Toulmin Analysis - the Ups and Downs of Flatter Taxes - Essay Example

The enforcement agencies tend to ignore such non-compliances. They also do not find it economical to trace, communicate and then enforce such minor offenses, because the amount of money spent on enforcement far exceeds the gains in the form of tax.
iii. The system is not transparent enough and gives room for temptations to evade tax. In cases when big business houses can devise ways and mean to evade tax, tends to have a cascading effect on the employees and other concerned stakeholders in the business, which results in further revenue losses to the government.
iv. Flat tax system has shown its worth in some the countries like Russia, and some other economies in transition like the Slovak republic, while some OECD nations like Italy, Greece, and Mexico and actively pursuing the matter

Warrant: The flat tax system is likely to result in
i. Increasing compliance from the individuals. The easier tax formalities will help in encouraging more people to go with the system.
ii. More tax collections for the state. This effectively means the state would be able to mop up more tax without additional efforts.
iii. Tax filing becomes simple as the cumbersome structure of exemptions and deductions is gone
iv. More funds available for the activities like infrastructure development, and social welfare, one of the key components of nation-building.

Backing:
The country needs more investments in services and infrastructure because;
i. The population of aged people is rising, which calls for adequate arrangements for their healthcare and other social needs. The corporate sector has already taken note of the needs of senior citizens and accordingly started tuning their products and services accordingly. It is therefore the duty of the government as well to supplement such efforts while making efforts for strengthening the health care facilities etc.
ii. Education needs of the children are to be met with funds collected from this account. Higher education is becoming very costly nowadays and increasing competition in the job market/ outsourcing of jobs calls for a well-prepared youth.
iii. Taxes need to be made competitive for inviting more investments even into the sectors, which are not considered lucrative enough from the profitability point of view.

Grounds:
i. Many OECD countries have recognized the need to reform their income tax system over the last two decades.
ii. Flat tax system's simplicity will encourage people to comply with the tax rules. This forms the key to going for such a system.
iii. Russia was the first major country to adopt a flat tax rate in January 2001, when it declared a flat rate of 13%. Over the next year, personal revenue jumped by 26% in real terms, and as a percentage of Russia's GDP, incomes increased by a fifth. It is worth considering that if a country has been facing a series of troublesome situations for quite a while, why other developed and well-placed countries can’t do it?

Qualifier:
The real dilemma is how to fix the tax slabs. While a lower tax rate might create incentives to work, save and invest, become entrepreneurs, and take risks. It might as well throw away the real benefits of such a system. On the other hand, a high tax slab proves different in cases where the tax bases keep shifting particularly when globalization and the opening up of economies is the key trend.

Conditions for Rebuttal:
 Questions might be raised about fixing the tax slabs and corresponding rates. It is indeed a very challenging task for the income tax office to devise suitable slabs for tax deductions so that it reflects the social composition and earning potentials truthfully. But the slabs can in this case be rationalized in due course, as it is an evolutionary process, and once the tax office receives the feedback it can incorporate more changes into it.
 Arguments are advanced that in such a system, high-income earners might gain at the expense of middle-income earners who will have to pay a higher tax rate as they are bracketed in that particular slab.

 Russia and Slovak Republic in principle have a system of a flat tax, but they continue to levy social security contributions separately. This ‘contribution’ is meant to take care of the gains from shifting between capital and labor income.
 The flat rate of tax resulted in slightly higher tax rates for the lower-class taxpayers while the system benefitted the rich people. Read More