The link between Money Laundering and Tax Evasion

Money laundering: is a financial crime that is conducted for the conversion of black money into white money, which is generated by illegal activities and to convert the criminal proceeds into white money by removing their illegal origin.

Tax evasion: is an illegal act in which a person deliberately hides their true income and avoids paying a true tax liability.
Tax evasion can be either the illegal non-payment of tax or under-payment of the actual tax liabilities.

# Tax Avoidance need not be confused with Tax Evasion, avoidance of tax is legal with the help of statutes that provides for the planning of taxes of individuals or entities.


Is it quite difficult to establish a direct link between the two, but,
People who are evading taxes are those who have earned their income in a perfectly legitimate fashion, but they are trying to hide their income from the Income Tax authority to avoid paying taxes.

Money launderers may want to pay taxes on their income as a part of the process of legitimizing their gain earned out of illegal activity.

The launderers will deposit the cash in a bank account and then try to report it as earnings from a legitimate business to the tax authorities and pays tax on it, and then spend it as if it were ordinary, legitimate income without being noticed.

In some cases, tax evaders may operate in a way opposite to the money launderers by converting the observable income from legitimate business operations into unobservable cash that can be spent without reporting it in the income tax returns. Some tax evaders may have earned their money from illegal activities and are also trying to evade tax.

Money launderers might try to convert criminal proceeds into tax-free income or tax-advantaged income, such as capital gains and they are not likely to report the true nature of their income.

Conclusion:

Therefore, the main difference between them is the primary goal and the intention behind the acts. Money laundering is done to hide the tained money (black money) and covers the criminal acts of a business entity or an individual.

On the other hand, Tax evasion is conducted to reduce the tax liability by hiding the income, it can be black money or legitimate income.

Leave a Reply

Your email address will not be published. Required fields are marked *