Question

1. With reference to relevant legislation, case law and secondary sources, briefly explain different
functions of taxation.

2. Amandeep born in India and migrated to Australia. He lives in Australia permanently. He still holds
Indian passport. Amandeep works with the New Zealand Princess Cruises tours and most of the
income year is in New Zealand. He signed an employment contract for this position in the company’s
Australian office in Sydney. Amandeep has two kids that are living with his wife Sandeep in Sydney.
Three years ago, Amandeep purchased a unit apartment in Sydney. Amandeep and his wife holding
dividend yielding shares in an Indian public company called Hindustan Unilever. Amandeep and
Sandeep have an Australian bank account as well. Amandeep’s employer pays his salary to this bank
account every fortnight.
Biannually Amandeep receives a holiday package from his employer, New Zealand Princess Cruises
tours and he is using this package with his family traveling in Australia interstates or moves to India to
visit his in laws.
Required:
With reference to the relevant laws, discuss whether Amandeep is an Australian resident for tax
purposes and also critically discuss whether Amandeep needs to pay income tax on his salary and
investment income explained above.

Answer 1

Different functions of taxation include:

1. Fiscal- the tax budgets are prepared for the State and the Centre for realizing one of the main objectives of taxation policy, i.e, to meet the fund requirements of defense, environmental protection, social issues etc.

2. Allocation: this function ensures the equitable social income redistribution of wealth in the Economy, i.e, from the rich to the poor and needy. Hence in a way, it ensures social stability in the Economy and tries to bridge the economic gap between rich and poor.

3. Regulatory: This function is further sub divided into 3 parts:

a) Stimulating- which aims at socio-economic development of the society via providing exemptions, deductions, tax preferences and incentives to small entities, farmers, charities etc.

b) Destimulating: this helps in bringing parity in the financial system by imposing higher taxes on certain activities or entities, for example. imposing higher import duties on imports ensures higher sales of domestic companies.

c) Replication (regeneration): taxing the utilisation of natural resources , roads, minerals and using the proceeds to regenerate the exploited resources.

4. Controlling: this means controlling the sources of income of individuals and corporates as well as tracking their spends during the financial year via taxation rules and regulations.

5. Incentive : this function of taxation helps in incentivizing special individuals or corporates for doing some good responsible deeds, like warriors, army citizens etc.