The Congress, the White House, and the Supreme Court cannot meet and do their businesses. As it is, taxes are the lifeblood of every government. However, people continuously exert their best efforts to evade taxes. They pursue different avenues in order to minimize, if not entirely avoid payment of taxes. Different styles or strategies have been used in order to attain this end. One, underreporting of incomes - usually, this strategy is being used by businesses, whether sole proprietorship, partnership, or corporation. This of course cannot be attained without the assistance of the accountants. The latter manipulate the income to be reported by the business so that liability for taxes would be lesser. In some countries, double numbering of official receipts are made so that only half of the transactions are officially entered into the entry book of the company. Only those transactions which involve important personalities or companies are being recorded officially so that in case of emergency examination of books, the said transactions can be easily traced. Those involving small transactions with not so familiar customers remain unrecorded, or will be recorded only in the unofficial record. Two, overstating deductions and exemptions - again, these cannot be done without the faithful assistance of the so-called accountants who creatively emphasize items of deduction and exempted transactions from the profit or income. Others are so enterprising that they take time to establish allegedly non-government organizations which are of course tax-exempt. Thru the latter, they conduct businesses without the threat of tax liabilities. The otherwise regular businesses are done with a claim that they are being made for some philanthropic objectives. Three, failure to file the necessary returns - this results to absolutely tax-free transactions. Underground economy plays a big role in this strategy. With absolutely no permits and licenses, those engaged in this enjoy the tax-free business as long as they are not caught by the authorities. Despite the fact that their income/capital involves only a small amount of money as compared to the legitimate businesses, if summed up, theirs will constitute a big portion of the revenues that the government could otherwise have received.
Tax evasion plays a very important role in the economy. First, it definitely reduces the tax collections of the government, resulting to gross reduction of the public services that the government could have rendered to its constituents as the government should make do with its available resources. Second, it modifies the distribution of wealth in the society. Businessmen indulged in the same line of business would be on unequal footing since the tax-compliant ones have to shoulder additional expense for the payment of taxes while the tax evaders continue to enjoy their profits without entailing the same or similar expense. Third, it impinges on the accuracy of macroeconomic statistics.
The tendency to commit tax evasion is caused by many factors, among them are: 1) high tax rates - the higher the taxes to be paid, the more likely the taxpayers would evade its payment as the same would greatly affect their finances; 2) minimal penalties - tax evaders are not afraid of the penalties in case they get caught since most of the time, penalties are limited to civil ones and tax