Difference Between Tax Avoidance and Tax Evasion?

By Trev Gami •  Updated: 01/23/24 •  6 min read

All individuals and businesses that earn taxable income are liable to pay tax to the government via the South African Revenue Service. The government gets its revenue from taxes, so all eligible tax players must play their role. However, some unscrupulous individuals and businesses use unorthodox means to cheat the government by evading their tax obligations. Others avoid paying their taxes

- ADVERTISEMENT -
through legal means. Tax avoidance and tax evasion are often used interchangeably, although they are different. Read on to learn the difference between tax evasion and tax avoidance.    

What Is the Difference Between Tax Avoidance and Tax Evasion?

Tax avoidance involves the measures you can take to reduce your tax burden while maximizing your after-tax income. In other words, you will still be paying your taxes but trying to minimize the amount you pay during a specific tax period. On the other hand, tax evasion is the deliberate not to pay or underpay your taxes to the government.  

Tax evasion involves fraud and the use of other illegal methods to avoid payment of taxes and avoid assessment by responsible authorities. For instance, claiming tax deductions you don’t qualify to get, concealing your taxable assets, failing to report, or underreporting your income are examples of tax evasion. These actions can lead to penalties, fines, or even imprisonment, depending on the magnitude of your case. 

Tax avoidance utilizes legal means to reduce your taxable income. For example, claiming tax deductions that you deserve is one way of increasing the total amount you get after taxes. Therefore, the main difference between tax evasion and tax avoidance lies in the legal aspect. Tax evasion is illegal since it is characterised by lying and under reporting, whereas tax avoidance uses legal methods to lower taxes one can pay to the regulatory authority.     

Which One Is Illegal Between Tax Avoidance and Tax Evasion?

Tax avoidance is a legal method of reducing your tax liability, whereas tax evasion is an illegal way of not paying your taxes. Tax evasion involves fraud, and it is a punishable criminal offence. 

The common examples of tax evasion include the following:

Tax evasion is bad for the government since taxes are its major source of revenue. If you don’t pay your taxes, the government will end up with reduced revenue, which affects the quality of services delivered to the citizens. Tax evasion can also lead to poor economic growth, which impacts the quality of many people’s lives. It could lead to penalties or even imprisonment if you are found guilty.  

What Is the Difference Between Tax Avoidance and Tax Aggressiveness?

As highlighted above, tax avoidance is a legal way of reducing the amount of tax paid by individuals, businesses, or large corporations. With proper planning, there are different methods you can consider to reduce taxes on your income. On the other hand, tax aggressiveness is the act of manipulating your taxable income to your advantage, which often leads to tax evasion. Once you take aggressive measures to minimize your taxable income, you are likely to cross the line, which leads to an illegal action. 

- ADVERTISEMENT -

What Is the Penalty for Tax Evasion in South Africa?

The Tax Administration Act (TAA) states that non-compliance with one’s tax obligations leads to fixed administrative penalties. The penalty levied for non-compliance depends on the taxpayer’s taxable income, usually ranging from R250 to R16 000 per month. This is a recurring penalty for up to 35 months. 

Even if you don’t agree with the penalty, defiance is not the best option since it will not help your situation. It is better to arrange a payment plan with SARS to get a reprieve instead of not paying at all. Once you owe SARS money, you should know that you cannot easily get away with that credit. For example, SARS can obtain garnishee orders to recover the money you owe from your employer. It also has the power to access your bank account to get the money you owe. 

Other penalties for tax evasion in South Africa include the following:  

What Is Tax Evasion in South Africa?

Tax evasion involves the unlawful means to pay little tax or not to pay at all. It involves activities like fraud, misrepresentation of information to SARS, falsifying statements, and other illegal activities designed to help taxpayers avoid paying their taxes. Other individuals and businesses deliberately avoid declaring their income so they do not pay their taxes. 

In some cases, taxpayers may lie about their expenses so they can claim refunds which they do not deserve. If an employer deducts tax from their employee, failure to pay it to SARS constitutes tax evasion. Submission of fraudulent invoices by companies is another common form of tax evasion that jeopardises SARS from collecting revenue. If you engage in such practices, you should stop that behaviour since it can lead you to great trouble if you are audited. 

The government of South Africa, like other governments across the world, generates its revenue from taxes collected from individual taxpayers and businesses. All people who earn taxable income have a legal responsibility to pay taxes to the government. Practices like tax evasion are illegal, and they can lead to serious consequences like fines or even imprisonment. If you want to reduce your tax, one method you can consider is tax avoidance. However, you should be careful to avoid unlawful practices that can drive you to the wrong side of the law. 

- ADVERTISEMENT -

Keep Reading

How Do I Register For VAT on SARS eFiling?

How Do I Register For VAT on SARS eFiling?

This guide will walk you through registering for VAT on SARS eFiling, including the necessary documents and how long the process typically takes

Who Must Register As a SARS Taxpayer?

Who Must Register As a SARS Taxpayer?

We will discuss who must register, what is needed to register for SARS eFiling, what qualifies you as a SARS taxpayer and more

How to Activate Tax Types on eFiling

How to Activate Tax Types on eFiling

This comprehensive guide navigates through the intricacies of tax types, explaining how to activate them on the eFiling platform

TDC01- Transfer Duty Declaration

TDC01- Transfer Duty Declaration

This guide explains the steps you should take to activate your transfer duty account on eFiling and how to complete your TDC01 Declaration.    

How to Check Your SARS Balance Online

How to Check Your SARS Balance Online

Today's article helps taxpayers transition to mobile, online alternatives with information on how to check your SARS balance online.

What Are the Consequences of Not Paying Tax?

What Are the Consequences of Not Paying Tax?

What Are the Consequences of Not Paying Tax? Read on to learn the consequences of not paying taxes to the government.    

Where to Get A Medical Scheme Tax Certificate?

Where to Get A Medical Scheme Tax Certificate?

Here’s everything you need to know about medical scheme tax certificates, which are a critical part of proving your medical aid expenditure

How Long Does SARS Take To Pay After Audit?

How Long Does SARS Take To Pay After Audit?

How Long Does SARS Take To Pay After Audit? .This article explains different things you should know about SARS audits. 

How to Remove a User From SARS eFiling

How to Remove a User From SARS eFiling

Learn how to remove a user from your SARS eFiling account in just a few easy steps. Keep your tax information secure and control who has access to your account.

How to Add Additional Documents to SARS eFiling

How to Add Additional Documents to SARS eFiling

This guide will look at adding additional papers to SARS eFiling, how many documents you can upload

Is Compensation Taxable In South Africa?

Is Compensation Taxable In South Africa?

Learn about the compensation tax laws in South Africa. Understand your tax bracket, take advantage of exemptions and reliefs

How to Fill SARS Travel Logbook

How to Fill SARS Travel Logbook

This article explains how you fill out your SARS travel logbook. Continue reading to learn how to fill it

What is SARS Income Tax Verification?

What is SARS Income Tax Verification?

What is SARS Income Tax Verification? Let us give you more details on SARS tax verification and how to verify your SARS account. 

How to Complete a Tax Directive Application eFiling

How to Complete a Tax Directive Application eFiling

Understanding how to navigate the eFiling platform for tax directives is essential for ensuring compliance with tax laws and accurately managing tax obligations.

Reasons You Still Need to File Your Tax Return 

Reasons You Still Need to File Your Tax Return 

Reasons You Still Need to File Your Tax Return. Here are some good reasons why you should file your tax return