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MF0012 - Q.1 Tax evasion is a menace to the people, economy and the country. In the wake of recent Swiss bank account scandal give your views on the following: a. How does it affect the Indian economy and the growth prospects?b. Does black money cause Inflation?

Answer:Tax evasion is sheer non-payment of tax even when it is due to be paid in the circumstances of the case. It should be remembered that while tax planning is perfectly legal, Tax Evasion is illegal and can result into penalties and prosecution for the perpetrator. When financial transactions are arranged in a way that it becomes obvious that they were entered with a malafide intention of either not paying taxes or with a view to defeat the genuine spirit of law, they cannot be accepted as legitimate Tax Planning.
Twisting of facts or taking a very strict and literal interpretation of law without understanding the basic purpose of the law can only lead to punishable offence.

a. Swiss bank account scandal affects the Indian economy and the growth as follows:
1. Substantial loss of much needed public revenue, particularly a welfare state like ours.

2. Serious disturbance caused to the economy of the country by piling up of black money directly causing inflation.

3. Large hidden loss to the community by some of the best brains in the country being involved in the perpetual war waged between tax avoider and his expert team of advisers, lawyers, and accountants on one side, and the Tax adviser and his perhaps not so skilful advisers on the other side.

4. Sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it.

5. Ethics (or lack of it) of transferring the burden of tax liability to the shoulders of guideless, good citizens from those of artful dodgers.

As to the ethics of Taxation, the learned judge observed: We now live in a welfare State whose financial needs, if backed by the law, have to be respected and met. We must recognise that there is behind taxation laws as much moral sanction as behind any other welfare legislation and it is pretence to say that avoidance of taxation is not unethical and that it stands on no less moral plane than honest payment of taxation.

b. Yes, Serious disturbance caused to the economy of the country by piling up of black money directly causing inflation.

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