In relation to the New Zealand income tax base, to what extent do you agree or disagree with these statements? In your essay, be sure to refer to the Income Tax Act 2007 and decided cases. References to relevant journal articles will, if accurate, attract extra marks.
The issue that has been presented in the question is that Lord MacNaghten in the particular case law of London County Council v Attorney General (1901) AC 26 (HL) at 36 states that the income tax is generally has been a tax on income. It has been further stated by him that income tax is not a collection of the taxes. There has been no difference between the duties of the assessment of the income tax. This meant that it does not matter as to how a single individual collects his or her money but the fulfillment of the particular condition that the income is above the prescribed limit makes him or her pay the income tax. Furthermore, it has been stated in the comment of Tennant v Smith (1892) AC 150 (HL) that the income tax is a tax that is chargeable on the particular amount of money that is earned by a single individual and not on the amount of money that has been saved by the individual. Therefore, this particular study aims to have an overview into the New Zealand tax base in regards to the particular comment that has been provided in this case study. The Income Tax 2007 has also been referred to in this particular study.
There have been numerous reasons behind the income tax base of New Zealand becoming restricted to the cash income items only. This means that as stated in the particular case study Tennant v Smith the income tax depends on the actual income that comes in the pocket of an individual. The reasons behind the tax structure of New Zealand becoming only focused upon the component of cash can be stated in regards to the restriction of the tax structure within cash base will lead to the imposition of a cash flow demand on the individuals who have been receiving a benefit from the imputed income. However, it must be noted here that the benefit that has been received is not necessarily in the form of cash [1].
Moreover, the non-restriction of the tax structure in regards to the cash base might result in unnecessary complications and on evaluations it is estimated that there are issues related to cases of boundaries and the income might get deemed to attain little or no accruement.
The services that have been provided for the purpose of own use in regards to the income tax base of New Zealand is also taxable under the goods and services tax levied by the administration of the government in New Zealand. It should be noted here that larger the base of the tax the lower is the particular tax rate required. Therefore, by the inclusion of all the above mentioned criteria in the tax base an individual could estimate the significance of the particular process of wedging the tax in regards to any transaction that has to be reduced. Thus, it can be found out that the contribution to the improvement of the economic efficiency from the more neutral incidence of tax has been a common phenomenon.
Now, it can be deduced that the higher degree of comprehensive measure of the income base would result in the issues in regards to the taxation authority. This is because the taxation authority had to make the difference between the costs that have been incurred for the purpose of the procurement of income and those essential costs that have been incurred for the purpose of final consumption. Here it must be noted that the fundamental services that are incurred for the purpose of consumption in the household sector are not taxable in nature. Therefore, in order to summarize the current cash based definition of the assessable income it can be evidently stated that the income tax regime is unfair from the perspective of the common people and the society’s income from an all-round basis is lower as a consequence[2].
However, the usage benefit or the disadvantage of the tax regime in New Zealand can be defined by the particular factor of closing the deliberate concessions in the taxation regime. It must be noted here that the neutrality factor of the tax should be only be compromised at the if the government of the country has the particular desire to impose the taxes that are corrective in nature and have been particularly imposed for the purpose of discouraging certain activities for the sake of others. The imposing of the excise duties on the particular components like alcohols, fossil fuels can be potential examples of the above fact. Therefore, it is further understood that the recent government in New Zealand does not have a deliberate policy for the promotion of the investment in the in property over other business investments. The absenting of the owner occupied benefit in regards to ownership of the property from tax and further favoring of that particular asset class with the help of the prudential rules in regards to the lending by the banks issuing mortgages over the other types of debts indicates a major fact. This fact is that a cumulative benefit in regards to the owners of the properties has been ensured by many of the developing countries [3].
It might be deduced from the structure of payment of income tax that the payment it only benefits the government as it is a major source of government revenue. However, as explained in this particular study, the payment of income tax is beneficial for that common mas too which deals in the payment of the taxes. This is because the payment of taxes reduce the impending liability and transfer the owner of the liability to others. Moreover, the payment of the income tax facilitates the payer with the providence of progressive taxation on the amount of money that is made. This can be further understood with the help of an example of a person making a $15,000 per year will pay a certain amount of tax while the other person earning a $150,000 yearly will certainly pay more than the previous. Thus, the payment of the income tax is an effective strategy for making the distribution of the acquired wealth. The consideration that the majority of the population will be fitting into the lower bracket results in the assumption that this particular tax structure will be favored [4].
It must be further noted that the current system makes an allowance for a stable and continuous inflow of money or stream of money for the government of New Zealand. For instance, an economic inflation or deflation will not restrict the government from deriving a continuous stream of income as the workforce will still be making money. The particular fact that the workers making money can enable the government of the country to maintain an income stream even in the times of depression. Moreover, the come tax also helps the government to maintain an income stream in the time s of emergency or economic depression. The income tax helps the government to build a superior infrastructure that otherwise would have been impossible to finance with the help of expenditure tax only.
It has been further argued as mentioned in the comment provided in the case study that the provision of the income tax maintains the corporate and personal profits would be out of control and unregulated in nature. The individuals that are unscrupulous in nature and corporations that are greedy would benefit from an administration that has no income tax structure in existence.
The comparison that can be drawn between the income tax and the expenditure counterparts, it has been found out that all people do not consume at the same rate. Therefore, the tax on earnings has been a much more equitable way for the purpose of assessing the amount of tax than with consumption tax. Moreover, it has been further found out that the lower income class would be at most impacted by the providence of a straight tax on consumption. It must be noted here that the income that has been computed on an individual basis follows a much simplified way for the purpose of levying taxes and deciding the amount of deductions. In case of consumption tax the people might have to deal with a lesser number of receipts for the purchases that they make while a potential income tax structure might result in the saving of the receipts for each purchase that they make during the year in order to clearly apply for the tax breaks. In regards to this particular sense, income tax is much more flexible in nature as they allow people to claim the deductions that they may be able to acquire on the particular tax returns. This can be further explained with the help of the examples like childcare expenses, financial challenges and loss in regards to personal property[5].
Therefore, the existence of a particular income tax structure cannot be denied on the fact that the income tax is an essential part of any economy and is present in every country throughout the world. Certain case laws have been of the similar opinion like the Dy Cit Cc 38 vs Department of Income Tax on 9th April, 2012. The claim in regards to this particular case law has been that the income tax structure should not be imposed on other items except the income items.
The Income Tax Law that had been passed in the year of 2007 recognized the loopholes in the general income tax structure and resulted in the updating of the existing tax structure for the purpose of better utilization of the proposed structure by the government and other ruling bodies. Moreover, the income tax law had been established with the purpose of making aware the common mass the disadvantages of tax evasion. Moreover, the particular process of tax evasion would in the long run be a potential disadvantage for the individual practicing tax evasion had also been discussed in this particular tax law [6].
In order to understand the fundamental view that has been conveyed through the comments, the tax structure of New Zealand should be understood. This means that the understanding of the tax base in New Zealand will aid the particular comments of the case study. It must be noted here that New Zealand collects a larger part of the revenue share from the three most important tax bases like the personal income tax base, company income tax base and GST.
Therefore, it has been understood from the above deductions that taxable income is an important part of the income of an individual. The payment of tax essentially leads to the increase in the income of the individual as he or she can avail the benefits of payment of tax. This means that as stated in the comments provided in the question the payment of the income taxes does not depend on the particular way in which the individuals have collected their income. The method utilized for the collection of income might vary with different individuals however the individual will specifically have to make payment for the income tax at the point when the income exceeds the specified limit. Furthermore, it must be noted here that the particular source from which the income has been derived, matters [7].
Moreover, it can be evidently concluded that the income is a tax that is imposed upon the actual receipt that is acquired by an individual and not on the portion of the income that has been saved. Moreover, the income tax base in New Zealand also states the fact that the restriction of the tax structure to the cash components also results in the avoidance of the unnecessary tax complications. Therefore, the comments that have been provided in the case study are correct and applicable
References
Besley, T. and Persson, T., 2014. Why do developing countries tax so little?. Journal of Economic Perspectives, 28(4), pp.99-120.
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), pp.181-205.
Djankov, S., 2017. Corporate tax cuts: Examining the record in advanced economies.
Gemmell, N. and Ratto, M., 2017. The Effects of Penalty Information on Tax Compliance: Evidence from a New Zealand Field Experiment (No. 6769).
Hines Jr, J.R., 2017. Business Tax Burdens and Tax Reform. Brookings Papers on Economic Activity.
James, S., Sawyer, A. and Wallschutzky, I., 2015. Tax simplification: A review of initiatives in Australia, New Zealand and the United Kingdom. eJournal of Tax Research, 13(1), p.280.
Kelsey, J., 2015. The New Zealand experiment: A world model for structural adjustment?. Bridget Williams Books.
Mhurchu, C.N., Eyles, H., Genc, M., Scarborough, P., Rayner, M., Mizdrak, A., Nnoaham, K. and Blakely, T., 2015. Effects of health-related food taxes and subsidies on mortality from diet-related disease in New Zealand: an econometric-epidemiologic modelling study. PLoS One, 10(7), p.e0128477.
Mossialos, E., Wenzl, M., Osborn, R. and Sarnak, D., 2016. 2015 international profiles of health care systems. Canadian Agency for Drugs and Technologies in Health.
Schenk, A., Thuronyi, V. and Cui, W., 2015. Value added tax. Cambridge University Press.
Stephens, R., 2017. 3 Re-orienting support for children in New Zealand. In Children and Social Security (pp. 151-172). Routledge.
Vegh, C.A. and Vuletin, G., 2015. How is tax policy conducted over the business cycle?. American Economic Journal: Economic Policy, 7(3), pp.327-70.
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), pp.181-205.
Besley, T. and Persson, T., 2014. Why do developing countries tax so little?. Journal of Economic Perspectives, 28(4), pp.99-120
Gemmell, N. and Ratto, M., 2017. The Effects of Penalty Information on Tax Compliance: Evidence from a New Zealand Field Experiment (No. 6769)
mortality from diet-related disease in New Zealand: an econometric-epidemiologic modelling study. PLoS One, 10(7), p.e0128477
Schenk, A., Thuronyi, V. and Cui, W., 2015. Value added tax. Cambridge University Press
Stephens, R., 2017. 3 Re-orienting support for children in New Zealand. In Children and Social Security (pp. 151-172). Routledge.
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