Tax evasion could be legal!

The end game is....you pot the black ball!

Tax avoidance is the practice of exploiting loopholes in tax legislation in a tax jurisdiction to reduce the tax liability. Tax evasion on the other hand aims at reducing tax liability illegally. Tax evasion can also be distinguished from tax sheltering which is a blatant abuse of lacunas in tax laws to literally evade tax in such a way that little or no tax becomes due.

In the Bata Shoe Company case (2014), the court opined that since payment of tax is an involuntary obligation imposed by law, a taxpayer is not obliged to pay a single coin more than is due to the taxman and the taxman, on the other hand, is entitled to collect up to the last coin that is due from a taxpayer.
The enactment of the Tax Procedures Act (TPA) in Kenya in 2015, and the politics surrounding the infamous Panama Papers has ignited debate on the distinction between permissible and impermissible tax avoidance. This arises from the need to maintain an intricate balance between tax collection and the rights of a taxpayer to legitimately, and now, morally, minimise their tax liability which, as the court held in the Bata case, is an involuntary obligation. - source legal tax assistants online

Tax avoidance has all along been considered legal, and against long established legal tax tradition which emphasises the sanctity of the canon of certainty, and frowns against any attempts to impose a tax on the taxpayer without absolute clarity in the enabling legislation.

The position cemented is thus straight-forward: the taxman must be very clear on what they are taxing, how much, when it is due, who pays and at what time. This remains good law because of the commercial need for certainty in transactions. And this is where blanket criminalisation of tax avoidance schemes becomes problematic.

At 30 per cent, tax is the single largest expense on the accounts of most taxpayers. As such, it calls for strict certainty. Further, it makes commercial sense for companies to take measures to ensure that the taxman gets only the fair share due to him.

Rather than a blanket approach to criminalise all tax-avoidance measures, the State should deploy its executive and legislative power to comb the market and seal loopholes in the law.

This will ensure that all taxpayers contribute to the national kitty in proportion to the level of economic activity, and realise a desired end of distinguishing between permissible and impermissible tax-avoidance schemes.

After all, why generate income on Kenyan soil, Kenyan security and Kenyan people, yet not pay proportionately income tax on such income? By criminalising tax avoidance, KRA should expect a pushback challenging the legality of this application, because it gags companies from employing prudent tax-planning measures, or at least unreasonably limiting tax-efficient operating models.

For tax advisors, it is the proverbial Sword of Damocles because they are forever exposed to criminal liability should an honest and professional opinion be deemed to be a tax-avoidance scheme.

Whereas there are impressive ethical arguments in support of paying tax, these must not be confused with charity. Indeed, New Zealand courts have opined that moral precepts are not applicable to the interpretation of revenue statutes; there is no room for intendment, and there is no presumption so as to tax.The government is in business, so are the taxpayers.