Components Of A Good Tax System

QUESTION 2

Discuss the ingredients of a good tax system.

A country’s good tax system will benefit a lot to the citizens and economy of the country. Furthermore, a good tax system will also help the government to raise fund in order to finance the government activities. In the actual world, there is no any perfect tax system is currently using by any country in the world. This is because the purpose of tax is to collect funds from people that have any gain or profit based on their income sources. A tax system has its pros and cons to the public. Besides that, a good tax system comprises of a number of characteristics or criteria on the system itself.

The ingredients of a good tax system:

Equity and Fairness

As for equity, all people in different

Without taxes imposed to people, most of the people may be will work and spend the money based only on their preferences. Taxes on income may discourage people to go for work and so the economy will produce less too. The example for being not neutral in tax is when sales are taxes on only services but not on goods purchased, people will consider buying more goods than services. So that it is important for government to choose tax bases that have little effect by the imposition of taxes.

Elasticity

A good tax system must be elastic. Tax is the main source of income for the government to conduct or process the public service or government development. The tax system of a country is said to be elastic if the government can increase or decrease the revenue at ease when needed. The expenditure on the every government will only increase in every year. In case the government needs money in urgent, increase the revenue is the only and fastest way to solve this kind of problem. And of course, the government can increase revenue by increasing the limit of income tax.

A good tax system will always help the Inland Revenue Board to avoid many kinds of anti-avoidance of tax law. How perfect the law on the tax, someone will still trying hard to find the gaps on the law to avoid the tax payment. In Malaysia tax system, are always tried to create many rules to close up the gaps of the tax law. In my opinion, the Inland Revenue Board Malaysia have to learn from mistakes and also review back the law annually to check whether there is any gaps can the taxpayers break through.

Competitive

The purposes of taxes are to raise funds in order for the government to conduct the government projects and public services. Nonetheless, if the government sets a very high tax rate to the public, it will only make the people feel angry towards the government. Besides that, investors from both local and overseas will also refuse to invest in this country; this will cause decreasing in economic condition. A good tax system should be competitive and framed to encourage investment.

Provide Adequate