NCPA - National Center for Policy Analysis

TEN PRINCIPLES FOR TAX REFORM: PRINCIPLE SIX

November 10, 2009

Australia's tax system needs principles that go beyond efficiency, equity and simplicity, says Robert Carling, a Senior Fellow with the Center for Independent Study.  For example, he recommends that taxes should be simple and easy to comply with.

Ordinary taxpayers should be able to understand how the tax system affects them and be able to complete a tax return without expert assistance, says Carling:

  • Currently more than 70 percent of individual income taxpayers feel it necessary to engage the services of a tax agent.
  • Business taxation tends to be inherently complex, but it is more complex in practice than necessary.
  • There is too much complexity surrounding the obligations of individual businesses and the businesses are unreasonably exposed to the risk of unpredictable tax assessments.
  • In the personal income tax system, complexity has grown with the proliferation of exemptions, concessions, deductions, offsets, rebates, and so on.

While simplification could remove distortions and improve the economic efficiency of the tax system, simplicity is also sometimes in conflict with efficiency and equity, says Carling:

  • Some of the current complexity is a result of a quest for exactitude, whereas simplicity calls for broader brush solution.
  • For example, greater resort to withholding taxes as final taxes would represent simplification, but would mean accepting the principle of a flat tax for some types of income.

Source: Robert Carling, "Taxes Should be Simple and Easy to Comply With," Policy, November 29, 2009.

 

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