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The difference between Tax Avoidance and Tax Evasion

Have you ever heard or read the terms tax avoidance and tax evasion? These two terms are so familiar when discussing taxes. Talking about taxes means talking about a source of state revenue.

State revenues obtained from taxes are used to finance state expenditures or spending, including the development of infrastructure and public facilities in various parts of the country.

As state revenue, where do taxes come from? Of course from the people whose principle of usefulness is also for the people. All citizens are tax subjects, but not all are taxpayers.

Taxpayers are individuals or entities that according to laws and regulations have the obligation to pay taxes, namely parties whose nominal income is classified as taxable income.

Tax Avoidance vs Tax Evasion

One of the taxes collected from taxpayers, both individuals and legal entities or businesses, is income tax. This tax includes income earned in a tax year, including business profits or profits, salaries, gifts, honoraria, and others.

Well, this type of tax is often avoided by taxpayers so that the value of their income does not decrease too much for taxes. This encourages taxpayers to carry out tax avoidance and even tax evasion.

Definition of tax avoidance and tax evasion

What is tax avoidance and tax evasion?

Tax avoidance has the meaning of efforts made to avoid taxes (tax avoidance). More clearly, tax avoidance can be defined as an effort to detect loopholes in the provisions of tax legislation until a weak point is found in the legislation that allows for tax evasion which can save the amount of tax paid.

From this definition, tax avoidance is like an effort made by taxpayers, both individuals and legal entities or businesses to minimize tax payments.

While tax evasion is an effort made to illegally avoid taxes by not reporting income or reporting but not the actual value of income.

As an illegal action, it is clear that tax evasion violates the law so that its practice is not permitted. The act of tax evasion is fraud, because the taxpayer tries to manipulate transactions so that costs arise that reduce income and even cause losses. 

Tax evasion is detrimental to the state, because the value of the tax paid by the taxpayer is not the value it should be. In fact, it could be that taxpayers are free from the tax burden if their income is minus or suffers a loss.

The difference between tax avoidance and tax evasion

Admit it or not, no one likes to pay taxes, because it will reduce the income earned. However, paying taxes is an obligation ordered by statutory provisions. So, like it or not or like it or not, taxes must still be paid even though there are efforts to avoid taxes.

Tax evasion and tax evasion are both attempts to avoid taxes, but they are very different. Where does the difference lie?

1. The legal side

From the definition between tax avoidance and tax evasion, it is clear that the two have differences in terms of legality. This means that tax avoidance is an attempt to reduce or minimize the tax burden in legally permissible ways.

So, from a legal point of view, tax avoidance is a legal action by exploiting the loopholes or weaknesses contained in the applicable tax laws and regulations.

As is known, laws and regulations regarding taxation are legal products. Not all legal products are perfect, there are still gray areas or gray areas which are often the weak points of these laws and regulations.

If observant, the taxpayer can find these weak points and use them to minimize the tax burden that must be paid.

It is different from tax evasion, because efforts to avoid taxes lead to tax evasion which from a legal point of view is categorized as an illegal act.

Efforts to avoid taxes on tax evasion are carried out in ways that are contrary to applicable tax laws. Here the taxpayer already has the intention not to pay taxes.

2. Concrete efforts made

The greater the income, the tax burden will also be greater. Again, it must be admitted that no one likes their income reduced a lot to pay taxes.

Therefore, efforts were made to avoid it. The several efforts made on tax avoidance include:

Accelerate depreciation so that a greater depreciation value is obtained. In the financial statements, depreciation is a component that reduces income or operating profit which is used as the basis for calculating taxes.

Doing tax planning or tax planning. There are two tax planning schemes that can be used to save taxes, namely substantive tax planning and formal tax planning.

Substantive tax planning can be done by moving the tax subject, tax object, or tax subject and object at the same time to another country that provides special tax treatment in the sense of tax relief.

While formal tax planning is an effort to avoid taxes while maintaining the economic substance of a transaction but choosing the type of transaction that has a low tax burden.

Tax avoidance is carried out without fraud and engineering that is contrary to tax rules. In this regard, there are several companies that prepare financial statements in two versions. The first is for the benefit of internal reports of shareholders related to dividend calculations. While the second is intended for tax calculations.

So, what about tax evasion? Concrete efforts from tax evasion are carried out by violating applicable tax provisions or rules.


Tax avoidance and tax evasion are efforts made by taxpayers, both individuals and entities, to avoid taxes. From a legal point of view, tax avoidance is legal, while tax evasion is illegal.

Even though it does not violate the law, the realization of tax avoidance is not in line with the objectives of the tax legislation, because the taxes collected from the people are used for the benefit of the people. Better to look for loopholes to relieve taxes what rich and successful people do, rather than looking for loopholes to avoid taxes.

This means that the people will also enjoy the results of the tax collection. If the people avoid taxes both legally and illegally, it will obviously have an effect on decreasing state revenues.

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