Tax planning is a Lawful and sensible arrangement of business and personal affairs in such a way as to attract the lowest possible incidence of tax.
Tax planning is not prohibited because it is not explicit and implicit in the rules listed. Because not banned then arises of how to do tax planning. There are two ways that often familiar in our ears, the Tax Avoidance and Tax Evasion.
• Tax Avoidance is an attempt to minimize the tax burden by using the gaps in laws and regulations including the anomaly contained in the tax system and not against the law. Examples of Tax Avoidance is the selection method of depreciation Straight line or declining balance giving a more tax savings. In practice, the Tax Avoidance is often referred to as the (Tax Planning).
• Tax Evasion is an act or effort made fraudulently or dishonestly so the tax paid by the taxpayer less than that should be paid according to applicable regulations and are illegal. The first example is to keep books in two versions, one for management purposes and one for tax. The second is to report fictitious expenses in SPT.
Some ways the implementation of tax planning (tax planning): • Selecting the procurement of assets: Capital Lease vs. Purchase. • Use Transfer Pricing and Thin Capitalization. • Choosing the depreciation methods: Straight Line versus Declining Balance. • Choosing a rewarding alternative / facilities / benefits to employees. • Taking advantage of the tax provisions Inter corporate Dividend.