Tax Book 2023

Taxation System Chapter- 01

This refers to the tax laws that should be consistent with economic goals or programs of

the government. These are the basic services intended for the masses.

3 .5 Forms of escape from taxation

 Shifting

 It is one way of passing the burden of tax from one person to another.

 For example: Taxes paid by the manufacturer may be shifted to the consumer by

adding the amount of the tax paid to price of the product.

 Kinds of Shifting

 Forward shifting occurs when the burden of the tax is transferred from a factor of the

production to the factor of distribution.

 Backward shifting occurs when the burden of tax is transferred from the consumer

to the producer or manufacturer.

 Onward shifting occurs when tax is shifted to two or more times either forward or

backward.

 Capitalization

 This refers to the reduction in the price of the tax object to the capitalized value of

future taxes which the purchaser expects to be called upon to pay.

 For example: A reduction made by the seller on the price of the real estate, in

anticipation of the future tax to be shouldered by the future buyer.

 Transformation occurs when the manufacturer or producer upon whom the tax has

been imposed pays the tax and endeavor to “recoup” (make up for) himself by

improving his process of production

 Tax Exemption is the grant of immunity or freedom from a financial charge or

obligation or burden to which others are subjected.

 Grounds for tax exemption:

 Contract, wherein the government is the contracting party.

 Public policy

 Reciprocity

3 .6 Strategies of taxation management

Tax practitioners and Taxpayer normally adopts any of the following technique to lessen Tax

burden:

 Tax Evasion is the practice by the taxpayer whereby revenue results are understated to

defeat at or lessen the amount for tax. This is also known as “tax evasion.”

 Tax avoidance is non-declaration of income and non-payment of due taxes, this is called

“Tax avoidance”, it is called Tax Avoidance and is an offence.

 Tax Planning is the exploitation/use by the taxpayer of legally permissible methods, Tax

credits, tax rebates, tax reductions in order to avoid or reduce tax liability. This is also

known as “tax minimization.”