Essays on Australian Income Tax System Coursework

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The paper "Australian Income Tax System " is an outstanding example of finance and accounting coursework.   The primary purpose of income taxation is to raise revenue for the governments. The criteria of equity, simplicity, efficiency and neutrality are the traditional criteria used to evaluate how effectively a tax system carries out its purpose of raising revenue. Since 1901 successive Australian Governments have struggled to find the "perfect" tax system to achieve those targets. (Greene, 2004, 36-41) Nowadays, there are two main types of the income taxation system. One is a progressive tax system which the Australian Income taxation system is; the other is a flat tax system which Eastern Europe (e. g.

Russia) uses. Comparing with Eastern Europe, the Australian Income tax system does not have only one single rate and has hundreds of deductions, credits, exclusions, etc. The Australian Income tax system can not produce the desired results. It sinks further into the mire of confusion, clouded by deception and self-interest. Following is the brief review. The tax matter--fairness is an ideal exceedingly difficult to define and harder still to measure.

The objective view of fairness is a matter of perspective, one person's viewpoint varies form another. Concepts of Reformation There is one concept of equity-vertical equity: taxpayers in different positions treated differently, the further implicit assumption being that the wealthier should bear a greater burden than the poor. Usually, someone with an income 10 times higher than another would pay 10 times more. To most people, this is the essence of fairness. Under the Australian Income tax rates--the progressive tax rates( five rates for the residents, four rates for non-residents, and the top tax rate recently is 47%), someone with an income 10 times higher would pay 10 times more.

It is obvious that this target of fairness can not be achieved by the progressive tax rates but it can be accomplished simply in Eastern Europe by a flat rate. There is another concept of fairness. Under "horizontal equity", taxpayers in similar positions should be treated the same. Australian current system violates this principle because one's tax liability depends not just on the amount of income, but the form of that income (wages vs. business income) and the number of tax deductions, exclusions, credits and exemptions to which one is entitled.

(Garfinkel, 2007, 95-101) Complexities immediately occur: two taxpayers with the same income may be in entirely different social positions. One may be a single male who carries no debt or dependants and the other a married woman with a disabled husband and three children and servicing a mortgage. Clearly the affordability of the two taxpayers is enormously different, though the apparent income is identical. The government response was to introduce a "rebate" system whereby both taxpayers are assessed at the same rate but the more 'burdened' taxpayer to receive "rebate" to reduce the final tax payable.

(Meade, J. et al. 2003, 14-20) The family rebate system has evolved extensively and has been used as a social welfare and grant system ever since. As of 2001 such rebates have been termed tax offsets and range from subsidies for living in remote localities, zone allowance, to child care assistance. Payments to pensioners as a Government Grant to offset the inflationary impact of the GST were also made through the taxation system in 2001.

At least since Adam Smith, simplicity in taxation has been considered a virtue. By simplicity, we mean not only that the tax system is conceptually easy to understand, but also that the cost of complying with its requirements is low.

References

Arnold, Brian J. - International Tax Primer - 2nd edition, The Hague; London: Kluwer Law International, 2002; 124-30

Garfinkel, I., Huang, C.-C. And Naidich, W. (2007) "Effects of Tax Rebates on Poverty and Income Distribution," Institute for Socioeconomic Studies. 95-101

Greene, L. (2004) The National Tax Rebate. A New America with Less Government, Washington, DC: Regnery. 36-41

Grogger, J. (2001) "The Effects of Time Limits and Other Policy Changes on Welfare Use, Work, and Income Among Female-Headed Families," National Bureau of Economic 21-25.

Hoffman, S. and Seidman, L. (2003) Helping Working Families: The Earned Income Tax Credit, Kalamazoo: W. E. Upjohn Institute for Employment Research. 177-80

James R. Hines - International Taxation and Multinational Activity - Chicago III; London: University of Chicago Press, 2002: 56-60

Meade, J. et al. (2003), The Structure and Reform of Direct Taxation, Allen and Unwin, London. 14-20

Ogley, Adrian - The Principles of International Tax: a multinational perspective- London: Interfics Publishing, 2005: 110-15

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