Tax related topic - Research Paper Example

Principles of Good Tax Policy Principles of Good Tax Policy Introduction A tax system refers to the legal setup used by the government to collect and assess taxes. Tax systems help governments in financing their expenditures by imposing charges on corporate entities and citizens. States may use tax systems to discourage or encourage specific economic, political, and social policies. Though tax systems may have varied policies depending on the government, its regulations should conform to the general guidelines of international standards.

The international principles outline core values that governments need to follow while developing taxation policies. The principles include equity and fairness, certainty, neutrality, convenience, simplicity, and minimum tax gap. Other principles of sound tax policy include economy in collection, transparency and visibility, and appropriate government policies. Government policies should rely its economy, but not international standards. The paper explores details of the aforementioned principles of sound tax policy.

Equity and Fairness A good tax system should treat its citizens at different income levels and those of the same level relatively. It is essential that tax policies allocate taxes reasonable and fairly amongst individuals. The law requires that citizens of the state to support their government with proportionality to abilities. Therefore, tax agencies should collect taxes based on an individuals’ income and not the same for all citizens. Moreover, the principle requires that taxpayers do not pay at similar rates.

The rates should depend on tax proportion relative to taxpayer’s income bracket (Treasury Committee, 2012). Certainty Tax policies should stipulate vivid periods when the government collects taxes, method of payment, and procedure of determining amount payable. Certainty of tax policies is imperative in assisting citizens to comprehend government systems and consequently comply with them. Moreover, certainty would develop confidence on taxpayers about the computing methods employed by tax systems.

The government would have an opportunity to realize its revenue collection objectives with concise and reliable tax system. In addition, the principle requires that government policies on taxation should have no arbitrariness in tax (Watkins & Rogers, 2009). Convenience of Payment Collection of taxes should be due in a manner or during periods that are convenient for the taxpayer. Taxpayers should not strain to pay taxes but the systems for the tax collection should rhyme with income periods of taxpayers.

In a situation of need for making tax system convenient, for employees of a specific company who remit taxes at different times of the month, tax policies should shift. Convenient tax systems includes excise duty and value added tax in which the consumers remits tax when they purchase commodities at periods when they have the means (Lupu, 2012). Simplicity Tax policies needs to maintain simplicity to assist taxpayers in comprehending the outlined rules of the revenue collection agencies. Simplicity of taxation systems is also indispensable in ensuring compliance of the taxpayers and cost-efficiency of taxation systems.

In addition, simplicity helps in developing and maintaining respect and loyalty to tax systems, thus contributing to compliance. Common citizens who remit tax must calculate and ascertain the amount to pay. Simplicity of tax systems is imperative in avoiding corruption and embezzlement of collected revenues by tax authorities. Neutrality It is essential that tax law effects on taxpayers’ decisions on how to carry out specific transactions or engage in a given transaction remain kept to minimum levels.

The primary aim of taxes is to raise funds able to support government activities. However, governments may use taxes as an economic tool to influence policymakers and human behavior in a non-neutral manner. The principle requires states to use taxes in a neutral way and not to use it in influencing human behaviors or cause self-centered changes within its economy. Moreover, the law requires tax systems to remain devoid of economic decisions. Tax policies that systematically favor a particular type of commercial undertaking can lead into misallocation of government resources.

Moreover, such inappropriate policies may result into state funds reaching areas that have the sole purpose of exploiting revenues. It is imperative that tax policies maintain independence and not act under influence of any sector of the economy. Moreover, tax laws must maintain neutrality by remaining considerate of requirements of all sectors of the economy. Transparency and Visibility Taxations systems must maintain high-level clarity and visibility of all its transactions. Taxpayers within an economy must have knowledge of existence tax and strategies used by the government to impose it on taxpayers.

For instance, income tax remains the most visible type of the taxation system especially because most people have to make their n tax returns and remit payments. On the contrary, gasoline excise tax has no visibility mainly because tax agencies impose it on manufacturers after including price charged on consumers. In such cases, consumers have no understanding of state and federal excise taxes on a gallon of gas. Minimum Tax Gap Government policies should ensure that its tax systems remain structured in a manner that minimizes non-compliance.

In all circumstances where government policymakers design tax laws, they should appoint organizations to carry out assessments on impacts of the policies. Policies advanced should not encourage taxpayers to evade remitting revenues to the government but rather promote compliance and loyalty. Citizens may avoid paying taxes purposefully or unintentionally the former of which is an evasion described as illegal by law. Unintentional avoidance in paying tax may result due to the complicated nature of tax systems and its policies of due to taxpayers’ mistakes while computing amounts for remittance (Carling, 2009).

It is prudent that taxation systems observe the minimum tax gap principle when imposing transactions. The principle requires that taxes imposed on certain transactions sin a specific state should conform to those in different state otherwise taxpayers would evade paying tax. For instance, if California imposes a tax of 4 dollars on every fluorescent bulb bought and no tax on incandescent bulbs while the State of Nevada imposes no tax on light bulbs purchased. In such a scenario, California State would not prevent its citizens from avoiding paying tax by buying bulbs in Nevada.

Appropriate Government Revenues The principle requires that a tax system must have the capability of enabling the government to determine the amount of revenue for collection from taxpayers at a given time. The law also requires a tax system clearly indicate when the government will receive such funds and from which sectors of its economy. It is imperative that the central purpose of taxes for government to raise revenue that would enable it to carry out its operations successfully. Therefore, scope of governments’ budget depends on the amount of revenue it can collect.

In most cases, the government will strive to reduce volatility or change in its tax revenues by adopting different types of taxation systems. For instance, a meltdown in the economy may result in laying off citizens and consequently, the state would experience a decline in income tax collection. Once tax collection has declined, government will struggle to fund its activities. Therefore, governments should have a combination of taxes affected in vast ways or at different periods when there are changes in economic status.

Another aspect of the policy about tax systems is the preciseness level that governments can use to estimate the amount of revenue a particular tax would produce. It is essential that the majority of States have outlined requirements for a balanced budget including the amount of expenditure and revenue collection. Therefore, such regulations require somewhat predictable tax systems. Economy in Collection The policy requires that tax policies should outline measures that aim at keeping costs of collecting revenues at a minimum for both taxpayers and government.

Hiring more tax collection officers and revenue agents to enforce taxation without consideration economic factors would violate the principle. Moreover, the principle requires that governments use economically reasonable revenue collection points to reduce expenditures and consequently relieve citizens of the burd3en of paying higher taxes. Conclusion In conclusion, a good tax system must ensure the economic safety of taxpayers and their abilities to remain confident with the taxation agencies.

Taxes remains the central form of government revenue collection, and its efficiency and reliability is vital for prompt funding. Therefore, it is imperative for governments to ensure that their tax systems operate within considerate international policies including neutrality, convenience, equity, simplicity, and certainty to guarantee that there are no tax evasions. In addition, State tax agencies must also ensure that tax policies consider the minimum gap tax, remain economical during collection, and maintain transparency.

It is indispensable for tax agencies to practice the aforementioned principles to assist in maintaining relevance and taxpayers’ compliance. References Carling, R. (2009). Ten Principles for Tax Reform. Policy, 25(3), 9-15. Great Britain: Parliament: House of Commons (Treasury Committee). (2012). Budget 2012: Thirtieth report of session 2010-12. London: Stationery Office. Lupu, N. (2012). Efficiency and Equity of Tax. Economy Transdisciplinarity Cognition, 15(1), 81-85. Watkins, J., & Rogers, M. (2009). CIMA Operational Level: Paper F1.

Oxford: Elsevier.