Tax evasion and tax avoidance, while conceptually distinct, are overlapping phenomena that represent fundamental challenges to contemporary tax systems. Their detrimental impacts extend beyond fiscal inefficiency and inequity, affecting states’ capacities to achieve the goals of sustainable development. This article employs a library-based, analytical, and comparative research methodology, drawing on several peer-reviewed international academic articles, to examine the conceptual, legal, and institutional dimensions of tax evasion and avoidance within the framework of the Iranian tax system. The findings reveal that weaknesses in legislative structures, the absence of precise legal definitions, inefficient enforcement and oversight mechanisms, lack of economic transparency, and an underdeveloped culture of tax compliance are among the key obstacles to effective tax governance in Iran. Moreover, the legal ambiguity surrounding the boundary between lawful tax avoidance and illicit tax evasion complicates both policy formulation and implementation. The consequences of these deficiencies are not limited to declining state revenues but also include the erosion of funding for welfare, education, health, and environmental infrastructure—core pillars of sustainable development. Drawing on successful international experiences, the article concludes by proposing a set of reforms aimed at legislative refinement, improved tax administration, enhanced institutional transparency, and the cultivation of tax morale and social trust.