Australian Income Tax Law - Essay Example

Australian income tax system is considered to be the most fair, efficient, simple and neutral in the world. Let’s try to prove this ment, takingsome tax law examples. Let’s firstly analyze the most popular and widely used Individual income tax rates calculating scheme to approve the fairness of Australian income tax system. FAIRNESS Income tax was 30% (since 1 July 2001). But after reforms, Australia has next scheme. According to Adam Smith statement in his “Wealth of Nations”, the subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation. Every tax, it must be observed once for all, which falls finally upon one only of the three sorts of revenue above mentioned, is necessarily unequal in so far as it does not affect the other two. Looking at income tax rates methodology, we see that a taxpayers income is taxed progressively. Broadly, this means that as you earn more income your average tax rate rises. And it’s really fair! Progressive taxation means that higher income earners pay more tax than lower income earners. The Government defined a maximum sum, which is not taxed –$6000. Let’s imagine, that your income is equal to X. Then if your income lays between you’ll pay 17% from (X-$6,000) sum. If your income is , you must pay more - $2,652 (according to previous rule) and 30% from (X-$21,600) sum, etc. This is achieved by taxing a range of income brackets as a set percentage or cents in the dollar. These income brackets are called tax brackets. The following tables detail the tax brackets of our progressive tax system for the financial years ending 30 June 2005 and 30 June 2006. The rate of tax within these brackets is called the marginal rate of tax. For Australian residents, the first tax bracket, from $0 to $6,000, has a zero marginal rate of tax. Tax is applied to every dollar after this figure. This tax-free amount is called the tax-free threshold. The whole scheme you can see in the next tables. Tax rates 2004-05 Tax rates 2005-06 Taxable income Tax on this income Taxable income Tax on this income $0 – $6,000 Nil $0 – $6,000 Nil $6,001 – $21,600 17c for each $1 over $6,000 $6,001 – $21,600 15c for each $1 over $6,000 $21,601 – $58,000 $2,652 plus 30c for each $1 over $21,600 $21,601 – $63,000 $2,340 plus 30c for each $1 over $21,600 $58,001 – $70,000 $13,572 plus 42c for each $1 over $58,000 $63,001 – $95,000 $14,760 plus 42c for each $1 over $63,000 Over $70,000 $18,612 plus 47c for each $1 over $70,000 Over $95,000 $28,200 plus 47c for each $1 over $95,000 Personal taxes are paid for all incomes independently of the state they were earned. If some income tax was paid abroad, taxpayer would get discounts. After financial year finishing (July 30) every taxpayer must file a tax, where the whole year income is declared. You will not be arrested due to tax evasion, because it’s not a grave offense. Is it fair? In many states you can be arrested due to malicious tax evasion. Really, one man always pay taxes another – try his profits. Frankly speaking, this fact needs some special attention from state authorities. But in general, income tax law can be considered fair enough. What about simplicity, we have some interesting observations here. SIMPLICITY Adam Smith declared that the tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. The uncertainty of taxation encourages the insolence and favors the corruption of an order of men who are naturally unpopular, even where they are neither insolent nor corrupt. The certainty of what each individual ought to pay is, in taxation, a matter of so great importance that a very considerable degree of inequality, it appears, I believe, from the experience of all nations, is not near so great an evil as a very small degree of uncertainty. Tax service in Australia is called Australian Taxation Office, consists of 18.5 thousand staff, and cooperates directly with two consulting centers. Their only business is to consult taxpayers. The total amount of tax advisers is about 22000. It means that non-state tax advisers’ number exceeds tax officers number. Importantly, we treat to well-developed state tax advising system. Income tax system is considered to be extremely simple by some experts. But what do all these advisers work at? State tax consulting system shouldn’t cope with this function itself. Surely, some of tax advisers help enterprises, firms and other businesses with tax regulation, explaining difficult and unclear moments. But a significant part of tax advisers work with individuals. It means there are some unclear dispositions, and this is also can be pabulum for reflection. Efficiency is also in important feature of perfect income tax system. EFFICIENCY AND NEUTRALITY Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state. A tax may either take out or keep out of the pockets of the people a great deal more than it brings into the public treasury, in the four following ways. First, the levying of it may require a great number of officers, whose salaries may eat up the greater part of the produce of the tax, and whose perquisites may impose another additional tax upon the people. Secondly, it may obstruct the industry the people, and discourage them from applying to certain branches of business, which might give maintenance and unemployment to great multitudes. Recently, total tax amount reached the highest level, though 4 years ago the Government decreased corporate tax rate. According to Australian Taxation Office information companies tax payments increased from A$33 billion to A$50 billion till 2002-2003 year, while freelance specialists and investors tax payments increased during last 3 years for 40% to A$22.5 billion. We can firmly insist that these reforms made tax payment more effective than it was before. But there is the other side of the ledger. By subjecting the people to the frequent visits and the odious examination of the tax-gatherers, it may expose them to much unnecessary trouble, vexation, and oppression; and though vexation is not, strictly speaking, expense, it is certainly equivalent to the expense at which every man would be willing to redeem himself from it. It is in some one or other of these four different ways that taxes are frequently so much more burdensome to the people than they are beneficial to the sovereign. 3 years ago individuals paid greater taxes by 40% than companies, freelance specialists and investors. But this differ was significantly reduced and last year individuals paid taxes greater by 15% than other groups. Observers and analysts mark the corporations income growth to be the main reason of such tax revenue increasing. Obviously, the fact of companies’ revenue peak level relative to GDP is not insignificant. But it’s quite unclear why enterprises tax revenue grew in such a way whereas corporate tax rate went down from 36% to 30% after that tax reforms. Probably it confirms the reforms not to be neutral for income. CONCLUSION The evident justice and utility of the foregoing maxims have recommended them more or less to the attention of all nations. All nations have endeavored, to the best of their judgment, to render their taxes as equal as they could contrive; as certain, as convenient to the contributor, both in the time and in the mode of payment, and, in proportion to the revenue which they brought to the prince, as little burdensome to the people. The following short review of some of the principal taxes, which have taken place in different ages and countries will show that the endeavors of all nations have not in this respect been equally successful. Australia achieved great successes in this income tax payment sphere. But there are some moments, which have to be carefully analyzed. In any case, the definite result from any tax reform can be understood after this reform ntroducing. Read More