Discuss about the Taxation Law for Architecture of Australia’s Tax.
The Australians are at the center of the taxation who, are making various decisions that relate to their engagement in work that can either be paid or unpaid such as services rendered at home or responsibility that is there for taking care of the family, the amount which is required to be saved so that it can be allocated towards investments which are alternative (Architecture of Australia’s tax and transfer system, 2008). These decisions that are being taken all have interdependency between them. This tax structure, however, has evolved over the period of time and turned into a complex structure in an attempt to satisfy multiple objectives that are being attempted to be achieved through the system of tax and transfer.
There has been an increasing complexity in the objectives of the policies as the government tries to achieve more and more through the country’s tax policies (“Part 1: Overview – Executive Summary – Australia’s Future Tax System: Final Report”, 2016). An obvious determinant of the system’s complexity and operating costs’ level is the tax-transfer policy and its implementation. It is because of the complex policy objectives that the result is a system which increasing in its complexity as well higher operating costs. To a considerable extent, it can be stated that the tax transfers policy’s complexity reflects on the existing complexity in the market for the goods and service production factors. It can, for example, be observed that since there has been an increase in the tax payers’ numbers in the country an involvement has increased in businesses that have complicated structures, or overseas work or investment or own investments in equity. There has been a prompt for making a more sophisticated tax rule due to there being an increase in globalization, finance innovation and e-commerce (Pope, 2005).
The tax history in Australia has observed that with a set of policy’s which is aim to be achieved there comes a shift in the policy outcomes’ focus which in turn make it more complicated. The Taskforce on Reducing the Regulatory Burdens on Business (Australian Government 2006) noted that due to their being a change in the needs and expectations of the society, driven partly by the affluence among the people which is increasing, knowledge and risk aversion, have become forces that are driving for there being an increase the regulations (Passant, n.d.). The considerations of the tax-policy may be extended beyond the trade-offs which are existing between complexity, equity, and efficiency for including other considerations as well. There is for example application of the tax system for non-tax objectives such as towards environmental programs, assistance to the industries and social security. Targeted implementation often required by such objectives by application of the tax provisions by using information that would otherwise have to be relevant for revenue collection.
It has also been observed that due to their having been changes in the society’s circumstances there also has been a change in the transfer system to make it more sophisticated (Ragg, 1992). There has been an increase in complexity in the Australian financial and working arrangements that have led to their being a change in the architecture of transfer which is significant. Changes in the structure of the relationships and family have also had also had an effect that is significant in it. Over the past two decades, the considerations of the policy have widened from its primary focus on poverty alleviation to system that encourages provisions of self through working and saving, and there is integration with the social and economic services of the policy (Reform of the Australian tax system, 1985). The complexity has been observed within the transfer system in various criteria of eligibility, payment structure which includes the available payments and payment rates which are supplementary) and the arrangements for the asset testing and incomes which are applicable for entitlements that are diverse.
It was mentioned in 2009 by Ken Henry in the Future Tax System Review of Australia that the methods and taxes which are there in Australia are too many, making the multiple objectives of the policy delivery complex through the various tax and transfer systems that are there in Australia. Henry had in this review made some 138 recommendations for the rationalization of the current tax and transfer architecture. However, out of these recommendations, there were only 19 which were accepted either partially or wholly by the country’s federal government.
The administration in the Federal system of Australia of the taxes and transfers are done by various levels of the government (Eccleston, 2013). There exists an inherent connection between the various state and local government of Australia, and it can be thought to be a system where there is the one-tax transfer which involves different types of elements. An interaction tends to be there of between the government of Australia’s system of tax transfer and the individuals, and also with the tax system in the State or locality of which they are residents. In the case of businesses however on the other hand operation of these have to across various states and nationally and the different tax systems that are in existence in these States or interactions which are taking place between different tax systems of various states and various local governments and other different systems of the government as well.
As compared to the states the Government of Australia has a larger role to play when it comes to the tax-transfer system than that which the States are playing (Hewson, 2014). Though there are some similarities between the two, however, in general, there significant differences that are their between the tax-transfer systems of Australian Government and the States. There are four elements with which the individuals on the side of the government of Australia interact directly with in the tax-transfer system (Kerrie, 2016), these are taxes levied on services and goods, tax on personal income, superannuation; there are including the case payments and concessions that are non-tax. A more restricted transfer system is interacted with on the state’s side, of the interest of the individual. There are various interactions which the individual of the Australian government has with the transfer and tax system.
The tax-transfer impacts not just the individuals but have an impact on the businesses as well. Most of the personal income tax is remitted to the ATO by the businesses through the pay as you go or the PAYG (Lloyd, 2015). The businesses are also required to make and pay on the employees’ behalf guarantee for superannuation and also the businesses may have to pay Fringe Tax Benefits (“FBT”) as well. Interaction in its own rights of the business is also there with the tax-transfer system, for example through payment of excise, payroll tax payment, company’s system of income tax, varied taxes on land, GST and different other kinds of taxes that have been levied on the businesses’ input. There is a requirement for the businesses in Australia of interaction with the various state regulation that has made the entire procedure extremely complex.
The essential task that arises is with respect to the issue regarding the complexity of tax and transfer regulations and compliance with the same. The National tax director at BDO Australia BDO Lance Cunnigham has stated that the system of tax’s theory is that it is required to be equitable, efficient and simple. There arise issues at times that there is the tradeoff between the two policy objectives of tax which are simplicity and equity. A complex system may be required where equity is to be achieved. A flat-rate for everybody for tax though a simpler method of taxation, for example, would not be equitable for people who fall in the bracket of earners of lower income. At various situations, there is being put by the government equity that is too much, and this they are ensuring by the plugging of any types of loopholes that might be there so that no extraneous advantages may be taken by one person over the other. For stopping the loopholes that exist there have been various measures that have been brought in under different circumstances in particular or in a type of transaction where there have only been a small number of people who have been misusing the system in loophole however the change has been made applicable to everybody. Some degree of complexity in the system of tax cannot be avoided. There are, however, a number of reasons which the compliance cost of the tax is greater in Australian businesses (Stokes & Wright, 2013). The system of tax is being used now for purposes that it had not been designed for such as delivering of subsidies, providing of incentives to businesses. Instead of overburdening of the system of tax it would be better if the money is given by the people directly to the businesses.
In Australia, the system of tax’s architecture rather than being from the perspective of what will the businesses be able to provide had been formed from the perspective of what the government or tax office’s requirement were. To have a tax system that is better it is important that revenue is raised by it in a way that has efficiency which is maximum, and is not very complicated, rather than a goal being changed which is potentially not achievable, of uniform distribution of the burden of tax (Tax reform road map, 2013). The redistribution of the wealth is already ensured by the transfer system which is there in existence and has been designed for the said purpose. The most effective manner the redistribution of wealth has to be achieved. It is important clearly to get away from a tax system where it is used for raising of revenue as well as redistributing the same in accordance with the principle of fairness which has over the time been politicized highly. The ideas of equity and fairness in tax and transfer has overburdened the system since it is an overreaching effect which it has had over the system (Tax forum discussion paper, 2011).
The driving force behind the vision of the tax system should not have objectives that are political in nature. Also, the competing policy objectives should not be overburdening the taxation system, such as ineffectual attempts which are simultaneously raising revenue as well as redistributing it according to the fairness notions. This fairness principle is a concept which is extremely subjective in nature. A good tax system needs to be instead driven by the aim of being able to deliver the taxes in a manner that is most simple as well as efficient and wherever possible and if necessary equitable too.
A strategic priority has to be given to the rationalization of tax and transfer. There needs to be four robust and efficient bases of tax that the concentration should be for raising of revenue. The first income to be assessed is the personal income which should be done on a comprehensive basis. The income from the business is the second on the basis and with rates which are oriented towards the growth. Consumptions are the third category, which is in nature private and the assessment of the same should be through taxes that are broad and simple. The final category is that of economic rents from land and natural resources, which is to be assessed on a basis that is more comprehensive. In this category, it is also to be noted that rent taxes which are generated from the revenue are like to be more capricious in nature as compared to the existing resources royalties which it aims to replace.
It is important that other than the taxes which have been mentioned above, any other tax is required to be maintained only in the case where it addresses in an efficient manner the social or economic costs such as taxes on costs related to environment, alcohol, gambling and tobacco, efficient road users’ charges or tax (WHITEFORD, 2010). There is a need to abolish taxes like insurance tax, payroll tax, tax which is levied on property transfer, purchasing of motor vehicle, luxury car taxes, royalties from resources which are to be replaced by tax on luxury car, rent tax, contribution of tax for superannuation fund, levitation of income tax on government’s every benefit, pension and allowance and taxes for registration of vehicle and fuel if the same is replaced by efficient road users taxes, these are required to be replaced by tax application that more efficient and robust bases of tax. The main aim behind this rationalization would be for ensuring that the policy objectives are lesser complex and the system of tax and transfer less overburdened.
References
Alternatives to the current federal estate tax system. (2008). Washington.
Architecture of Australia’s tax and transfer system. (2008). [Barton, ACT].
Eccleston, R. (2013). The Tax Reform Agenda in Australia. Australian Journal Of Public Administration, 72(2), 103-113. https://dx.doi.org/10.1111/1467-8500.12019
Hewson, J. (2014). The Politics of Tax Reform in Australia. Asia & The Pacific Policy Studies, 1(3), 590-599. https://dx.doi.org/10.1002/app5.43
Kerrie, S. (2016). — “Jurisdiction To Tax And The Case For Threshold Reform” [2005] JlATaxTA 14; (2005) 1(2) Journal of The Australasian Tax Teachers Association 162. Austlii.edu.au. Retrieved 4 August 2016, from https://www.austlii.edu.au/au/journals/JlATaxTA/2005/14.html
Lloyd, P. (2015). Excise Tax Harmonisation in Australia at Federation. Aust Econ Hist Rev, n/a-n/a. https://dx.doi.org/10.1111/aehr.12066
Part 1: Overview – Executive summary – Australia’s Future Tax System: Final Report. (2016).Taxreview.treasury.gov.au. Retrieved 4 August 2016, from https://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/papers/Final_Report_Part_1/executive_summary.htm
Passant, J. Reason in Revolt Now Thunders to End the Age of Neoliberal Tax Cant. SSRN Electronic Journal. https://dx.doi.org/10.2139/ssrn.2001170
Pope, J. (2005). REFORM OF THE PERSONAL INCOME TAX SYSTEM IN AUSTRALIA.Economic Papers: A Journal Of Applied Economics And Policy, 24(4), 316-331. https://dx.doi.org/10.1111/j.1759-3441.2005.tb01006.x
Ragg, M. (1992). Australia: “Reform” is a slight rise in tax. The Lancet, 340(8818), 541. https://dx.doi.org/10.1016/0140-6736(92)91728-q
Reform of the Australian tax system. (1985). Canberra.
Stokes, A. & Wright, S. (2013). Does Australia Have A Good Income Tax System?. International Business & Economics Research Journal (IBER), 12(5), 533. https://dx.doi.org/10.19030/iber.v12i5.7828
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Tax reform road map. (2013). [Canberra.
WHITEFORD, P. (2010). The Australian Tax-Transfer System: Architecture and Outcomes*.Economic Record, 86(275), 528-544. https://dx.doi.org/10.1111/j.1475-4932.2010.00634.x
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