It is lawful that all tax deductions available are taken. Do you want to learn more? Visit Tax Shark. The avoidance of taxes by making charitable contributions is also lawful. On the other hand, tax evasion is a felony. Tax evasion typically involves not reporting revenue or incorrectly claiming deductions that are not permitted. Examples of tax evasion include actions such as when a contractor ‘forgets’ to report the LKR 1, 000,000 cash he receives for the construction of a pool, or when a business owner attempts to deduct LKR 1, 000,000 of personal expenses from his business taxes, or when a person falsely claims that he has made charitable contributions, or significantly overestimates the value of the property donated to charity.Tax Avoidance and Tax Evasion Legal Aspects There are two general points that can be made about tax avoidance and evasion. First, tax avoidance or evasion takes place across the tax spectrum and is not specific to any type of tax, such as taxes on imports, taxes on stamps, VAT, PAYE and taxes on income. Secondly, legislation addressing evasion or avoidance must necessarily be imprecise. There is no prescriptive set of rules available for determining when tax avoidance or evasion amounts to a particular arrangement. This lack of precision creates uncertainty and adds both the Department of Inland Revenue and the tax payer to the cost of compliance. Definitions of tax avoidance and evasion A precise test cannot be put forward as to whether taxpayers have avoided, evaded or merely mitigated their tax liabilities. As Baragwanath J stated in Miller v CIR; McDougall v CIR: What is legitimate ‘mitigation’ (meaning avoidance) and what is unlawful ‘avoidance’ (meaning evasion) is ultimately to be decided as a matter of judgement by the Commissioner, the Taxation Review Authority and eventually the courts. In the above statement, please note that the words are exactly as indicated in the judgement. Nevertheless, there is a mix-up of words that I have clarified by the words in the brackets.