Dear editor,
Please allow me space in your widely read paper to just clarify a few things on tax avoidance
and tax evasion.
This article is hinged on an article I read on this medium on 5th July 2017 authored by Alagi
Yorro Jallow and titled “Tax Avoidance or Tax Evation is Illigal and Immoral”.
Being a Chartered Certified Accountant with specialist knowledge in Tax, I follow every
discourse on tax I come across very closely and it is one of those things that is close to my
heart. Having mentioned a part of me, that will highlight any bias on my part, I think it is
important that I take a neutral stance and clarify what tax avoidance and or tax evasion is
vis-a-viz Mr jallow’s article on the topic.
The Balance.com has defined Tax Evasion as the “illegal practice of not paying taxes, by not
reporting income, reporting expenses not legally allowed, or by not paying taxes owed”.
They went further to define Tax Avoidance as the legitimate minimisation of taxes, using
methods approved by the tax authorities.
From a conceptual framework, they both come about as a result of law and the two could
be easily confused. However, rules are put in place in many jurisdictions to deal with them.
Going by Alagi Yorro Jallow’s article, I am inclined to take the view point that the Humpty
Dumpty story is applied where Humpty Dumpty said; “When I use a word, it means just
what I choose it to mean, neither more nor less”. I am not quite sure if Mr jallow means
ILLIGAL in its literal meaning, albeit, one thing is clear, TAX EVASION is illegal in the UK but
TAX AVOIDANCE is perfectly legal.
These two terms have been used interchangeably in many respects and have become
confusing for many laymen in the field of taxation. Since the line between legal and illegal
tax actions are often blurred and differ across countries, (Blaufus et al.; 2016), policy makers
appear to use legality to affect individual decision. What this means is that as people
become cleverer in their bid to minimise tax liability, legislators increase the definition of tax
fraud and evasion. This is designed to curtail the practice of paying less tax by questionable
means and to maximise tax revenue.
I concur with Mr Jallow when he said that “successive governments have left us with a tax
regime so complex it verges on chaotic system”. This is quite obvious in that the Gambian
tax system though a lot simpler than the UK system, is so generous to the rich and powerful
but vengeful to the poor and powerless. The Gambia is the only country I know where
allowances paid as part of the salaries and wages are not taxed, (Nuha Ceesay, 2017). Please
find link
I believe that Mr Jallow is a prolific writer and I must admit, I admire his writing styles and I
skim through every article of his I come across. However, I think this latest article of his on
tax evasion and avoidance will cause a lot of confusion especially amongst those who have
little or no knowledge of taxation. Tax avoidance being immoral is debatable because ethical
considerations are never conclusive and are so subjective that they are seen by many as
neither right or wrong. This is supported by Ontology in Philosophy where the two extremes
of Realism and Nominalism see Reality through different lenses (I won’t elaborate).
Mr Jallow is right again in my view when he said that the answer to the Gambian problem is
to cut spending and taxation. What I will add to that is the need to expand the productive
base of the economy where opportunities will be created for many which in turn will lead to
maximisation of tax revenue through the payroll and corporation taxes. This will however go
in tandem with the review of the numerous tax regimes; payroll, CGT, Dividend, withholding
etc. to ensure that they are fairer and not open to abuse.
Before I conclude, I must commend Mr Jallow and the many Ph.Ds and social commentators
who are contributing their quota in enlightening the citizenry. However, we must be careful
not to cause confusion in our bid to enlighten compatriots.
Tax evasion on the one hand is illegal without doubt and offenders when caught are
prosecuted and could land one in prison in some jurisdictions, depending on the nature and
the level of materiality.
Tax avoidance on the other hand is perfectly legal and whether or not it is immoral is
dependent on the philosophical view point you take to define morality. I will not conclude
without giving an example of how I helped a friend of mine to potentially save a lot of
money on his taxes in the coming year.
A friend of mine started his own business as a director of the company. He approached me
wanting to know whether he should be paying himself a salary or dividend as a shareholder.
I did not advise him but I did a simple calculation that shows how much tax he would save if
he paid himself a dividend compared to a salary. Under a salary scheme for 2017/18, if you
earn £45,000 for the year, your tax liability will be £ 6,700 in addition to £4,420 National
Insurance contributions whilst the company will also contribute £5,083 as employers’
National Insurance Contribution. On a more positive note, if my friend paid himself a
dividend of £45,000, the tax liability on the dividend would be only £2,137 and if he so
wishes to contribute towards class 2 (optional) & class 4 National Insurance, it will be
£3,463.
This shows a total liability of £16,203 under employment where he is paid salaries and his
company also contributing towards National Insurance. Now compare this to £5,600 to be
paid under the dividend scheme. I am sure my friend will gladly pay himself a dividend and
save a whooping £10,600.
If my friend fails to pay any tax, he would be evading tax which is illegal and could go to
prison for that. However, if he chose the dividend scheme, he would be avoiding tax which is
perfectly legal and other people might argue that is immoral but I will leave that to social
commentators.
The author is in his early stages working towards a Ph.D degree so I apologise to those
accomplished Ph.Ds and academics if my arguments do not seem logical to you. I am still
learning.
Thanks once again.
Nuha Ceesay
Leeds
United Kingdom
