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Question

Suppose you are an income tax officer, and you suspect tax fraud for a local baker. Which scams would you look out for as an officer in a raid?

A
Not reporting certain sales
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B
Reporting fake purchases
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C
Reporting the bills of the sales
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D
Transferring money to banks in coutries with low taxes
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Solution

The correct option is D Transferring money to banks in coutries with low taxes
The practice of illegally avoiding taxes is known as tax evasion. One of the practices include not disclosing the entire income. Individuals and corporates show less than actual income so that they can pay less tax. Another practice is inflating business expenses so that the total income reduces, and so does their tax amount. The reporting of low sales is an example of underreporting the income and reporting fake purchases is an example of inflating expenses. Both of them will reduce the taxable amount. Additionally, people even transfer money illegally to banks in other countries that have no or lower taxes.

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