Why not legally minimize, than evade taxes?

Who would not like to pay a lower tax, or a no tax at all? For a lowly paid laborer or an average employee or even an executive, a single penny paid to tax is very material as it may make his ends met for the day or may have been spent for a more productive spending had it not been for taxes. For a businessman, funds paid for taxes is likewise material as he can make much of it had the money been invested in other profitable undertaking. But for the government, a tax is indispensable for its subsistence, for the public expenditures, and for the furtherance of its administration. Thus, there is conflicting interest between the government and the taxpayer. The taxpayers always wanted for less while the government bargains for more. Nevertheless, all these shall be within the bounds of the law and regulations. But the question is, how can you save taxes without violating provisions of the law and regulations?

First, you must learn the basic concept of the two terms – tax evasion or dodging, and tax minimization. Tax evasion denotes use of ways, means, or schemes employed to lower or minimize taxes, if not eliminate, where such ways and means are in violation with laws and existing regulations. In other words, this are illegal ways of lowering taxes, and is criminal in nature that may send the violator behind bars as a consequence or be required to pay higher penalties (e.g. surcharge of 50% of unpaid basic tax plus 20% interest, and compromise). Typical example is not declaring a taxable income and not paying taxes due, or declaring false and fictitious expense items to lower the tax base for lesser tax. Under the rules, a false declaration of at least 30% of that declared is considered as tax evasion by its face, unless justified by the circumstances of the case through the due process requirement applicable.

On the other hand, tax minimization refers to ways, means and schemes tending to save on taxes in accordance with the law and regulations. The price is the tax saved by a good scheme. To do so, one must be equipped with technical know-how on the conflicting and varied rules of tax laws and regulations. Thus, assistance of an expert professional to formulate schemes and evaluate compliance with the laws and regulations may be resorted to for safety purposes. A good scheme should pass the test of compliance or defensibility in any forum, practicability, and doability under the circumstances. While the intention may be good, if the scheme could not stand the test of compliance with laws and regulations, the taxpayer may spent to much on penalties for wrongful application of law instead of the intended savings. Or worst, the taxpayer may end up itself defending in court. Practicability refers to the applicability of the scheme to the company to be applied upon.

One area of tax minimization is through the tax exemptions provided for in the general and special laws and regulations. Tax exemption refers to an immunity from tax of a particular entity or transaction under certain conditions. All it takes is to see to it that your circumstances would faithfully satisfy the conditions and requirements for its applicability. A slight twist may do, but should not deviate from the basic conditions. The Tax Code, as amended, does not contain all the exemptions and there are many of those scattered in various laws. Of course, the Constitution provides some of this and some exemptions provided for by special laws are in furtherance of this Constitutional mandate only. For a certain industry of entity, a better way is to go through the history of its legal evolution, the laws passed for such industry or business. Example of this are the thrift banks which enjoyed some in the early stages, the cooperatives, the now renewable energy for the Philippines going green, and more. The tendency is, the legislature tries to provide this exemptions and tax privileges in the early stage of the industry or undertaking, basically, to assist and prepare these emerging industries. Thus, it may take a while to conduct a study or walk through on the applicable laws and regulations of the area you wish to minimize taxes.

Another area, are the formulated schemes in furtherance of a tax privilege or simply for lower tax rates. Similar to exemptions, most laws and regulations provides prescribes requirements. Scattered in the Tax Code provisions, and on other laws are potential areas for these and it may only take a while to know and make use of them. In satisfying these requirements, certain documents and papers have to be executed. It is suggested that extra care and diligence shall be applied to see to it that these documents will properly substantiate and justify that the fact that said tax privilege applies to the case at hand.

Here are some examples to illustrate the points above:

• What is the difference between the tax implication of buying a real property, or buying the shares of the selling company?
• What is the difference between buying a real property from exchanging the same for shares of the other party and selling the same, after sometime?
• What is the difference between giving a straight rate of compensation, say P15,000 a month, or paying the minimum wage exempted by law from income tax and on top, allowances and benefits likewise exempted from income tax, in accordance with company policy?

You may need to consult an expert to know and apply all these, and if you will succeed, then you will be happy enough to see the big difference. Mind you also, the BEST way is saving taxes is paying the correct tax and the right amount of it. By so doing, no funds will ever be wasted for penalties and no worries will ever be made for potential tax exposure in the future. The price for doing GOOD is invaluable, but will prove to be of great value in the end.

“Taxes affect lives, care for taxes and save lives”

Tags: criminal liability, penalties, tax dodging, tax evasion, tax minimization