The uprising of tax evasion phenomenon

According to Investopedia, tax evasion is the illegal and deliberate non-payment, as well as the illegal underpayment of taxes.

This article will focus on the reasons of tax evasion, ways people avoid taxes as well as some possible solutions to circumvent the issue, which needs to be solved at its root rather than get patched up with a Band-Aid.

The most troubling issue with why people avoid taxes is their lack of understanding of how that could affect them in the long run. Citizens should be made part of the decision-making process through a participatory approach and their voice and concerns shared though special councils. People often think the short-term solution of not paying taxes is to their advantage. Part of the reason they do so is due to a lack of being informed of how taxpayer money will come to their advantage in the future. What is their tax money being used for? Many times, the answer is to reduce national debt. Even if that is the case, the plan on how our tax payer money plans to be part of settling that debt should be shared with the general public, because keeping people in the dark will continue to cause distrust and friction between them and the government. If taxes are taken from individuals, part of the money should be used to reduce national debt, but the rest should be used to improve people’s livelihoods. Human nature operates on incentive. 

The thought process behind how certain tax percentage numbers were determined should be shared with the general public as well. Was a mapping done based on the average wage of people, was the average household spending taken into consideration or the unemployment rate? If this structured plan was shared with the general public, a lot of the friction would have decreased between citizens and decision makers. 

A huge issue with how people avoid taxes is by not reporting their businesses and not properly reporting activities undertaken by their organisations, financially. A mapping should be conducted every three-five years by the government, under which government employees in Amman and elsewhere map all existing businesses through field visits to determine their status actions. Tax evasion is highly evident in virtual and informal businesses. To combat this issue, the government should train a team of officers that go undercover to detect the unofficial businesses that are non compliant with the tax code. By doing so, this will uncover a huge portion of tax evaders. True, this will require a partial investment to do, but it is worthwhile to solve the issue at its core. Another topic is tax evasion related to sales tax, where companies do not properly report bills paid in cash. All institutions should be forced to convene in electronic banking as part of compliance with the requirements of business registration and there should not be any handwritten paper transactions that do not go through a formal banking process. Another way of tax evasion is through custom tax. In that case, many people do not provide the customs department with correct specifications, therefor; end up paying less custom tax. This requires actual inspection of imported items by a trained team of public officers.

Another reason to why some people evade taxes is due to the complexity of the taxation system and the fact that it constantly changes. The government should work with its stakeholders, through a participatory approach, to come up with an appropriate taxation system.

In addition, tax evasion penalties should be made very clear and be applied to all. 

An equally important idea is the introduction of the tax system to students at schools, educating them about it, its benefits and about their ethical duty towards the future. This way people understand their responsibility at an early age, and can start thinking in a collective, rather than an individualistic, manner.

I strongly believe in the Jordanian people and the Jordanian government. I do believe that there has been a gap along the way, and that if some of these recommendations are applied, we can, hopefully, reduce the existing vacuum.

The writer, an MBA holder from the University of Texas at Arlington, works in social development. She contributed this article to The Jordan Times