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

Purpose & Components of Australian Tax Law System

Purpose

• The main purpose of taxation is to raise revenue for the services and income supports the community needs.
• Tax should, as far as possible, be levied equitably, according to ability to pay.
• Taxes should be equitable between different generations.
• Taxes should be raised in a way that minimises economic costs through tax-created distortions or bias.
• The community as a whole should have a stake in tax reform.

Component

Income tax in Australia is imposed by the federal government on the taxable income of individuals and corporations. The two statutes under which income tax is calculated are the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997; the former is gradually being re-written into the latter.

Strenghts & Weekness of Australian Tax Law System

Following is the strenght of Australian Tax System as per Chapter III of Tax Law:

1. Fairness: Everybody should pay a fair share of taxes. There are two important concepts of equity: horizontal equity and vertical equity.

• Horizontal equity means that taxpayers in similar financial condition should pay similar amounts in taxes.
• Vertical equity is just as important, however. Vertical equity means that taxpayers who are better off should pay at least the same proportion of income in taxes as those who are less well off. Vertical

2. Adequacy means that taxes must provide enough revenue to meet the basic needs of society. A tax system meets the test of adequacy if it provides enough revenue to meet the demand for public services, if revenue growth each year is enough to fundA self-balancing accounting structure with revenues, expenditures, assets and liabilities used to track monies flowing... the growth in cost of services, and if there is enough economic activity of the type being taxed so rates can be kept relatively low.

3. Simplicity means that taxpayers can avoid a maze of taxes, forms and filing requirements. A simpler tax system helps taxpayers better understand the system and reduces the costs of compliance.

4. Transparency means that taxpayers and leaders can easily find information about the tax system and how tax money is used. With a transparent tax system, we know who is being taxed, how much they are paying, and what is being done with the money. We also can find out who (in broad terms) pays the tax and who benefits from tax exemptions, deductions, and credits.

5. Administrative ease means that the tax system is not too complicated or costly for either taxpayers or tax collectors. Rules are well known and fairly simple; forms are not too complicated; the state can tell if taxes are paid on time and correctly, and the state can conduct audits in a fair and efficient manner. The cost of collecting a tax should be very small in relation to the amount collected.

Apart from the benifit its also causes some weekness

Basically the tax system is depends on demand and supply and their main focus is on neuclear family That is why if we talked about current scenario , The economic shock and government response to COVID-19 highlight weaknesses in Australia’s tax system. COVID-19 puts pressure on a system under strain from long-term structural forces and the tax-free and tax-reduced status of certain sources of income. Returning to a sound structural budget position cannot be accomplished through passive action that relies on ‘natural’ revenue growth from current tax sources. Discussions should focus on comprehensive reform. Reducing reliance on income (particularly labour) taxes and applying a more equal tax treatment to different individuals and income sources over time are priorities which will support improved well-being and labour market activity.