Adv. Tax Intro

7/27/2019 Adv. Tax Intro

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INTRODUCTION



FUNCTIONS OF A GOVERNMENT

2 functions: economic & socialThe economic functions:1. To overcome the inefficiencies of the market

system in the allocation of economicresources,

2. To redistribute income and wealth in order tomove towards the distribution that society considers to ‘just’ and ‘equitable’,

3. To smooth out cyclical fluctuations in theeconomy and ensuring a high level of employment and price stability



Existence of public goods

‘the government has the duty of erecting andmaintaining certain public works and certainpublic institutions, which it can never be for theinterest of any individual or small number of

individuals, to erect and maintain;because the profit could never repay the expense

to any individual or small number of individuals,

though it may frequently do much more thanrepay it to a great society.

(Adam Smith, 1776)



Methods to increase government revenue1. Create more money?

2. Charge goods and services provided?

3. Borrow money?4. Built a proper tax system?



What is a tax?‘a compulsory exaction of money by a public

authority for public purposes enforceable by law’ (Matthews v The Chicory Marketing Board [(1938) 60 CLR 263])

‘the process of raising money for the purpose of government by means of contributions from

individual persons’ (R v Barger[(1908) 6 CLR 41])



Usual characteristics of tax:

Compulsory payment;

Raised for the government purposes;

Do not constitute payment for servicesrendered;

Not penalties;

Exactions are not arbitrary;

Should not be incontestable.(MacCormick v FC of T (84 ATC 4230))



‘taxes, after all, are the due that we pay for theprivileges of membership in an organised

society’ (Franklin D. Roosevelt, 1936)

‘the art of taxation consists in so plucking the

goose as to obtain the largest possible amountof feathers with the smallest possible amount of hissing’

(Jean Baptiste Colbert, 1665)

‘ a tax is a compulsory levy made by publicauthorities for which nothings is received“directly” in return…’

(James & Nobes, 1992)



Islam dan cukai (zakat):

‘Ambillah (sebahagian) dari harta merekamenjadi sedekah (zakat) supaya dengannyaengkau membersihkan mereka (dari dosa) danmensucikan mereka (dari aklak yang buruk)’

(Al-Taubat: 103)

‘Sesungguhnya Allah s.w.t telah menfardhukan keatas mereka sedekah (zakat) pada harta

mereka, diambil dari kalangan orang kaya dikalangan mereka.’

(Rasullulah s.a.w: Ibn Abbas)



Burden of taxation

1. Administrative cost

- direct cost of running the tax systems

- to change is expensive

2. Compliance cost

- cost to comply with the requirement to pay

tax.- hidden cost of taxation



Burden of taxation (cont.)

Excess burden of taxation

- taxes transfer spending power from taxpayer

to government,- impose additional burden on taxpayingcommunity (distort consumers’ choicesbetween goods, etc.)



Tax incidence who bears the economic burden of a tax.

the impact of taxes on the distribution of welfare within asociety.

the person who has the legal obligation to make a taxpayment may not be the person whose welfare is reducedby the presence of the tax.

the shifting of a tax refers to the passing of its incidencefrom the person who initially pays it to someone else.

Economic incidence changes in behavior and consequentchanges in equilibrium prices.

Consumers buy less of a taxed product, so firms produceless and buy fewer inputs

– which change the net price of

each input.



The function of tax(As observed by Isaacs J in R v Barger)

It is one of the empirical certainties of history that no structural society has ever arisen

without taxation.

The power of taxation is one of which isparticularly liable to abuse, either in the handsof an individual autocrat or of a sectionaloligarchy such as may be wield the sceptre of authority even under the forms of a modern

parliamentary system;but without that power, no Government, as we

understand the term, is possible.



The function of tax (cont.)

The power to tax is the one great power upon which the whole national fabric is based.

It is as necessary to the existence and prosperity of a nation as is the air he breathes to a naturalman.

It is not only the power to destroy, but the powerto keep alive.



Conclusion

Taxation is an instrument used by the government tocontrol the economy.

Two main objectives of taxation are :

To finance the administration and development To promote economic growth

Taxation contributed to about 80% of the governmentrevenue during the last 10 years.

Hence a good tax administration is necessary to ensureefficient tax collection and management.



Thank you

Adv. Tax Intro

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