Taxation: Concept of Tax Gap, Tax Avoidance and Tax Evasion

Running head: TAXATION
Taxation
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1TAXATION
Table of Contents
Introduction:...............................................................................................................................2
Concept of Tax gap....................................................................................................................2
Concept of Tax Avoidance and Tax Evasion.............................................................................2
Strategy used by the individual or the Company for Tax Avoidance........................................3
Steps taken by the government and the HMRC to curb the tax avoidance by the individual or
the company in the UK..............................................................................................................4
Conclusion..................................................................................................................................5
References:.................................................................................................................................7

2TAXATION
Introduction:
This report discusses the concept of the Tax Gap, Tax Avoidance and Tax Evasion in
detail. Further the report explains the steps taken by the government in order to curb the tax
fraud in the economy like imposing compliance and regulatory requirement on the tax
evaders and the imposition of penalty. At last the report conclude that for any economy to
grow, tax fraud and evasion need to curb immediately.
Concept of Tax gap
Tax gap is popular term in taxation which refers to the difference between the total
amounts of tax outstanding to the government verses the amount of tax that actually has
been paid (Keen and Slemrod 2017). There are generally two common approach for the
measurement of tax gap. First is top down approach and the second is bottom-up approach.
In the case of top down approach we calculate the theoretical tax liability of the entity using
the external data that provide an estimation of total tax base.
So according to this method estimated tax gap is the difference between the
theoretical tax liability and actual amount we receive. This top down approach is most
commonly used in the indirect taxation. On the other hand, bottom up approach is the
extensive examination of the data records of an entity like examination return filing data,
reviewing of the risk compliance register. The purpose of this approach is to estimate the total
number of non- compliance of the taxation which are used to estimate the Tax Gap. To
estimate the non-compliance, statistical sampling method is used. Generally, this method is
used in the direct taxation.
Concept of Tax Avoidance and Tax Evasion
Tax Avoidance