LAW303: Taxation Law- Multiple Policy Objects - Australian tax - Assessment Answer

December 24, 2017
Author : Ashley Simons

Solution Code: 1BEC

Question:Taxation Law

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Taxation Law Assignment

Case Scenario

“Australia has too many taxes and too many complicated ways of delivering multiple policy objectives through the tax and transfer systems. The capacity of the legislative and operating platforms of these systems, and their human users, to deal with the resulting complexity has been overreached. The tax and transfer architecture is overburdened and beginning to fail in dealing efficiently and effectively with multiplying policy goals and demands. Rationalisation of the tax and transfer architecture should now be a strategic priority.”

Assignment Task

Discuss. What are some of these multiple policy objects the Australian tax and transfer system tries to achieve? How does the system overreach and is hence overburdened currently? How do you propose to rationalise the tax and transfer system of Australia to overcome these shortcomings?

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Multiple policy objects the Australian tax and transfer system

Australia has the most lean tax system among all the developed economies in the world. The size of the country is posing a challenge to its ability to effectively and efficiently administer tax revenue collection. In normal cases, the success in the implementation of the tax-transfer policy translates to high tax revenues. Additionally, the variable determines whether there are system complexities and hi operating costs. In the Australian case, there are many system complexities and the operating costs are ever increasing. According to Evans and Kerr (2012), the complexity in the tax-transfer system translates to a disruption in the demand and supply of the factors of production in Australia. The complication of the tax-transfer system is causing many Australians to work overseas because of lack of a favourable tax environment in Australia. The complexity is also making many Australians own equity investments in order to take advantage of the capital gain tax discounts. In the long-term such a trend leads to investment distortions in the country.

The government of Australia is failing to create a favourable environment for local investments. Globalization is also complicating the tax-transfer system of Australia because of the need for the nation to adjust its tax system to match with the international tax structures. The Australian system of tax-transfer aims at feasible administration. At the same time, the tax and transfer system intends to raise revenue collection capacity to hit pre-set targets. The tax revenue is usually the main government source of funds for recurrent and development activities (Evans & Guglyuvatyy, 2015). The other objective of the Australia tax system is the improvement of the performance of the tax-transfer system to satisfy their clientele. However, the changing needs and wants of society are compounding the challenges faced by the tax system of Australia. The expectations of society also form part of the variable, which causes complexity in the functioning of the tax system. It is usually difficult to balance between the taxpayer satisfaction and achievement of optimum tax revenue collection.

The increasing improvement of the living standards makes the people have more expectations on the performance of the Australian tax system. The knowledge transfer aspect is also a vital driver of the complexity of the tax-transfer system. The knowledge transfer leads to the pressure for the tax system to comply with the international standards and best-performing tax systems in the world. The aversion of risk is an aspect the Australian tax system takes into consideration in its operations. According to Hodgson (2014), there is more return in risk-taking than risk-averse states. For this reason, the tax system of Australia is complacent hence the slow pace of reformation and increasing complexities and dissatisfaction. The regulation of the tax system exacerbates the problem of the Australian tax system. The regulation of the tax system by the government is feasible because of government corruption and sabotage.

E-commerce and financial innovation also compel the Australian system adjust its operations to meet the needs of the Australians. Globalization has also led to the creation of sophisticated tax rules. The Australian government has crafted and implemented such rule in a bid to tame the Australian who is intending to evade tax through various loop-holes. However, the impact of such drastic measures is retrogressive because the taxpayer is scared and exploited. Hansford et al (2014) assert that an ideal tax system ought to be efficient, effective, convenient, equitable and satisfactory to the taxpayer. Such a tax system motivates the taxpayer to file income returns for taxation purpose hence low rates of tax evasion and avoidance. The multiplicity of the tax system is also caused by the Australian system’s need for utilization of information irrelevant to revenue collection.

Moreover, the system adopts non-tax policy objectives including the social security and other environment-based initiatives. The objectives are not streamlined towards the achievement of the corporate goals of the tax system, collection adequate revenue with minimal operating costs. According to Tran-Nam, Evans (2014),the Australian tax-transfer system also promotes industrial assistance policy objectives. In the long-run, it becomes difficult to synchronize all the objectives because of the complexity created. The social changes over time are also causing complexities in the tax-transfer system. The incorporation of welfare system into the taxation system ensures that the tax structure is adjusted to accommodate the welfare of some individuals especially the disabled and the old in society.

How the system overreaches and is hence overburdened

The Australian tax system overreaches in various ways. Fro instance, there has been coverage of self-provision. Additionally, the system is also covering the social services and the economic policies. Moreover, the tax system has stretched its coverage to the asset and income testing arrangements. The coverage of all the services makes it difficult for the tax administration achievement of objectivity (Evans, Tran-Nam and Lignier, 2014). Additionally, the overreaching of different aspect leads to increase of operation costs, which reduce the overall taxation revenue. The principles of simplicity, equity and efficiency should be balanced during tax system operations. The decisions made by the tax system administrators are flawed because of reliance on a limited scope of information. The impacts are never foreseen in most cases.

The cost of collection is high because the overreaching leads to the inclusion of all possible tax sources. However, such overreaching leads to high operation costs. Additionally, the move is usually perceived to be counterproductive and retrogressive in economic development. The Australian system also needs to comply with the internationally accepted taxation principle. In the long-run the tax system incurs high costs of compliance breach compared to the overreaching initiative. According to Evans, Tran-Nam & Lignier (2014), globalization and innovation are necessitating the need for adjustments to the tax system. The dynamics in the tax environment including the demographic, social, political and environmental factors are causing the Australian system to be overburdened. The size of the nation is also making the tax authority to overreach its capacity. The move leads to the strain on the available resources for tax collections. The pressure of volatile world economic activities is causing the tax system to be overburdened due to the need to capture various forms of income in real-time before the rogue taxpayers evade or avoid tax payment.

The workforce participation is also needed in the functionality of the tax-transfer system. When the employees are sensitized on the importance of tax payment they a likely to willingly file tax returns in good time. According to Loo, Evans and McKerchar (2010),the Australian government is applying punitive means of tax collection from the Australian. For instance, the application of progressive tax is an impediment to the investment community in Australia. The progressive taxation practice leads to the overburdening of the local and foreign investors with financial obligations. The overreaching effects of the Australian tax system are that it exploits the non-residents through imposing of higher tax rates for them. The move serves to boost the Australian government’s annual tax revenue collection but it discourages the foreign direct investments in the country.

The overreaching aspect of the tax system is also productive although the system is overburdened. According to Evans and Krever (2010),the tax system guarantees incentives to the taxpayers who demonstrate environmental conservation. Such a move encourages a reduction in industrial pollution whereby industries emit toxic carbon gases and dispose their wastes to nearby rivers. However, the coverage of the environmental conservation is overburdening for the tax system. The involvement of the tax system administrators in national policy formulation and intergovernmental relationships is overreaching in the sense that less time is spent in the actual tax administration and supervision. The role of technological application in the tax system is a necessity especially due to e-commerce and globalization. The Double taxation is also dependent on technological applications. The overreaching to the Australian overseas for tax payment boosts the Australian revenue but it is considered to be in bad faith on the part of the taxpayers. Double taxation also encourages the devising of new strategies of avoiding tax payment.

The Australian tax system is also heavily taxing the small and medium-sized enterprises hence de-motivating their trading initiatives. The requirement of the entrepreneurs to pay tax on their small business underscores exploitation. Such overreaching tendency discourages creativity, innovation, and entrepreneurship. The tax authorities also extend its coverage to the research and development initiatives. Consequently, the creation of new knowledge and know-how is sabotaged. Lignier (2012) asserts that the Australian tax-transfer system is overburdened leading to inefficiencies and capital flight. The big size of the Australian nation poses a huge challenge for the tax-transfer system. The coverage of all the nationals and businesses established requires efficiency, simple and effective tax system. Australia is also a developed country hence the agitation for coverage of all the commercial activities in the country poses a big challenge for the tax system to achieve its goals.

Rationalizing the tax and transfer system of Australia to overcome challenges

There are many ways through which the Australian tax-transfer system can be rationalized. There should be a concentration of revenue collection from personal, business, private consumptions and economic rents especially fees from natural resources. The land rates also firm a crucial aspect of tax revenue of the state. Additionally, there should be scrapping of insurance, payroll and luxury car taxes to boost tax collection in Australia (Evans, 2010). In fact, taxes should be maintained to the extent that they address the prevailing social and economic situations. The taxes should curb gambling and drug-trafficking and other social evils in society. Various taxes should be configured to enhance productivity and economic growth and development. Moreover, the tax system should be structured in a way that promotes business investments. Such an initiative will be achieved through the lowering of the corporate income tax. The move will be a motivation for investments in Australia.

The tax system authority should focus on the promotion of workforce participation in national building. The employees can participate through the provision of the building of work initiatives and quality child care. The work initiatives are vital because they promote a working culture as opposed to laxity and laziness. Moreover, there should be a simplified personal income tax system. According to Evans (2012), the personal tax-free income level should be pegged at $25,000. In fact, the new tax system should be sensitive to the social welfare of the Australians. For this reason, the pensions and transfer payments should be tax-free. Moreover, any form of allowance should be exempted from taxation. The initiative will be aimed at discouraging tax evasion and avoidance, and exploitation of taxpayers. Such tax savings are a good component of economic stimulation.

The Australian tax system should integrate the consumption tax with other business systems to enhance easy collection of tax revenue. Such an integration initiative will also underscore the importance of technology in tax revenue collection. There should be replacement of state taxes including payroll tax with cash-flow taxes. Moreover, there should be a replacement of the taxation of financial services. The new tax system of Australia should underscore economic and efficient utilization of available resources. The taxation of land should also be objective. In this regard, the royalties should be replaced with rent tax. The current Australian land tax rates should be replaced with flat-rate of taxation. The superannuation guarantee should also be increased to a high level like 12% (Evans and Kerr, 2012). The new tax system should also reduce the compliance costs shift to individual and entities. Moreover, the tax authority should develop a long-term plan, which will enhance the application of a resource super profit tax on profits generated from resources owned by Australians.

The new tax system should be streamlined towards reducing the administrative costs. The administrative costs reduce the tax revenue collected. For this reason, it is prudent to maintain low levels of administrative costs. The complexities in the tax system should be resolved because they lead to uncertainty. Uncertainty is an element of risk hence such complexities pose a risk to the taxpayer. Adequate information on the tax system changes should be available to the taxpayers to enhance complaisance. The restructuring of the tax system should also result in the development of parameters for measuring the efficiency of the tax system. There should be benchmarks for monitoring the performance of the tax –transfer system. The benchmarks will enhance remedial actions in good time before loss of huge amounts of revenues results.

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