Topic 1

"Cost" of Non-Compliance

The non-compliance of tax laws has a double-edged effect. Firstly, the penalty entails a cash payment (reduces the cash balance to the extent of the penalty amount) and secondly, it is not a tax deductible item.

'Rules are to follow'. Compliance to various requirements under the tax laws is mandatory and non-compliance entails payment of a penalty and in serious cases it may not be just a monetary payment. If penalties are not paid on time, non-payment/delay in payment of penalties results in further penalties. In business, the most common penalty concerning tax laws, is the charges payable for late or non-filing of returns and late or non-payment of taxes owing. The cash paid as a result of penalties/non-compliance of a requirement reduces the cash at the taxpayer’s disposal. Unlike other business expenses, these penalties are not deductible in the computation of the taxable income from business. Thus, penalties are double whammy in nature – on the one side it is the cash lost and on the other side it is a non-deductible item. The objective of the penalty regulations is to act as a strong deterrent against non-compliance. Avoid delay in both filing returns and paying taxes. You can save money by due compliance alone.