Question

Explain the purpose and components of the Australian tax law system. What are its strengths and weaknesses? How could it be improved? Discuss in relation to any proposals for tax reform that you have read or heard about

Answer 1

Austrailian Tax Law System: Australian tax system is a progressive tax system which menas higher income more tax you will have to pay.

Main purpose of taxation is to raise revenue for the services and income that supports the community needs.

Tax should be levied eqitably, according to the ability to pay. Asutralia uses progressive tax scale system for the purpose of taxing individuals. Under this system the rate of tax payable increases as taxable income increases.

Components of tax:

Regressive, Progressive and proportional taxes.

Regressive tax: Low income individuals pay a higher amount of their income in taxes as compared to high income earners under this sytem because the government assesss tax as a % of the valus of the asset that a tax payer purchases or owns.Examples:Property tax, sales tax on goods and excise tax on consumables.

Proportional tax: refers to flat tax system, assess the same tax rate for everyone with regardless of income or wealth, which is meant to create equality between marginal tax rates and average tax rate paid.Examples: percapita tax, gross receipts taxe and occupational tax.

Progressive tax: are based on the taxable amount of an individual's income. they follow an accelerating schedule, so high income eraners pay more than low income earners. Tax rate, along with tax liability increases as an individuals wealth increases. the overall outcome is that higher earners pay a higher % of taxes and more money in taxes than lower-income people.

Strength and Weakness :

Strength	Weakness
1.Progressive taxes are equitable because rich people pay more taxes as they have greater ability to pay, rich people are taxed higher rate than the poor	1.Benefit of tax goes against the progressive tax system, those who gets higher income should pay more tax.
2. They are based on the ability to pay principle, it tends to reduce disparities in the distribution of income and wealth.	2.It results in lowering capital formation if rich has to pay more tax, the incentive to work of the rich people will suffer, as they know they will be taxed more if they work more. Hence savings and capital formation will suffer
3. It is productive as it yields more revenue	3. Greater scope of tax evasion. , higher rate of tax encourages tax payers to evade their income by making false declaration of income.
4. It is economical in the sense that its costs of collection tend to be lower.
5.It is elastic, A rise in income during properity is automatically taxed at a higher rate and fall in income during recession is taxed at a lower rate.
6.It is viewed as an engine of social improvement. It is such rate of taxes that narrows down the differences between the rich and the poor people of the society. It not only helps social improvement by achieving a more equitable distribution of income but also by financing socially desirable expenditures

Though there are weakness in the progressive tax system, it has not been declined, it still populars because of its benefits.