Question

You are about to enter the tax profession. Your future employer Tax Advice and Policy Services (TAPS) has stressed the importance of being able to clearly and professionally structure and present ideas, judgements and opinions. TAPS has informed you that in your new role, you could be expected to brief a wide audience including the Australian Tax Office, Treasury, international corporate taxpayers, and small business owners. TAPS is concerned that you may not fully understand the complexity of the taxation regime and the additional complications that COVID-19 has introduced to the fiscal system.

Fortunately, during your time at QUT you studied advanced tax law where the real world came to you and you heard from nine senior tax experts from around the world. Each were interviewed throughout your unit, sharing their insights into current problems and future challenges in tax.

TAPS has advised you that on your first day, you will be asked to prepare an internal briefing note to be circulated among the partners. This briefing note will be used to determine what section of the firm you are placed into. As part of that briefing note, you are asked to address the following:

d) What is one specific thing you would remove from Australia’s tax system and why?

Answer 1

Answer:

Emerging economies face difficulties in attempting to build up tax schemes. Some of the explanations for the same are as follows:

1) The bulk of the workforce in such nations is usually engaged in agriculture or small, informal enterprises. As an intermittent, unfixed salary is charged, their wages fluctuate, and many are paid in cash. The justification for any tax is also difficult to calculate. Nor do staff in these countries usually invest much of their wages in big shops that hold detailed track of sales and inventories.
2) this is hard to establish an effective tax administration without well-trained and well-trained personnel, particularly when there is a shortage of resources to pay decent salaries to tax officials and to computerize the process, and when taxpayers have a restricted capacity to hold accounts. As a result, governments often follow the route of least resistance, creating tax schemes that allow them to leverage whatever alternatives are available, instead of formulating an appropriate tax structure.

3) Due to the decentralized nature of the economy in several developing countries and due to some financial restrictions, statistical and tax authorities have difficulties in obtaining accurate data. This lack of evidence prohibits lawmakers from evaluating the possible effect of significant reforms throughout the tax system. As a consequence, marginal changes are often preferred over large institutional improvements, even though they are obviously advantageous.

(4) Wealth continues to be unevenly distributed in developing countries. While generating higher tax collections in this scenario preferably calls for the wealthy to be taxed more severely than that of the poor, the economic and political influence of wealthy taxpayers also helps them to resist fiscal changes that will raise the tax burdens.

So the summary is, in developed nations, taxation policy is always the art of the probable instead of the ideal pursuit. It is also not surprising how economic theory and, in particular, optimal tax literature have had very little effect on the nature of tax structures in such nations.

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