Causes of Tax Evasion and How to Reduce It

The level of taxation is influenced and determined by several factors such as: the performance of the economy at any given time, the effectiveness of financed from taxes public expenditure, property structure, public needs as determined by Government policy and approved by the Parliament, the degree of contributors’ understanding of budgetary needs and adherence to Government policy, the stage of democracy in one country or another, etc. These make that between tax level and its base, represented by the GDP, not to be a strict correlation On the State budget and public finance, the cases of tax evasion or avoidance may not have manifested but negative effects. In reality, even the potentiality of cases of tax evasion by taxpayers, adversely affect public funds through the necessary expenditure to be earmarked for the prevention and monitoring of the tax payers. The higher is the extent of the phenomenon of tax evasion, the more the public finances of a State will suffer. If this phenomenon is joined by a weak economy and a shaky fiscal system, the negative effects are augmented. It should also be pointed out another important aspect of feeble public finances: chances are that fiscal bodies to act in that tough situation under emergency and pressure status and to deceive this tension on the economy, making it more unfit to uphold degraded public finances.