Teaching and Learning Taxation - Assignment Example

Students without a business background often get intimidated whenever they embark on taxation as a course to study. Nonetheless, it is important to understand taxation concepts and how they impact businesses as they prepare to enter professional practice. Globalization has forced governments to acknowledge the significance of small businesses in the present competitive markets. In this regard, governments have formulated regulations to implement numerous taxes with a view of maximizing revenue collection. Globally, small and medium enterprises are known for their contribution to economic growth, entrepreneurship, and employment creation. Basically, small businesses are known universally as engines for economic growth. This paper focuses on the tax aspects of the small-scale wine business in Australia and also the tax implications of individual employees.

 Taxation consequences

            This is because they stimulate economic growth and therefore, play a critical role in wealth creation. In Australia, small and medium enterprises account for 37% of economic production and employ roughly 3.7 million people. Nevertheless, similar to other small and medium enterprises across the globe, compliance with government regulations heavily impacts their operations. This is because SME’s bear significant costs of compliance cost relative to their size. According to Hasseldine and Arnold, government regulations, in particular, tax compliances are a major issue for SMEs (370). For instance, following the intense political debate, the Australian government introduced a good and services tax (GST) which was one of the significant tax reform policies. This was an outrage on the economic impact of GST on SME’s starting with start-up taxation costs. Compliance costs as defined by Kumar, are those costs incurred by businesses in meeting the requirements in order to comply with a given tax structure besides payment of the tax itself (35). Such costs include legal and other professional fees, acquisition costs among others. GST compliance costs popularly known as commencement costs are usually incurred by the business in preparation to comply with GST legislation.

            According to National Audit Office, SMEs form a large component of the informal sector and are known to evade tax (44). Pope and Fernandez observed that complex tax registration and high tax rates are the main contributing factors to problems experienced by SME’s in the Australian tax system (15). Value-Added Tax Act provides that the Australian economy cannot compete effectively with other world economies when SMEs continue operating in an informal sector (9). In this vein, it is, therefore, paramount to reduce the informal sector by putting in place a simplified tax system. Australian government acknowledges the significance of SMEs to the economy and has been providing support to entities falling under this group by way of reducing tax and tax compliance burden. In addition, the government has also simplified reporting requirements and record keeping. For instance, in the 2006 budget, the Australian government passed to reduce taxes on SMEs by AUS$ 435 million over the following four years. As such, SMEs continued to receive more assistance by aligning thresholds, streamlining definitions, and reducing tax complexity and compliance costs. SMEs are required by law to maintain a record of their sales, which includes income earned excluding GST.