Tax evasion facts for kids

Tax evasion is when people or businesses illegally avoid paying the taxes they owe. It's like someone not paying for something they bought, but for money that helps run a country. This usually happens when taxpayers deliberately hide how much money they really make or how much profit their business earns from the government.

For example, someone might say they earned less money than they actually did. Tax evasion is often linked to the informal economy, which means business activities that are not officially recorded or taxed.

Understanding Tax Evasion

Tax evasion means breaking the law by not paying taxes. Taxes are payments people and businesses make to the government. This money helps pay for important things like schools, roads, hospitals, and police. When someone avoids paying taxes, it means less money for these public services.

Why People Avoid Paying Taxes

People might try to avoid taxes for different reasons. Sometimes, they just want to keep more of their money. They might think the taxes are too high or that they don't get enough back from the government. However, avoiding taxes is against the law and has serious consequences.

How Tax Evasion Happens

There are several ways people try to evade taxes. One common way is by not reporting all their income. For example, if someone gets paid cash for a job and doesn't tell the tax authorities about it, that's tax evasion. Another way is by making up fake expenses or saying expenses were higher than they actually were. This makes it look like they earned less profit, so they owe less tax.

The Shadow Economy

The shadow economy (also called the underground economy) is where business activities happen without being officially recorded. This means no taxes are paid on these activities. For example, if someone sells items online and doesn't report their sales, that's part of the shadow economy. It makes it harder for governments to collect the taxes they need.

What are Tax Havens?

A tax haven is a country or place where taxes are very low or even zero. Some people and companies try to move their money or business profits to these places to avoid paying higher taxes in their home countries. While some ways of using tax havens are legal, others can be used for illegal tax evasion. Governments around the world are working together to stop the misuse of tax havens.

Why Taxes Are Important

Taxes are super important for a country to work well. They fund essential services that everyone uses. Imagine if there were no money for teachers, firefighters, or doctors. That's why tax evasion is a big problem. It takes money away from things that benefit everyone in society. Governments try hard to make sure everyone pays their fair share of taxes.

Images for kids

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  The ratio of German assets in tax havens compared to Germany's total GDP, from 1996 to 2008. The "Big 7" are Hong Kong, Ireland, Lebanon, Liberia, Panama, Singapore, and Switzerland.

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  Tax campaigner Richard Murphy's estimate of the ten countries with the largest amounts of tax evasion. He believed global tax evasion is about 5 percent of the world's economy.

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  The size of the shadow economy in Europe in 2011.

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  A "Lion's Mouth" postbox at the Doge's Palace in Venice, Italy, used for anonymous tips about people hiding income.

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  A poster from British tax authorities to fight tax evasion happening overseas.

See also

In Spanish: Evasión fiscal para niños