Tax evasion

==Evasion of value-added tax and sales taxes==
[[File:Countries with Largest Tax Evasion Amount v3.jpg|250px|thumb|Tax campaigner [[Richard Murphy (political economist)|Richard Murphy]]'s estimate of the ten countries with the largest absolute levels of tax evasion. He estimated that global tax evasion amounts to 5 percent of the global economy.<ref>{{cite news| url=http://blogs.reuters.com/david-cay-johnston/2011/12/13/wheres-the-fraud-mr-president/ | archive-url=https://web.archive.org/web/20120107204610/http://blogs.reuters.com/david-cay-johnston/2011/12/13/wheres-the-fraud-mr-president | url-status=dead | archive-date=7 January 2012 | work=Reuters|title=Where's the fraud, Mr. President?|date=13 December 2011|author=David Cay Johnston|author-link=David Cay Johnston}}</ref>]]
During the second half of the 20th century, [[value-added tax]] (VAT) emerged as a modern form of [[consumption tax]] throughout the world, with the notable exception of the [[United States]]. Producers who collect VAT from consumers may evade tax by under-reporting the amount of sales.<ref>Spiro, Peter S. (2005), "Tax Policy and the Underground Economy," in Christopher Bajada and Friedrich Schneider, eds., ''Size, Causes and Consequences of the Underground Economy'' (Ashgate Publishing).</ref> The US has no broad-based consumption tax at the federal level, and no state currently collects VAT; the overwhelming majority of [[U.S. state|states]] instead collect [[Sales taxes in the United States|sales taxes]]. [[Canada]] uses both a VAT at the federal level (the [[Goods and Services Tax (Canada)|Goods and Services Tax]]) and [[Sales taxes in Canada|sales taxes at the provincial level]]; some provinces have [[Harmonized Sales Tax|a single tax combining both forms]].{{citation needed|date=January 2015}}

In addition, most [[jurisdictions]] which levy a VAT or sales tax also legally require their residents to report and pay the tax on items purchased in another jurisdiction.{{citation needed|date=January 2015}} This means that consumers who purchase something in a lower-taxed or untaxed jurisdiction with the intention of avoiding VAT or sales tax in their home jurisdiction are technically breaking the law in most cases.

This is especially prevalent in [[federal state|federal countries]] like the United States and Canada where sub-national jurisdictions charge varying rates of VAT or sales tax.

In liberal democracies, a fundamental problem with inhibiting evasion of local sales taxes is that liberal democracies, by their very nature, have few (if any) border controls between their internal jurisdictions. Therefore, it is not generally cost-effective to enforce tax collection on low-value goods carried in private vehicles from one jurisdiction to another with a different tax rate. However, sub-national governments will normally seek to collect sales tax on high-value items such as cars.<ref>{{cite web|last=Tomášková |first=Eva |year=2008 |url=http://www.aicels.org/aicels/Interduction_to_czech_law_-_AICELS%20-%20Abstract1.pdf |title=Tax Evasion in the Czech Republic – In: A Brief Introduction to Czech Law. Rincon: The American Institute for Central European Legal Studies (AICELS) 2008. pp. 111–21 ISBN 978-0-692-00045-8 |url-status=dead |archive-url=https://web.archive.org/web/20110903121846/http://www.aicels.org/aicels/Interduction_to_czech_law_-_AICELS%20-%20Abstract1.pdf |archive-date=September 3, 2011 }}</ref>