Topical Tax Issue - Essay Example

Topical Tax Issue The topical tax issue which will be examined is the examination of budget 2007 income tax measures using the poverty impact assessment guidelines. These new guidelines were issued by the office for social inclusion located in the department of social and family affairs during 2006. These guidelines are intended to be used by governments departments for assessing policies and programmes in designing, implementing and reviewing stages in comparison to the likely impacts that they will have or have had on poverty and on inequalities which are likely to lead to poverty with a perspective to poverty reduction. The guidelines are intended to replace the previous poverty proofing guidelines issued by the department of social and family affairs and in this article are referred to as poverty impact assessment guidelines. The poverty impact assessment process aims at identifying the impact of policy proposal on those experiencing poverty or at risk of falling to poverty so that this can be given proper consideration in designing or reviewing the policy. The process does not intend to fundamentally transform policies to target visibly the disadvantaged but are aimed to identify anticipated negative impact and put measures to counterbalance such impacts. Moreover, positive impacts are also identified so that they can be improved. Impact of income tax measures to taxpayers As included in Budget 2007, these social welfare measures will benefit taxpayers at the lower bracket of income distribution. This is because the absence of such measures may lead to these taxpayers experiencing a significant deterioration in their income in relative terms. Analyzing these measures on the view of combined effect of social welfare changes and tax changes, they highlight that the most significant net income gain are to those on the lowest incomes. It indicates that much smaller gains will be to those in the middle to high income brackets. Proper analysis of these tax measures reflect that Budget 2007 is progressive in nature as it sees those dependent on the welfare are to accrue the greatest gains. Budget 207 ensure s that the lowest income groups gain more progressively that is from welfare payments as compared to higher income groups who are main progressive contributors to the cost of public service provision. The resources targeted by Budget 2007 are over 55% in the personal income tax package to those on low incomes as well as the elderly, widowed taxpayers and those with disability or under care of a person with disability. Taxpayers at the lower end of income distribution will as well benefit from taxation measures if they are to become exempt. This is due to the fact that the entry point to taxation has been increased in Budget 2007. The basic personal tax credit and the employee tax credit was increased by Budget 2006. This was meant to ensure that the minimum wage in its annualized form was placed outside the tax net. At the end of 2006, the position still remained as a key government's aim on tax policy and continues to be met. The entry level to taxation was increased in budget 2007 through substantial increases in personal tax credit and the employee credit. For instance, entry point for a single employee below 65 years, the personal tax credit and the employee credit was increased by almost 13% in Budget 2007. This is a sufficient increase as it ensures that the minimum wage per hour is increased and therefore its annualized form will not be liable to income taxation. Moreover, employee's health levy was increased to ensure that taxpayers in low income bracket were not liable for the levy. The income tax changes announced in Budget 2007 to the extent that they apply are intended to have a significant beneficial impact for those on low incomes. This is because those in low incomes will receive additional payment for each child below six years of age in comparison with previous years. In conclusion, Budget 2007 income tax measures are intended to improve the welfare of taxpayers on low incomes. It has also helped to increase the disposable incomes to the low income earners by removing additional taxpayers from the taxable bracket. Also, the circumstances of specific employees on lower incomes and especially those who remain in the tax net will be improved. This is due to the increases in the basic person and employee tax credit as well as in the health levy thresholds. Impact of income tax measures to the government The income tax measures in the Budget 2007 can lead to a loss in government tax revenue. The measures put in Budget 2007 further removes 97,300 tax payers from the tax net. This increases the percentage number of individual income earners outside tax net to 38.2% which translates to over 845,900 income earners outside tax net. Screens in accordance with the requirements outlined in stage 1 of the Poverty Impact Assessment guideline prepared by the Office for Social Inclusion the Budget 2007 is told to bring a positive impact on the overall economy of the Australians. The change in Budget 2007 having regard to significance of the Income tax package in terms of overall national policy, it will bring about an existing policy and its relevance to some or all of the groups. These groups are among those identified in the National Action Plan against Poverty and Social Exclusion as vulnerable groups. This in turn is intended to increase the overall economic welfare of many individuals in the country. The main objective of taxation is to raise government revenue to fund the provision of services by the state. Governments provides these services so that it can meet its various policy objectives including tackling disadvantages. It needs to be borne in mind when looking at the effects of changes to income tax that what is an issue is the change in tax paid by income earners. In this income tax measure those in lower income categories do not pay income tax. It is estimated that for 2007 about 20% of those returning income for tax purpose will pay approximately 78% of all income tax. This is to imply that changes to income tax are intended to affect some section of the population more than others as well as not affecting those on low income and not paying tax. Views for future strategies and the way forward The government in future should be committed to rewrite all the primary direct tax legislations to cover the general rules about taxes, allowances and reliefs. It should also clarify about special rules on trust including chargeable trust, exemptions, deduction of income tax at source and tax avoidance materials. It should also write clear laws on how a person's income tax liability is computed as well as general definitions that apply for income tax purposes. The government's commitment on eradicating poverty should not only be focused on income tax relief but it should also think of other interventions to curb the issue of poverty among its citizens. For instance, it can think of ways of advancing critics to poor low income earners as well as providing better public services such as health care. Tax payers should also be able to consult the legislation on income tax themselves to resolve the more straightforward questions and ultimately be able to approve the benefits arising from the income tax measure as proposed by Budget 2007. The majority of low income tax payers typically do not use tax advisers and they rely on the guidance provided in press or public announcements when dealing with the emerging tax issues. Such tax payers will have to make themselves familiar with the new income tax measure. For the few income tax payers who may consult the legislations concerning income tax there may be of a one-off cost in familiarizing themselves with the new structure and language. However, this will be offset by the benefit of clear understanding of legislation towards the new income tax measure. The government should also consider ways of benefiting people who are not in the tax net as this income tax measure benefits citizen who are in the tax net only. Also, issues identified as being relevant to the Budget income tax package should be discussed with strategic group on a perspective of accommodating all relevant issues affecting the poor as a means of effective measure towards poverty eradication. The government should in future conduct the impact assessment research on the effects of the income tax measure provided in Budget 2007 on the improvement of economic welfare of the low income earners. This should be on the light of evaluating whether more low income earners have raised themselves from the poverty or whether more citizens have fallen in the poverty bracket. Finally, besides the use of computer models, information derived from the parliamentary process, from pre-budget meetings and submission, the government should also consider taking into account the low income earners in the formulation of the Budget income tax package in future. This is due to the fact that they are the people who know well where their problems lies and they are thus the right people to be consulted about how they can be assisted to come out from poverty. Work Cited A Journal on examination of Budget 2007 - Income Tax Measures using the Poverty Impact Assessment Guidelines. Based on 'Living in Ireland' Survey. March, 2007. pp 2-7. Read More