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Topical Tax Issue - Essay Example

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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…
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Topical Tax Issue
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Download file to see previous pages 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.
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 ...Download file to see next pagesRead More
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