictitious
employment contract, fictitious sales contract, fictitious service contract,
fictitious loan contract, fictitious licensing contract and fictitious leasing
contract.
III.1.3 Accounting falsification
method
In this method, the evader falsifies accounting documents,
prepares self made external vouchers in some cases, old vouchers are re-dated
in the way which looks new to the tax auditor. The evader falsifies the amount
in the books of accounts. Likewise, they falsify recording of business
transaction, false dating of business transaction, false entry of document, and
the evaders do not allocate transaction to an account or make incorrect
allocation to account. The evader prepares two sets of accounts deliberately
external and internal to manipulate taxes. The all efforts of tax evader are
concentrated on profit contraction. For this purpose, the evader increases
business expenses and contracts revenue. The evader does not disclose
withdrawals via assets account and contracts the gross profit. To plough back
undisclosed profit, they make financial and other investment outside the
company. And at the same time, they retransfer the undisclosed money for
financing investment within the company. Other methods of evasions employed by
evaders are transfer pricing by non resident companies, head offices
expenditure, advertising activities conducted in other countries and
expenditures shown in the books of permanent establishment situated in
Rwanda.
III.1.4 Customs Evasions
The methods of Customs evasions are outright smuggling,
valuation fraud, classification fraud, quality and quantity manipulation, abuse
of exemption facilities and diplomatic immunity.
III.1.5 VAT evasion
Methods of evasion of value added tax are absence of issuing
proper bills to the buyers, undervaluation at the customs points, fixation of
low ex-factory price in internal production and further under valuation by
wholesalers and retailers. There is no reliable valuation data base either to
control valuation fraud in import or in internal production.
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