EFFECTIVE TAX MANAGEMENT (Tax Avoidance)

Last February 16, 2010, with the approval of my employer, I attended  a “Seminar on Techniques Used by the BIR in Tax Audit and Effective Tax Management (Tax Avoidance)” held in PICPA Building 700 Shaw Boulevard, Mandaluyong City, Philippines.

I would like to share some of the topics particulary in the area of Effective Tax Management (Tax Avoidance) in general.
The objectives of Effective Tax Management includes to maximize Tax benefits, to optimize Tax Deductions, to minimize Taxable Income, to avail all Tax Incentives, to avail Tax Remedies under the code and to comply all the requirements of the Bureau of Internal Revenue.
In compliance (preventive) of taxes, the taxpayer should know the tax rules, know how the rules, know to maintain a high level of tax compliance, secure his/her tax and know to get professional help.
For assessments of taxes, the taxpayer must know his/her rights and remedies, know the rules and process the assessment, know best practices of handling assessment, study and define strategy and also get professional help.
And for collection of taxes, the taxpayer should also know his/her rights and remedies, know the rules and process of collection and know the options. It also includes favorable settlement of taxes and charges such as amnesty, abatement and compromise settlement.
Evasion and avoidance are sometimes used as synonyms in connection with tax matters. A useful distinction may, however, be drawn between them. Evasion should be applied to the escape from taxation accomplished by breaking the law – deliberate ommission to report a taxable item, for example. The term avoidance is then available to cover escaped accomplished by legal procedures which may be contrary to the intent of the tax law’s sponsors but nevertheless do not violate the law.
Attending the seminar is a privelege and a great experience for me. It is not really an expense in the part of the  company because the main reason is for the employee’s development in the field of taxation. This a good example of tax shield (ways of tax avoidance). Thus, the ideas and knowledges I’ve learned in the seminar will be humbly use in terms of tax management & planning.


TAX EVASION VS. TAX AVOIDANCE

Taxation is the power of the State to impose a charge or burden upon a person’s income, properties or rights, to raise revenues for the use and support of the goverment to enable it to discharge its appropriates functions.

I am thankful and blessed  to our employer who included me as one of the two  employees in the company who attend a seminar in taxation last September 4, 2010 entitled: Guide to a Tax-Efficiency Business – “The Smart & Legal Way of Working with Taxes”.

I just want to share what I’ve learned in the seminar and some of the topics included is the differences of Tax Evasion between Tax Avoidance.  

Tax Evasion or Tax Fraud is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax while Tax Avoidance or tax minimization is the use by the taxpayer of legal or lawful means to reduce tax liability. 

The differences of Tax Evasion and Tax Avoidance are as follows: 

TAX EVASION (or TAX FRAUD)            TAX AVOIDANCE

* Illegal or fraudulent                                       * Lawful

* Result of inefficiency                                     * Benefit of knowledge in tax laws

* Punishable by law criminally                          * Not punishable by law

* Taxpayer has no peace of mind                     * Taxpayers is assured 

There are ways or forms of Tax Avoidance with details as follows:

1. Tax option – A taxpayer may choose to pay lower tax rate in some transactions as permitted by laws.

2. Shifting – This is basically transferring the tax burden to another without violating the law.

3. Transformation – This is the opposite of shifting. The objective is to recover or reduce the tax expense.

4. Exemption – This denotes a grant of immunity from tax.

5. Handling Accruals – This process is seeing to it that expenses incurred are recognized in the books of accounts for the taxable year.

6. Planning transactions – This is taking a proactive stand against taxes, say by postponing the start of your new projects in the following taxable year, if it’s not critical, thereby delaying recognition of revenue, and spending on staff development and other important programs near the end of the year to maximize your expenses for the current taxable year.

7. NOLCO – the operating loss of a company can be carried over as a deduction from gross income for the next three consective years immediately following the loss.

8. Compliance – This is still the best form of tax minimization, because by doing so you will eliminate penalties, surcharges, interests, and deficiency assessments.

Some of the factors that influence social acceptance of taxes, according to research are Simplified Taxation and Good Governance. Inversely, some factors that discourage people from paying taxes are Complex Taxation System, When Tax is seen as a Bondage and Corruption in the Government.

But no matter what, we can’t deny it: We are still liable to pay taxes. 

The Lord’s Stand on Paying Taxes 

Luke 20:20-25 

20 Keeping a close watch on him, they sent spies, who pretended to be honest. They hoped to catch Jesus in something he said so that they might hand him over to the power and authority of the governor. 21 So the spies questioned him: “Teacher, we know that you speak and teach what is right, and that you do not show partiality but teach the way of God in accordance with the truth. 22 Is it right for us to pay taxes to Caesar or not?” 23 He saw through their duplicity and said to them, 24 “Show me a denarius. Whose portrait and inscription are on it?” 25 “Caesar’s,” they replied. He said to them, “Then give to Caesar what is Caesar’s, and to God what is God’s.”

Jesus also paid His own taxes 

Matt 17:27

27 “But so that we may not offend them, go to the lake and throw out your line. Take the first fish you catch; open its mouth and you will find a four-drachma coin. Take it and give it to them for my tax and yours.” 

St. Paul Commanded the Romans 

Proverbs 13:7

7 Give everyone what you owe him: If you owe taxes, pay taxes; if revenue, then revenue; if respect, then respect; if honor, then honor.

If you’re interested to invest yourself to learn about business and taxation you can enroll at Businessmaker Academy.

For more details and informations about business & taxation you can contact me for a consultation and  willing to share to the best of my knowledge.