Category: Tax

Major existing loopholes in the current U.S. Tax Code concerning the taxation of non-business U.S. source income of foreign persons

In the U.S., foreign taxpayers are only taxed on incomes arising from U.S sources. However, a few situations exist where the U.S. government would equally tax specific types of foreign incomes earned by non residents. Nonresident earnings are categorized as either business/ trade income passive (non business income). Our main emphasis is on passive income. All passive incomes are taxed at a flat rate of 30 percent and neither deductions nor exemptions are allowed on the income. Examples of income categories that fall under passive incomes are royalty, dividends, rents, specific capital gains in addition to approximately 85 percent of the U.S. social security benefits. The flat tax rate of 30 percent is collected via a withholding mechanism and the burden of withholding is placed upon the individual paying the income. For instance, all U.S. corporations are by law required to withhold 30 percent tax from all dividends they pay to nonresident tax payers and remit the same to the government on behalf of respective shareholders. In some instances, the 30 percent tax rate can be eliminated or reduced if a tax treaty is signed between the U.S and the tax payers country of residence. In addition, the foreigners are not subject to taxation on any capital gains they make or any other nonrecurring income.

Generally, all incomes that are not directly linked to business or trading activities are not taxed in the United States. However, if the said income is from the U.S. sources and it is included in the FDAP definition then it is taxed. FDAP includes salaries and wages, dividends and rental incomes from the U.S sources. America for long has been a safe haven for foreign investment. The foreign tax code has numerous loopholes that can be exploited to the benefit of the foreign investor. Gains from investments in the United States may be tax free or they can be subjected to a 15 percent tax rate. In addition, the complexity of the tax codes provides a number of avenues through which investors can totally avoid the taxes or defer them to a later date (Gudelis, 2008). The major loopholes in the tax code are evident in the following areas.

The loopholes in the current system are plainly evident. To begin with, the large number of deferrals gives companies excess rate differential, which they cannot afford to resist. As a result, the multinationals are increasingly moving their profits to countries with low or zero level profits.

In the real estate sector, a foreign investor can totality avoid the estate taxes if he/she owns a foreign corporation that owns his/her real estate in the United States. For instance, if a foreign investor was to establish a foreign corporation, this corporation then becomes the full owner (100 percent ownership) of the real estate in the United States (Joint Committee on Taxation, 2009). Consequently, the individual will succeed in avoiding entirely the U.S estate tax and no additional charges will be levied in the event that the foreign investor dies. An additional loophole in the real estate sector that can be used by an alien investor is the Non Grantor Trust. It is a whole process when one gets some property in the U.S. but to be on the safe side, he/she makes use not of the personal names but of the relatives.

Second, the U.S. tax code does not impose withholding taxes on capital gains and interest. Certain treaties can equally be entered into the system to either reduce or totally eliminate the tax on dividends. Furthermore, new techniques have been adopted to transform specific incomes that ordinarily would attract tax, into tax exempted incomes (Joint Committee on Taxation, 2009).

Possible avenues through which a foreign person can minimize their tax exposure to non-business U.S-source income

A number of methods can be adopted to minimize their tax exposure to non-business U.S-source income. The methodology adopted depends on the nature of the transaction the foreigner engages in. The following represent a few avenues:

For foreigners who own rental properties in various parts of America which they have rented out to tenants, they ought to know that their assets attract a withholding tax of 30 percent which is levied on the gross amount paid as rent on any real estate located in the United States. Unlike other forms of withholding tax, for example, taxes on dividends and interests, this type of tax is not reduced or eliminated by any bilateral treaty between the U.S and the foreigners country of residence. To avoid the 30 percent withholding tax, then the individual must file a U.S tax return and choose to pay tax on rental income. The foreigner will then be refunded any amount of the taxes withheld equal to the excess of the withheld amount over and above the tax payable. Foreigners who own the U.S rental properties and as a result incur large expenses in the form of insurance, maintenance, mortgage interest, property taxes, property management among others may elect to file the U.S tax return on income and therefore benefit from the rental income election. Compared to the withholding tax of 30 percent, the amount subjected to tax at the marginal rate will be significantly smaller. If an individual elects the net rental income methodology, then the same method will be applied for all future years and is deemed to be permanent, under very limited circumstances it can be revoked. Immediately the property owner makes the election, he issues the tenant with form 4224 and, henceforth, the 30 percent withholding tax is no longer required.

When it comes to selling a property owned by a foreigner who is located in the United States, there is usually a requirement of withholding tax equal to 10 percent of the gross selling price. This tax can be offset by the U.S income tax paid on the gains from the sale, if it is more than the liability.

Impact to the U.S. economy should the loopholes related to foreign tax credits be eliminated

The U.S economy should eliminate the Discuss the loopholes related to foreign tax credits then the following benefits are highly likely to be experienced in the economy; by adopting a low and simple tax code, the U.S will further promote the free market in the U.S economy. Currently, the complexity of the American tax system is a big threat to its competitiveness. Tax legislation alone is contained in 5100 pages. Growth levels in America are likely to be higher with reduced taxes as it will encourage setting up of more firms, enhance work and create more jobs.

A good tax system will equally encourage compliance as few firms will see the need for avoiding it. The government will in turn raise sufficient internal revenues which can be used to improve infrastructure, health services among other expenditures. A good tax system will equally reduce the income disparity between the rich and the poor. This will in turn reduce social conflicts in the society. The rich ought to more towards the provision of social services.

Equally, with increased globalization, and the progressive removal of barriers to trade an increasing number of companies are looking towards to expand their activities to international locations. Before expansion to foreign markets, firms have to choose between producing their exports locally and producing them abroad. The decision reached is affected by tax factors. America, therefore, stands to benefit if it adopts a favorable foreign tax system that will attract companies to the nation, increase employment and output (Shay, 2005).

Furthermore, an efficient tax system would raise revenues without causing distortions such as discouraging work incentives for individual persons and company investment incentives. Given the fact that such a system will be fair, it will receive popular support from the general citizens and investors will be attracted to undertake investment in the country.

An alternative to the foreign tax credit and an explanation as to why the alternative would be better than the existing regulations

The taxation of foreign incomes has a direct impact on the U.S. tax base. If foreign incomes are taxed at a lower rate compared to U.S. incomes, then citizens will have an incentive to shift their U.S. income to foreign income. By imposing high foreign taxes to be used as credits to balance the low tax on the U.S. foreign income, it will amount to subsidies to those countries imposing high foreign taxes.

Major tax reform initiatives should be undertaken in the area of international tax. This can be done by widening current taxation levels of foreign corporation earnings which are controlled by the U.S., which are subject to foreign tax credit. Alternatively, the government can foreign business incomes that bear a sufficient rate of foreign tax can be exempted from taxation so as to reduce tax induced shifts in economic activity. By enhancing the taxation of the U.S. controlled foreign companies, it is less likely that investments will shift to lower taxed economies. Through expansion of foreign incomes, majority of the complexities arising from deferral will be eliminated. In addition, taxation is very important to the federal government since it helps in enhancing the expansionary policy of the Federal Reserve and the federal government.

An alternative foreign credit policy will be to exempt all active foreign business from taxation. Such an exemption will eliminate the repatriation tax in addition to encouraging the U.S citizens to carry out business activities abroad. If America adopts a consumption tax while at the same time exempting businesses from taxation, then the other countries will have no reason to continue the existing tax treaties with the U.S., they might retaliate by increasing taxation of the U.S owned companies foreign business operations.

Foreigners can equally minimize estate taxes they pay to the U.S. government by holding their properties through a foreign corporation rather than in their own names. This happens because foreign companies are not considered as properties within the U.S. and, therefore, no U.S tax law applies. Ordinarily, if a foreigner uses the same property for his/her own use, then he/she must submit tax to his/her home country, which is equal to the value of the propertys rental usage. To avoid this problem, the foreign individual can initiate single purpose corporation to own the property.

Foreigners can equally benefit from foreign tax credits. Generally, a tax credit refers to a reduction in the U.S tax liability based on a dollar for dollar basis. The maximum possible foreign tax relief an individual can get cannot exceed the tax liability he/she owes the United States times a specific percentage. If an individual gets a foreign tax credit over and above the required limit, then the excess will be forwarded backwards to the passed year or, on the contrary, to the future coming years. Finally, the current tax regime for charging tax on cross border incomes lacks a conceptual framework. There is some level of conflict as to who should tax intangible assets like patents since no specific body has been set aside for performing the tasks.

An efficient tax system would raise revenues without causing distortions such as discouraging work incentives for individual persons and company investment incentives. Given the fact that such a system will be fair, it will receive popular support from the general citizens and investors will be attracted to undertake investment in the country. The overall outcome is improved economic activity in the country.

References

Gudelis, M. (2008). How a Foreign National Can Buy Real Estate in America. Web.

Joint Committee on Taxation. (2009). Tax compliance and enforcement issues with respect to offshore entities and accounts. Web.

Shay, E. (2005). International tax reform: perspectives on reforming U.S. taxation of foreign business income. Web.

Firstly, the tax incentives imply the reductions of taxes for the organization for performing the desirable and socially beneficial actions (Rubin 8). The primary reason for utilizing this approach is the easiness to attract various businesses and establishments, as the taxes define their potential income. It remains evident that the shift of the expected revenues contributes to increasing the income among individuals and households (Rubin 310).

Additionally, this approach can be considered as the core driver for actions for various medical institutions, social service providers, and other individuals and organizations, which can contribute to the enhancement of the welfare at national and international levels. In this instance, the application of this method is beneficial from the public perspective due to the rise of the potential income. In turn, it has a positive influence on governmental spending, as it reduces the expenditure on community health and development due to the individual and organizational interventions in the enhancement of the process.

Nonetheless, it is questionable when a suitable timeframe for the advantageous application of this tactic is. It could be said that this method has to be implemented when the country does not experience the severe consequences of the deficit, as the taxes are the primary sources of the income, which determine the states of the governmental budget (Rubin 20).

Additionally, this approach might be a requirement due to the inability to increase the spending in the social segment, as providing poor and homeless people with reduced taxes and shelter will improve the welfare of the state (Rubin 21). It could be said that the favorable economic conditions could be considered as a key determinant of the application of this procedure, as the share of the income will be reduced. In turn, the increased levels of poverty can also be taken into account as the definer due to the necessity to enhance the economic and social wellbeing of the citizens.

It remains evident that the governmental authorities should state the essentiality and possibility of the application of the tax incentives as they have a relevant understanding of the current economic condition of the country. The formation of the budget at the local and federal levels implies the ability to gather the necessary components, which depict the relevant portrayal of the federal economy (Rubin 21). In this instance, the absence of this knowledge might lead to the development of the deficit due to the lack of income. The presence of these aspects and features defines the essentiality of the participation of the regional or federal authorities in the decision-making while discussing the potential implementation of the tax incentives to support community health and development.

Lastly, the probable approaches for the application and utilization of the tax incentives to enhance the social and economic conditions of the community have to be discussed. One of the potential solutions is tax reduction (Rubin 10). In this instance, the organizations with the ownership of the large properties can have their taxes cut for proving their assets for organizing various events, concerts, and training. Additionally, the taxes can be reduced for the hospital and various pharmaceutical companies for the decrease of the prices for the particular groups or proving services for free for the citizens in need. Nonetheless, the taxes have to be reduced wisely with the profound evaluation of the potential consequences. Otherwise, it might be a primary cause of the deficit and malfunctioning of the economy.

Work Cited

Rubin, Irene. Budgeting, Policy, Process, and Politics, London: Routledge, 2008. Print.

Introduction

The problem of carbon emission into the atmosphere is highly associated with the greenhouse effect that has become a paradox in the worlds environmental economics. Carbon dioxide gas is one of the heat trapping gases that cause the greenhouse effect in the world. The impacts of carbon emission based on the resultant greenhouse effect include the rising of world temperatures, acid rains, and penetration of ultraviolet rays that are harmful to both human beings and animals. In fact, greenhouse effect is also resulting in floods, storms, and melting of the world snowcaps as witnessed in the Arctic.

Climate patterns of the world are therefore changing with the increase in carbon emission, especially by the industrialised nations such as the US, China, and the European Union. This problem brings the need for controlling of how industries and countries manage their carbon emission. Several intervention measures have been put up to control carbon emission. Some of these measures include carbon tax, cap-and-trade, carbon pricing, carbon credit, emission trading, personal carbon trading, and carbon diet. This paper explores the first two approaches to carbon emission, namely carbon tax and cap-and-trade. Specifically, it will evaluate them and show how they compare.

Carbon Tax

According to Metcalf, carbon tax refers to any tax that is levied on fuels according to their carbon content¹. Carbon tax is charged depending on carbon evaluation results. Hence, it varies per fuel. Carbon tax is one form of carbon pricing that has been adapted by most of the industrialised countries in an effort to regulate carbon emission. Metcalf observes that all hydrocarbons contain carbon². Therefore, all fuels that come from hydrocarbons emit carbon dioxide gas into the environment upon combustion. Since the gas causes a greenhouse effect, environmental scientists recommend carbon tax as an intervention measure. According to Strand, carbon tax is aimed at preventing global warming³. It provides a cost effective method of minimising the emission of greenhouse gases. The greenhouse gas that is emitted by fossils as they burn is an indicator of the amount of carbon that a particular fossil fuel contains. Carbon tax is levied at any stage of its cycle.

Cap-and-Trade

Cap-and-trade is also referred to as emission trading. According to Hasegawa and Salant, cap-and-trade refers to the placing of legal limitation on the amount of pollutants that an industry can emit⁴. Cap-and-trade offers economic incentives to industries or economies that are able to minimise their pollutant emissions. Cap-and-trade has been adapted by various countries of the world in their effort to contribute to the reduction of greenhouse gasses that their industries emit to the atmosphere. Individual governments of different countries carry out regulation of pollutant emission. Governments are charged with the responsibility of setting the cap on pollution amount within their jurisdiction. This cap regulates the amount of pollutants that different industries can emit into the environment.

For example, Conefrey, Fitz, and Malaguzzi affirm that the government of California has its own scheme on carbon emission⁵. Moreover, the government of New Zealand has its own scheme of pollutant production. After setting the cap on pollutants emission, the governments of respective countries then sell the units in the form of emission licenses to different industries. Cap permits are also sold as secondary markets. In this form of cap and trade, firms purchase emission permits either directly from the government or through financial bodies such as banks. In the trading of emissions, permits are also granted to industries that intend to carry out higher emissions than their cap purchase emission credits can allow as opposed to industries that have lower emission levels. Hasegawa and Salant claim that trading of emission credits can also occur across international borders⁶. For example, in the European Union foreign emission permits are traded. In this trade, the seller earns money for reducing his or her pollutant emission while the other seller pays money for his or her increased or higher emissions. Cap trading is common in the European Union under the European Union Emission Trading Scheme (ETS).

Evaluation of Carbon Tax

Metcalf affirms that David Gordon first proposed carbon tax in 1973. Since this period, many countries have moved to implement carbon tax in their industries⁷. As a form of tax that is levied on pollution, carbon tax requires countries that levy it to enact laws that guide the process of their implementation. Carbon tax is therefore considered a Pigouvian tax since it constitutes an externality that affects third parties. Such tax is charged according to the marginal damage that is done to the third party, which in this case is the negative externality of carbon dioxide to the environment. Various evaluation approaches have been adapted across the world.

Assessing the social cost of carbon

Strand asserts that carbon tax can be estimated using the social cost of carbon⁸. In this approach, estimations are made on the marginal cost of every one ton of carbon dioxide that is released to the environment at a certain time. Elliot et al. confirm that evaluation begins by analysing the amount of carbon in the atmosphere at a given point together with its effects on climate⁹. This assessment will indicate the effects of every ton of carbon dioxide that is released into the environment at a given time on climate change. Although a discount on the impact of carbon emission is allowed due to time variations, comprehensive and market-compliant social cost of carbon estimations can be used in the setting of carbon tax. However, various scholars have challenged the social cost of carbon approach with the argument that it is affected by market variation. With effects of variations in markets, the social cost of carbon estimation is therefore unstable and an erroneous method of basing carbon tax.

Calculation of the quantity of pollution that emanates from carbon dioxide is estimated by measuring its mass. Scientists will therefore measure the mass of carbon dioxide molecules that are emitted into the environment. The results give a quantity of carbon dioxide that is referred to as a ton of carbon dioxide. Estimations of the amount of carbon dioxide to be taxed are therefore made per ton. Elliot et al. observe that some scientists only calculate the population of carbon atoms that are present in pollution¹⁰. This process involves calculating the weight of carbon molecules whilst eliminating oxygen atoms. The resultant amount is a ton of carbon that is equal to four tons of carbon dioxide. However, scientists and environmentalists continue to debate about the accuracy of the SCC as a basis of carbon tax.

A wide standard deviation is observed between the actual values and the estimated values of the total amount of carbon that is emitted into the environment by a particular industry within a given time. The wide disparity is associated with lack of consensus by environmental scientists on various aspects of climate change. For example, scientists continue to differ on the amount of carbon that can eventually cause climate change. In addition, different countries accord varying discount rates on carbon emission, thus making the calculations inconsistent. However, efforts to regulate and standardise social cost of carbon evaluation are ongoing. They are expected to develop better results. Countries that apply the social cost of carbon evaluation in levying tax on carbon emission are more focused on the impact of carbon emission on their environment than on the accuracy of the method. Environmentalists also claim that social cost of carbon is more accurate within a country than across international borders since the environment is relatively similar.

Assessment of Carbon Leakage

Elliot et al. assert that the international community is also concerned with carbon leakage¹¹. Carbon leakage refers to the impact that regulations of carbon release in one country can have on another when there is a difference in regulation. Strand further asserts that carbon leakage has both negative and positive impacts¹². For example, spill over results in a drop in the overall effectiveness of reducing the total emission. According to Barclay, in the evaluation of carbon leakage, the total impact should be arrived at through an analysis of both short-term and long-term effects¹³.

The impact of short-term leakage, for example in the developing countries, may seem minimal. However, when combined with the increased emission from industrialised countries, short-term leakage causes a lot of harm. In the developing countries, there may be positive leakages since such countries have a low demand for fossil fuels compared to developed nations. Developed nations are also able to meet their energy demands through substituting fossil fuel with coal. This plan reduces their carbon emission significantly. Developed nations are therefore required to give incentives to developing nations to cover for carbon leakage.

Use of Border Adjustments, Tariffs, and Bans

According to Luo and Tang, there has been an outcry by the international community for border adjustments, tariffs, and bans since there is a variation in carbon tax¹⁴. Some countries are keen to levy carbon tax while others do not. Barclay observes that the international environmental concern groups have therefore called for the application of tariffs, tax, and trade bans on countries that do not exercise carbon tax¹⁵. The premise is that if border tax is levied, it can cover carbon emissions that result from imported goods that come from countries that do not levy carbon tax. Carbon tax can also be pushed through trade bans or enactment of tariffs on countries that have not enacted policies on carbon tax. However, such acts can be strenuous to a country that does not levy carbon tax, especially at a point where the World Trade Organisation (WTO) has not enacted any laws on how taxes on climate pollution should be levied.

Taxing Petroleum Products

Luo and Tang further assert that carbon emission can also be evaluated directly through the amount of petroleum products that are consumed in a country¹⁶. Products such as gasoline, diesel, jet fuel, and petrol are taxed. Each product is charged according to the amount of carbon in it. However, the effectiveness of taxation on petroleum products is questioned since prices of petroleum have not deterred people from consuming more of these products. Development of lower energy consuming vehicles can work better.

Evaluation of Cap-and-Trade

Hasegawa and Salant affirm that cap-and-trade is the most applicable method of controlling carbon emission, which is the major cause of global warming¹⁷. In the emission trading system, every member country assesses the carbon emission level in its environment. Besides, it assigns a cap as a starting point that is used as an indicator of the expected carbon production reduction for a country. Industries are then required to buy carbon emission limits as licenses from the government. Nishida and Hua confirm that industries and countries are allowed the option of reducing their carbon emission to earn more credit¹⁸.

Besides, they can allow their carbon emission to remain high above the cap, although they will have to continue buying carbon credits from other industries or nations, which have an excess of such credits. The checkpoint for the cap-and-trade is that every participant should always have carbon credit for its emission at any one point, regardless of whether a party acquires it directly from the government or purchases it from other nations or industries. A uniform and targetable carbon emission can therefore be arrived at and maintained through this regulation since it can be calculated to a total of all the issued caps. Caps are then lowered continually by individual nations in efforts to reduce total emissions. There are various methods of evaluating the cap-and-trade.

Market-based and Least-cost

According to Nishida and Hua, cap-and-trade is one of the market-based methods of controlling carbon emission that is recommended by environmentalists¹⁹. Emission trading is preferred due to its ability to incorporate technological development levels of a country and its geographical location. The use of trade caps gives the freedom of choice to individual companies. For example, after the government set the cap to be followed by industries in particular areas, the industries have had the choice to reduce their emission and/or comply with the license they buy. They have also had the option to remain at a higher level by purchasing carbon credit from others. In a market-based evaluation, if a company fails to comply with the regulation, governments or regulatory bodies must punish it. It can have its cost of production increased. Firms that have lower emission credits are at an advantage since they can gain income from the sale of extra credits to companies that have higher carbon emissions tickets.

Emission Markets

According to Repetto, emission credit trading is common in carbon trading systems²⁰. In this trade, one carbon emission credit is equivalent to one ton of carbon dioxide. These credits are also referred to as Kyoto units or certified emission reduction units. Individual industries are allowed to sell them either within the country or across borders. Yakao observes that when carbon credits are transferred from one country to another, they have to comply with the regulation of the United Nations Framework Convention on Climate Change (UNFCCC)²¹. However, transfer of carbon credits by nations that lie within the European nations must also be compliant with the framework of its commission. Carbon credits are priced in terms of Euros per carbon ton. It is now easy for nations or industries that want to purchase carbon credits since there is a spot market that provides contacts for industries that want to sell their carbon credits. This accessibility ensures a balance of carbon emission in the world.

Various organisations have cropped up to facilitate carbon credit trade under the United Nations. They include NASDAQ OMX commodities Europe, European energy exchange, commodity exchange Bratislava, European climate exchange, and PowerNext. Online markets are also available where traders can access buyers and sellers, for example in CantorCO2e. In fact, the sale of emission permit has grown rapidly in Europe and the United States. It is also estimated that trade in carbon will be one of the biggest areas of trade in the future. It is important for countries to adopt the cap-and-trade approach since carbon dioxide emission into the atmosphere will eventually have a detrimental effect on human beings.

Cap-and-trade helps in predicting, analysing, and protecting the world environment from excessive pollution. Carbon is one of the major greenhouse gases. Greenhouse gases cause the weathering of the Ozone layer of the stratosphere, thus resulting in the penetration of ultraviolet rays to the earth. These rays have detrimental health effects. For example, they may cause skin cancer, aging, destruction of immune system, and damaging of the eyes. If the world will be able to reduce the amount of carbon gases that are emitted into the atmosphere, there will be a reduction of these health effects. According to Yakao, the cap-and-trade method of reducing carbon emission has been given credit since the Ozone layer is already recovering²². In fact, by 2060, it is projected that the layer will be back to the size it had before the 1980s.

Comparison of Carbon Tax and the Cap-and-Trade

Similarities and differences between carbon tax and the cap-and-trade are evident. In some cases, the two methods of reducing carbon dioxide emission into the environment are applied concurrently. According to Conefrey et al., carbon tax involves levying taxes on all carbon fuels according to the amount of carbon dioxide they emit into the environment²³. This process ensures that all industries and imports that have emitted carbon are taxed. Carbon tax system also charges carbon-emitting substances at any stage of their cycle. Carbon tax method is preferred by some governments due to its ability to raise government revenue. For example, the government is able to levy taxes to all fuels such as petrol, diesel, jet fuel, and other products that emit carbon upon combustion. Imports that contain carbon are also subjected to carbon tax, thus earning the government huge revenue.

Carbon tax is criticised for its inconsistence with the technological development of the environment in which it is levied. The economic development level of a country is important in determining the amount of carbon tax that can be levied in an environment. However, carbon tax ignores all other factors. It institutes a standard tax for all products that emit equal amounts of carbon dioxide into the environment. Barclay asserts that the carbon tax method does not also consider the needs of individual industries in levying tax²⁴. For example, a higher amount of carbon products that a company uses implies that it will also pay a higher amount of taxes. This plan only benefits the government but not the individual players in the industry. Environmental scientists also debate on the calculation of carbon molecules in a particular fossil that is used in levying carbon tax across the world.

On the other hand, the cap-and-trade is implemented by setting a limit on the amount of carbon dioxide that an industry can release into the environment. The government then sells the cap limits as licenses to industries that emit carbon into the environment. This method has been preferred by most of the countries in the world since it considers individual industrial players as compared to carbon tax. A company that has low economic turnover can buy carbon credits that are equal to its carbon emission. Repetto asserts that industries that release more carbon dioxide than their licenses permit can trade and buy more carbon credits from companies that have extra credit²⁵. This plan benefits small emitters and buyers. Lower carbon dioxide emitters gain income from the sale of extra Kyoto credits to higher emitters. This trade benefits individuals. Moreover, the government also earns revenue through the selling of license. The use of emission trading is also pivotal in estimating, calculating, and regulating global carbon levels since they are predictable.

Conclusion

One of the major problems that are facing environmental economics is the control of carbon emission. Increase in industrialisation across the world has amplified the need to control carbon emission. Methods such as the cap-and-trade and carbon taxes have been implemented to counter negative effects of carbon emission such as global warming. Carbon tax involves tariffs on all carbon dioxide emitters. The approach is implemented though the evaluation of social cost of carbon, carbon leakage, border adjustments, tariffs and bans, and taxing petroleum products. Cap-and-trade involves the placement of limits on the amount of carbon that an industry can emit. If an industry wants to emit more, it has to purchase carbon credits from industries that emit less. This method is implemented through market-based, least-cost, and emission markets.

Bibliography

Barclay, Richard. Regulatory Economics: Saved by the Carbon Tax? Natural Gas & Electricity 29, no. 4(2012): 31-32.

Conefrey, Thomas, John Fitz, and Laura Malaguzzi. The impact of a carbon tax on economic growth and carbon dioxide emissions in Ireland. Journal of Environmental Planning & Management 56, no.7(2013): 934-952.

Elliot, Joshua, Ian Foster, Sam Kortum, Todd Munson, Fernando Pérez, and David Weisbach. Trade and Carbon Taxes. American Economic Review 100, no. 2 (2010): 465-469.

Hasegawa, Makoto, and Stephen Salant. Cap-and-trade programmes under delayed compliance: Consequences of interim injections of permits. Journal of Public Economics 119, no. 1(2014): 24-34.

Luo, Le, and Qingliang Tang. Carbon tax, corporate carbon profile and financial return. Pacific Accounting Review 26, no. 3(2014): 351-373.

Metcalf, Gilbert. A Green Employment Tax swap: Using a Carbon Tax Swap to Finance a Payroll Tax Relief. Washington, DC: World Resources Institute, 2007.

Nishida, Yuko, and Ying Hua. Motivating stakeholders to deliver change: Tokyos Cap-and-Trade Programme. Building Research & Information 39, no. 5(2011): 518-533.

Repetto, Robert. Cap and Trade Contains Global Warming Better Than a Carbon Tax. Challenge 56, no. 5(2013): 31-61.

Strand, Jon. Strategic climate policy with offsets and incomplete abatement: Carbon taxes versus cap-and-trade. Journal of Environmental Economics & Management 66, no. 2(2013): 202-218.

Yakao, Yasuo. Policy learning and diffusion of Tokyos metropolitan cap-and-trade: making a mandatory reduction of total CO 2 emissions work at local scales. Policy Studies 35, no. 4(2014): 319-338.

Footnotes

1. Gilbert Metcalf, A Green Employment Tax swap: Using a Carbon Tax Swap to Finance a Payroll Tax Relief (Washington, DC: World Resources Institute, 2007), 4.
2. Metcalf, 7.
3. Jon Strand, Strategic climate policy with offsets and incomplete abatement: Carbon taxes versus cap-and-trade, Journal of Environmental Economics & Management 66, no. 2(2013): 204.
4. Makoto Hasegawa, and Stephen Salant, Cap-and-trade programmes under delayed compliance: Consequences of interim injections of permits, Journal of Public Economics 119, no. 1(2014): 25.
5. Thomas Conefrey, John Fitz, and Laura Malaguzzi, The impact of a carbon tax on economic growth and carbon dioxide emissions in Ireland, Journal of Environmental Planning & Management 56, no.7(2013): 934..
6. Hasegawa and Salant, 26.
7. Metcalf, 6.
8. Strand, 203.
9. Joshua Elliot, Ian Foster, Sam Kortum, Todd Munson, Fernando Pérez, and David Weisbach, Trade and Carbon Taxes, American Economic Review 100, no. 2 (2010): 465.
10. Elliot et al., 467.
11. Elliot et al., 467.
12. Strand, 206.
13. Richard Barclay, Regulatory Economics: Saved by the Carbon Tax? Natural Gas & Electricity 29, no. 4(2012): 31.
14. Le Luo, and Qingliang Tang, Carbon tax, corporate carbon profile and financial return, Pacific Accounting Review 26, no. 3(2014): 353.
15. Barclay, 32.
16. Luo and Tang, 354.
17. Hasegawa and Salant, 25.
18. Yuko Nishida, and Ying Hua, Motivating stakeholders to deliver change: Tokyos Cap-and-Trade Programme. Building Research & Information 39, no. 5(2011): 519.
19. Nishida and Hua, 520.
20. Robert Repetto, Cap and Trade Contains Global Warming Better Than a Carbon Tax, Challenge 56, no. 5(2013): 34.
21. Yasuo Yakao, Policy learning and diffusion of Tokyos metropolitan cap-and-trade: making a mandatory reduction of total CO 2 emissions work at local scales, Policy Studies 35, no. 4(2014): 322.
22. Yakao, 323.
23. Conefrey et al., 952.
24. Barclay, 32.
25. Repetto, 42.

The increase in taxes associated with the gambling industry in Australia cannot directly respond to the problem of gambling costs as well as to many social and moral issues. On the one hand, the increase in existing gambling taxes can lead to increasing the revenue source for the governments. Furthermore, the increased taxes can contribute to controlling and limiting the aspects of the gambling industry in order not to erode the community. On the other hand, the significant increase in gambling taxes is not directly connected with the problem of gambling addiction because the problems of gamblers will not be resolved if the taxes increase (Napthine Government forced to withdraw pokies tax bill, 2014).

It is important to note that casinos have moral obligations to the communities as any other businesses. While orienting to making profits, casinos should also meet the interests of the community in which they are built. Creating new job positions and contributing to the communitys employment rate, casinos are also the causes for increasing the rate of casino-related crimes, the rate of alcohol and gambling addicts, and the rate of bankruptcies and financial hardships. Many people in the community become the victims of the gambling industry, and their families suffer from debts, addiction problems, and crimes significantly (Fabiansson, 2010, p. 82).

As a result, casinos should develop strict policies to regulate their activities in order to reduce the negative impacts on the communities with limiting the possibilities to join the gambling machine.

The possible purposes of increasing the gambling taxes are the focus on more revenues and the necessity to keep control over the industrys development. However, the proposed solutions cannot respond to all the social and economic issues associated with gambling in Australia. That is why, the initiative to lift the tax rate in order to receive more revenues and regulate the industry should be developed and implemented as the part of the complex programme to address the negative impacts of gambling on the community. The increase in existing gambling taxes should be discussed as only one step in this complex programme.

The supporters of developing the gambling industry and reducing taxes can state that individuals have the choice to gamble or not to gamble. In this case, gambling becomes the moral problem of the individual, but not a social problem. Nevertheless, this argument is rather weak because it is impossible to discuss gambling as the choice of individuals because the results of gambling affect the families and communities in the form of gambling addiction, alcohol addiction, depression, unemployment, and bankruptcy. The majority of those persons who spend their time in casinos try to find opportunities how to make money without making efforts or these people become gambling addicted (Fabiansson, 2010, p. 81).

From this point, the situation cannot be discussed as healthy, and it should be resolved at the social and governmental levels in order to protect not only gamblers but also their families from financial hardships and other negative results of gambling addiction.

References

Fabiansson, C. (2010). Pathways to excessive gambling: A societal perspective on youth and adult gambling pursuits. UK: Ashgate Publishing, Ltd. Web.

Napthine Government forced to withdraw pokies tax bill after Shaw signals he wont support it. (2014).

Taxes

Table 1: Displays Various Taxes, Where Funds Are Used And Government Body Responsible For Rates.

Sales Tax

Total sales tax paid: $0.77

A sales tax is charged at the time of buying specific goods and services. Based on the provided sales tax receipt for a purchase in Phoenix, Maricopa County, the total sales tax that has been paid for the purchase of the two pieces of jewelry is $0.77.

Amount of sales tax assessed by the State of Arizona: $0.5

The state of Arizonas sales tax rate is currently at 5.60%. This means that the state gets 5.60% of the total sales tax paid (Arizona Department of Revenue, 2021). Based on this, the amount of sales tax accessed by the state is (5.6% x 0.77) / 8.6% = $0.5

Amount of sales tax assessed by the City of Phoenix: $0.21

The City of Phoenixs sales tax rate is currently at 2.30%. This means that Phoenix gets 2.30% of the total sales tax paid (Arizona Department of Revenue, 2021). In regards to this, the amount of sales tax accessed by the city is (2.3% x 0.77) / 8.6% = $0.21

Amount of sales tax assessed by Maricopa County: $0.06

Maricopa Countys sales tax rate is currently at 0.70%. It means that the county gets 0.70% of the total sales tax paid (Arizona Department of Revenue, 2021). In this case, the amount of tax accessed by the country is (0.70% x 0.77) / 8.6% = $0.06.

Payroll Statement Review

A payroll statement, also known as earning statement, contains details of the salaries and wages paid out to employees of an organization for a given period of time (Jones, 2016). Based on the payment statement provided, the employee gets a basic income of $1200.00 and net pay of $934.10 after a deduction of $265.90. From the statement, the current amount of tax collected by the state of Arizona is $24.00. On the other hand, the year-to-date amount of tax collected by the state of Arizona is $72. The state income tax is levied on an individuals income, while a state sales tax is levied on the goods purchased by an individual.

In addition, Arizonas state income tax is 2% of an individual income based on the payroll statement, while Arizonas sales tax is 8.6% of the total amount of goods purchased (Arizona Department of Revenue, 2021). This indicates that both taxes increases with an increase in the amount involved. In my view, I do not like the fact that Arizonas income tax is increasing with an increase in an individuals level of income. An individual who earns more is likely to pay more income tax. This might discourage people from working hard to earn more income in an organization. For Arizonas sales tax, I think a rate of 8.6% is reasonable on some products like jewelry. Essential products such as foodstuffs should not be taxed to ensure that everyone can purchase them when needed.

Utility Bill Review

Based on the sample utility bill provided water usage bill, the total amount of tax paid by the customer is $4.27. As shown in the utility bill, the taxes included in the bill are City Services Tax charged at $1.50, City Sales Tax is charged at $0.97, and state and other taxes levied at $1.80. On the other hand, the total amount of fees paid by the customer is $68.09. A tax is a compulsory payment made to the government without getting any direct benefits, while a fee is a voluntary payment made by an individual to get a particular service (Jones, 2016). Therefore, a tax is mandatory while a fee is voluntary to an individual or organization.

The sample utility company is responsible for determining if the utility fees may be increased or not. This is because the company deals with important operations like repairs and maintenance to ensure that customers effectively get the services they require. The company must also remain up to date with the increasing cost of living experienced when the prices of equipment used to make sure that customers get the services increases. The additional cost is transferred to the customers who end up paying more fees to get the services.

References

Arizona Department of Revenue. (2021). Understanding Use Tax. Arizona Government. Web.

Jones, A. T. (2016). Mileage tax, property tax, sales tax, or fee: the best way to pay for commercial infrastructure that is not free. Review of Regional Research, 36(1), 81-98.

Statement of Thesis

Over the past few years, environmental issues in general and the issue of carbon emission in particular have gained impressive significance. In order to prevent the CO2 emissions from destroying the ozone layer and slacken down the process of ozone depletion, two major methods of reducing the air pollution rates caused by vehicles have been suggested¹. Though both the carbon tax and the Cap and Trade system basically refer to the same concept of making people control their use of petrol powered cars, the approaches that they propose differ considerably. While the carbon tax states that the carbon emissions produced by a specific vehicle or in the course of a certain industrial process, should be taxed in direct proportion to the amount of CO2 emitted, the Cap Trade system presupposes that the principle of emission fee should be incorporated into the current set of principles for environmental sustainability². While the carbon tax seems more efficient, as it discourages the very usage of environmentally hazardous vehicles and devices, the Cap Trade system seems a more realistic strategy to adopt, as it involves a smooth transition from one type of energy production to another and a more sustainable one³.

Statement of Significance

The significance of the paper is predetermined by the fact that the environmental issue is currently becoming increasingly significant for the entire humankind. As recent reports and researches show, increased emissions of CO2 contribute to a rise in the global temperature, as they create the infamous greenhouse gas effect. Consequently, the global climate is altering, therefore, triggering major concerns. Among the most significant ones, the change of habitat and the subsequent extinction of a range of species, the melting of the ice caps and the following rise of the sea level, with a range of floods all over the world ensuing, the depletion of the ozone layer and the following enhancement of the global warming, must be mentioned⁴.

The issues listed above, in their turn, have a major effect on peoples health. Climate change triggers weakness in the immune system of a human body, therefore, creating a gateway for people to contract various diseases. Floods obviously pose a life threat to the people living in the coastal areas, and the extinction of several essential animal and plant species may cause famine. Hence, when choosing the policy for addressing the issues in question, i.e., the methods of reducing the CO2 emissions, one must by especially careful. As there are two equally impressive options and present and only one right choice to be made, the significance of the study is quite high.⁵

Main Points

From an economic perspective, the concept of the Cap Trade system can be viewed as preferable, since its way of distributing the cost of reducing pollution and helps the owners of the vehicles that produce CO2, as well as the entrepreneurships, which emit CO2 in the course of the production process, to retain their property and at the same time comply with the principles of sustainability. The carbon tax, in its turn, literally forces the owner of the device that pollutes the environment to take huge losses in buying the new and a more advanced one. It is more likable that people will agree to reduce carbon emissions rather than take unexpected and rather impressive costs to buy new ones.⁶

Bibliography

Antonovskii, M. Ya. Exponential Analysis in Assessing the Contribution of Greenhouse Gases Emissions to Global Warming. Russian Meteorology and Hydrology 36, no. 1 (2011), pp. 2532.

Gillett, Nathan P., Vivek K Arora, Damon Matthews and Myles R Allen, Constraining the Ratio of Global Warming to Cumulative CO2 Emissions Using CMIP5 Simulations, Journal of Climate 26, no. 18 (2013), pp. 68446858.

Griffin, Paul A. Cap-and-Trade Emission Allowances and US Companies Balance Sheets. Sustainability Accounting, Management and Policy Journal 4, no. 1 (2013), pp. 731.

MacKenzie, Ian A. and Markus Ohndorf. MacKenzie, Ian A and Ohndorf, Markus Cap-and-Trade, Taxes, and Distributional Conflict. Journal of Environmental Economics and Management 63, no. 1 (2012), pp. 340342.

Wittneben, Bettina B.F. Exxon Is Right: Let Us Re-Examine Our Choice for a Cap-and-Trade System over a Carbon Tax. Energy Policy 37, no. 6 (2009), pp. 24622464.

Footnotes

1. Gregg Marland, Thomas Buchholz, and Tammy Kowalczyk, Accounting for Cabron Dioxide Emissions: The Context and Stakeholders Matter, Journal of Industrial Ecology 17, no. 3 (2013), p. 343.
2. Bettina B.F. Wittneben, Exxon Is Right: Let Us Re-Examine Our Choice for a Cap-and-Trade System over a Carbon Tax, Energy Policy 37, no. 6 (2009), pp. 2463.
3. Paul A. Griffin, Cap-and-Trade Emission Allowances and US Companies Balance Sheets, Sustainability Accounting, Management and Policy Journal 4, no. 1 (2013), p. 21.
4. Nathan P Gillett, Vivek K Arora, Damon Matthews and Myles R Allen, Constraining the Ratio of Global Warming to Cumulative CO2 Emissions Using CMIP5 Simulations, Journal of Climate 26, no. 18 (2013), p. 6844.
5. M. Ya Antonovskii, Exponential Analysis in Assessing the Contribution of Greenhouse Gases Emissions to Global Warming, Russian Meteorology and Hydrology 36, no. 1 (2011), p. 26.
6. Ian A MacKenzie and Markus Ohndorf, MacKenzie, Ian A and Ohndorf, Markus Cap-and-Trade, Taxes, and Distributional Conflict, Journal of Environmental Economics and Management 63, no. 1, (2012), p. 58.

Introduction

Taxation is one of the most important activities under fiscal operations in every economy. It is the main source of government revenue. Therefore, effective taxation processes play a pivotal role in determining the ability of an economy to meet the needs of its citizens. Thus, taxation can be viewed as an important practice in helping the government to provide public goods efficiently and effectively. One kind of tax that plays a pivotal role in funding government activities is the Value Added Tax. In the United Kingdom, value added tax is the main source of the government revenue. The value added tax finances the largest fraction of the government spending.

Value added tax can be viewed as the kind of tax that is imposed on all goods and services (Directgov 2011). This is fixed at a certain rate that applies for every product. For instance, the VAT rate was 17.5 percent in 2009 but was increased to 20 percent the following year. It is usually included on the prices before one buys a product. Every business in the United Kingdom is entitled to the value added tax. However, some of the businesses manage to evade tax illegally through fraud.

Despite the importance of the VAT in the UK economy, this kind of tax faces a number of issues in its implementation. Due to the issues arising from its implementation, the UK economy has not managed to optimize the collection of the value added tax. These issues have undermined the efforts to promote effective collection of the value added tax. There are issues that are emerging on the implementation of the value added tax implementation, which calls for appropriate policy changes. As already noted, VAT is one of the most important form of direct tax that forms an important part in the United Kingdom. Since its introduction in 1954, VAT has proved to be one of the most successful forms of taxation in many countries where it has been adapted. In fact, it has been rated as one of the most important fiscal innovation of the century (Adam et al. 2011). Its introduction led to a significant improvement in many economies ability to meet public needs. It has also been one of the most efficient methods of collecting revenue for the U.K.

There are several issues that face the implementation of VAT in the United Kingdom. These include exemptions, non-compliance & differentiation, and exemptions. These problems have undermined the governments effort to raise its revenue effectively to meet the needs of its citizens.

Implementation of VAT in UK

As already noted, every business in the United Kingdom is entitled to VAT. It is imposed in all products and services in the country. While purchasing the goods or services from the final agent in the chain, the price of the products is inclusive of the value added tax. The customer does not need to pay it directly. Value added tax is charged at every stage of production because the producers are forced to pay tax for the inputs used in the production process. VAT can, therefore, be viewed as the tax that is charged for every value added on a product.

Non-Compliance

One of the major issues facing the VAT in UK is non-compliance. In every economy, fraud and tax evasion are some of the major issues that undermine effectiveness in tax administration. Tax evaders and fraudsters have led to as significant loss in the tax revenues collected by the government every year. For instance, it was found that the government lost approximately £ 11.5 billion through non-compliance (Read and Gregoriou 2007). This reveals a significant difference between what the government is collecting and what it could have collected if all the companies and individuals complied with the standards set. The fact that the government loses a significant fraction of its revenue poses a major concern that needs to be addressed in order to solve the problem before it deteriorates.

Although there is a significant gap between the collected and the potential revenue, it is important to note that this difference cannot be fully attributed to the fraud activities. Some of this difference can be attributed to innocent error or legal avoidance. However, this represents just a small fraction. A significant part of this difference can be attributed to tax evasion.

There are two general methods through which tax evasion in the UK takes place. The first one is where the traders tend to understate the taxable sales or overstating its creditable inputs. The other category is where the traders disappear completely without having paid their VAT arrears.

To begin with, the first category is one of the most common categories of tax evasion. There are a number of practices that are involved in understating taxable sales and overstating creditable inputs. For instance, organizations may decide to work cash in hand. By so doing, organizations or individuals fail to record sales that are subject to taxation. Through this process, an organization evades taxation.

Organizations can also fake invoices for input purchases. In this case, organizations or individuals alter the invoice in order to avoid being taxed. Similarly, tax evaders may claim that certain sales are zero rated when they are not supposed to be. Another way that evaders use is exploiting different rates of VAT for various transactions. They take the advantage of the difficulty in policing borderlines to evade tax. For instance, the difference between consumption and business expenditure is one of these factors that foster tax evasion based on the difficulties in policing borderlines. Many businesses have used this method in evading taxes. Most of these problems emanates from the lack of uniformity in the system. This has to a greater extent contributed to tax evasion by many businesses and individuals.

Some aspects of the policy can also foster tax evasion. For instance, the choice of threshold, the speed at which the payments are demanded and the rates at which the refunds are given and the sheer level of resources devoted to HMRCs enforcement activities also plays a significant role in determining tax evasion (Adam et al. 2011).

Another major form of tax evasion that significantly contributes in tax evasion is when large companies have large VAT liabilities. However, this risk is mitigated by dividing the VAT on final scale evenly across the supply chain. Therefore, the trader does not gain significantly by disappearing. This has significantly helped the policy makers in reducing the gap between the potential and the actual VAT.

In most cases, the traders with more liabilities than turnover are more likely to evade VAT than those with fewer liabilities.

Solution

In order to solve the problem of tax evasion, it is advisable to broaden the VAT base. By so doing, an organization will be in a position to maximize its VAT. Reduction of the number of boundaries will significantly help in reducing the chances of misclassification (Schenk and Oldman). This will minimize errors and evasion.

In order to reduce disappearance of the traders in tax evasion, it is necessary to facilitate even distribution of the tax along the supply chain. By so doing, the gains for an individual trader for escaping will be reduced. Therefore, the traders will not have any incentive to trade off their long term goals just for negligible gains.

Export Zero-Rating and Compliance

Zero rating is where the government refrains from taxing certain products. This can be made in order to provide certain incentives or to promote availability of certain product that may be basic or important to the entire population. However, zero rating has contributed to VAT non-compliance. By zero rating the exports, the traders gain a lot from the authority through large scale refunds. However, the government is able to recover through the tax charged on the inputs. Therefore, when the companies evade taxation through fraud activities, the government will lose significantly and will collect taxes whose total differs considerably from what they ought to have collected. In fact, the authority may end up losing more through refunds on exports than what they collect through the tax imposed on the inputs (Read and Gregoriou 2007).

For instance, the missing trader intra-community in the 2000s is one of the frauds where this took place across the EU. As a result, the authority loses significantly from such activities. This implies that there is a need for a more effective approach of dealing with zero-rated products. As a result of these frauds in UK, the treasury projections on expected receipts were billions of pounds above what was actually realized. In 2006, the economy recorded a staggering £20.7 billion of trade flows associated with MTIC fraud in the first half of 2006 alone (Read and Gregoriou 2007).

Zero-rating has also led to carousel frauds. In this case, importers purchase products that are not taxed or that are zero rated and then adding VAT while selling to another trader as if the commodity was taxed and then disappearing with the VAT due. By so doing, the main efforts of zero rating commodities are undermined. Consequently, the buyers end up buying certain commodities at unnecessarily higher prices. These frauds reveal that there is a need for the authorities to change the zero-rating system in order to mitigate such frauds. The country lost significantly through these kinds of frauds.

From the past studies, it has been identified that these frauds were triggered by the break in the VAT chain at export (Adam et al. 2011). This problem has resulted from the authorities paying more out of the system than what is really entering into the system. This has significantly reduced the total revenue to the government. This has been one of the major challenges in the AU since its development in 1993 (Schenk and Oldman 2007). The UK has lost a significant amount of its revenue from such activities. In the AU, border controls have been banned as a way to promote free trade among the members. As a result, the ability of a nation to raise revenue at the borders has been nullified. Consequently, this has opened new avenues for fraud activities. After the border controls were lifted, the authority has to use paper trail to raise tax revenue. This involves account auditing to raise revenues. This process increases the chances of tax evasion. Traders can easily dodge and escape without paying any tax.

In an attempt to solve this problem, the government has tried to practice reverse charging. In business to business transactions, reverse charging will place the liability on the buyer and not vice versa. This has helped the authority to mitigate fraud. Through reverse charging, it is possible to prevent frauds by preventing an entity that have purchased a product from claiming back input VAT, which has not actually been paid. This can significantly help in solving the problem arising from these frauds. When reverse charging is effectively employed through the line, there is no possibility of collecting anything until the final transaction is made. This process has been effectively implemented in computers and mobile phones.

VAT Implementation at the International Level

At the international context, the implementation of the VAT becomes very crucial. In this case, the AU plays a significant role in the operation of the EU. AU is one of the key players in making VAT policies. In connection to this, the UK has been forced to adopt certain policies as a precondition to be a member of the community. This has to a great extent affected the implementation of VAT in the economy. For instance, the AU forces the members to adhere to reduced rates, forbids extension of zero rating to new items among others (Schenk and Oldman 2007). It also sets the minimum standard rates. All the members are expected to follow these agreements. The AU has also implemented policies that discourage the members from imposing tax to the member countries. In this case, the UK is forced to remove VAT tax imposed on imports from the members states. This causes lack of uniformity in the taxation process consequently encouraging frauds (James 2009). When tax is imposed only to some traders, non-member countries may take the advantage to import their goods under the umbrella of another member country. The authority may end up losing a significant amount of tax.

Conclusion

In conclusion, this discussion has clearly revealed that VAT is one of the kinds of taxation that plays a pivotal role in the UKs economy. It contributes to a significant fraction of the government revenue. However, the difference between the potential and the actual VAT collected by the government in UK remains very high. This gap can be attributed to the methods applied in imposing this kind of tax. This raises a need to have changes in the taxation systems in order to maximize the annual VAT collected in the economy. The UK government has however managed to mitigate these frauds by practicing reverse charging.

Reference List

Adam, S. et al. 2011. Tax by Design. New York, Oxford University Directgov. 2011. VAT Basics for Consumers.

James, M., 2009. The UK Tax System: An Introduction. UK, Spiramus Press Ltd.

Read, C., and Gregoriou, G.N., 2007. International Taxation Handbook: Policy, Practice, Standards and Regulations. Burlington, Elsevier.

Schenk, A. and Oldman, O., 2007. Value Added Tax: A Comparative Approach. Cambridge, Cambridge University Press.

Segmentation Analysis

The main issue identified for Softron Tax is low awareness and the need to establish a strong customer base in Ottawa; the issue is directly associated with segmentation. Segmentation is the primary strategic process that a business needs to conduct to ensure proper operation and development. The process is essentially about identifying customer groups that a business needs to reach with its products and services, and the identification is to be based on particular characteristics and combinations of characteristics, such as customers backgrounds, demographic information, income, and so on. Therefore, the first step in successful segmentation is defining dimensions of segmenting the market.

Softron Tax provides services to several customer groups with different needs, and segmentation should be based exactly on the considerations of different groups needs. First of all, a major part of services provided by the company consists in personal tax preparations services (Softron has the services you need, 2015). These services are demanded by individuals, and especially those who are expected to face additional complications with their taxes, e.g. new immigrants, residents of the United States, self-employed persons, and persons who have debts and credits. Based on these criteria, the first identified segment of the market to be targeted consists of individuals who are either entrepreneurs or self-employed (as opposed to hired workers).

Another large group of services is corporate tax preparation, and these services are aimed at corporate bodies, which qualifies for business-to-business services and implies different segmentation. Also, the company offers tax preparation for death taxes and taxes on sale of property (Softron has the services you need, 2015).

Therefore, the dimensions for segmentation for personal tax preparation services should include income (people with higher incomes are expected to be more in need of tax preparation services), occupation (targeting self-employed and entrepreneurs), and age (senior people are more likely be interested in will preparation). These multiple variables may overlap, i.e. senior citizens who have their own business that gives them high income will be particularly targeted due to the presence of all three markers of targeted segments.

Segments should be properly assessed to establish whether segmentation is reasonable, i.e. whether or not described segmentation is a good foundation for further targeting and positioning. First of all, the segments are sizable. For example, according to Statistics Canada, almost 2.8 million people in Canada reported being self-employed in 2016 (Self-employment, 2017). Most of these people live in urban areas, which is why the segment is particularly relevant for Softron Taxs initiative to promote their new locations in Ottawa. Such basic criteria as age and income are not expected either to segment the market into too narrow parts, i.e. identified segments are sufficiently large.

Also, it is important that the needs within the segments are homogeneous (e.g. self-employments taxes for all self-employed individuals), while the needs among the segments are heterogeneous (e.g. will preparation among seniors and tax audit for the high-income group). Also, the segments are identifiable and accessible because the dimensions used for segmentation are basic. Based on the description of segmentation above, a segmentation grid was created (see Appendix 2). In the grid, offered services are matched with identified segments.

Further, a perceptual map was created to place Softron Tax on two axes: perceived quality of service and established versus establishing reputation. The company receives high ratings (Best tax services in Ottawa, 2017), but it should not be neglected that, as it was previously established, the company is still struggling for raising awareness and building reputation, which is why it is placed lower than its competitors on the reputation axis, and the company receives complaints about inconsistency of its services from customers, which is why its position on the quality axis is worse than the positions of its closest competitors. The perceptual map shows that the company should work toward increasing awareness and customer satisfaction to earn competitive advantages.

Implementation

In implementing strategic recommendations and alternatives, it is useful to consult marketing theories. One of possible approaches in this regard is turning to Ps of marketing; for instance, Mudie and Pirrie (2012) propose seven Ps of marketing for services: product, price, promotion, place, people, physical evidence, and process. An additional component can be recognized as an eighth P: productivity and quality. This classical understanding suggests that all aspects of providing services to customers should be considered in strategic decision-making.

First of all, in terms of product, Softron Tax should ensure that the services it provides meet identified needs of customers, and the way they meet those needs is clearly communicated to existing and potential customer groups. This part of implementation will require efforts from two areas: marketing research and communications. Employees responsible for exploring the market should report their progress and identified needs to those who design new services and oversee the provision of current ones. Employees responsible for communications and public relations should ensure that the information on offered services reaches potential and existing customers and addresses their needs properly.

Second, the price of services should be competitive, which is why marketing research should encompass pricing, too, and a certain pricing strategy should be proposed. Third, promotion is the responsibility of communication and public relations practitioners, too. They should implement actions expected to reach more people. Fourth, the place component of the mix suggests that potential customers targeted within the framework of promotion can be accessed in proper places, i.e. in places where high-income people, senior citizens, and self-employed individuals or entrepreneurs (the three targeted segments) are expected to spend time. Fifth, people should be trained to provide better customer-oriented services. For this, the company can either establish its own training programs and facilities or outsource the training.

Sixth, for physical evidence, the companys communications and public relations specialists should collect feedback from existing customers and provide it to potential customers. Also, this component of the mix refers to customers experiences of dealing with the company, i.e. the locations should be designed to provide comfort and positive impression. This is close to the seventh component: process, which refers to the procedures of providing services.

They should be fast, efficient, and simple for the optimal customer satisfaction. Customers demand tax preparation services exactly because they find the taxation system too complicated and taxpaying too time-consuming or confusing, which is why the process of providing services should be made as simple and enjoyable as possible. Finally, the productivity and quality of services component refers both to internal operation (organization of work in the optimal way) and external operation (raising perceived quality of services). The timeline for the proposed implementation is described in Appendix 5.

References

Best tax services in Ottawa, ON. (2017). Web.

Mudie, P., & Pirrie, A. (2012). Services marketing management (3rd ed.). Burlington, MA: Elsevier.

Self-employment, historical summary. (2017). Web.

Softron has the services you need. (2015). Web.

Appendix 2

Segmentation Grid and Perceptual Map

Appendix 5

Introduction

A multitude of Multinational Companies (MNCs) across the global economy use ambiguities or loopholes in global tax laws in order to reach a desired outcome, often in the best interest of maximising shareholder and/or private corporate value through paying less tax (Contractor, 2016). HM Revenue and Customs (2016) states that such tax avoidance is often comprised of contrived, artificial transactions which lead to a tax advantage that Parliament never intended.

Types of tax avoidance strategies include the deferral of foreign affiliate income, transfer pricing, royalty payments, global cost division and inversions (Contractor, op. cit.). Multinational corporations can utilise the above strategies to reduce tax expenditure legally across a globe which is separated by varying jurisdictions in relation to taxation (ibid). Therefore, as a result of the absence of a homogenous international tax regime, such loopholes can be exploited, resulting in aggressive tax avoidance rather than simple tax planning which can have multiple adverse effects on economies and states internationally.

This essay conveys that it is not the responsibility of MNCs to pay more tax than legally required. If legal loopholes exist, then MNCs should be allowed to exploit them and any negative effects brought about by tax planning is at the fault of the law itself and its creators. It also portrays how tax competitiveness worldwide is simply a part of international economic rivalry and how the extent of MNCs’ tax avoidance and self-regulation could be controlled by their view on corporate social responsibility and hence reputation. However, global cooperation on tax reform could minimise various disadvantages that arise from ambiguities in global tax laws.

This essay will analyse and critically evaluate some of the effects of tax planning and hence conclude whether such effects are advantageous and or disadvantageous with respect to various stakeholders and highly industrialised countries. Academic literature and real-life examples will be used throughout to support ideas expressed.

Governmental tax revenue reduction/ Corporate tax gain

A key result of tax avoidance, especially in highly industrialised countries, is a reduction in tax revenue collected by governments. Markle (2015) found that a substantial number of highly industrialised countries fail to tax MNCs’ foreign affiliates’ profits which in the US, for example, could have contributed to the estimated loss of $2.1 to $3 trillion in unrepatriated profits from US multinational foreign affiliates (Contractor, op. cit.). In the UK, recent examples include Starbucks’ European business paying an effective UK tax rate of just 2.8% in the year to the end of October 2017 as a pose to the actual corporate tax rate of 19.5% (Marriage, 2018), whilst Google, despite generating £3.4 billion in UK revenues last year, only paid £20.4 million in corporate tax (Neate, 2014). Although the foreign income of MNCs is taxable in the US, a substantial loophole exists where after taxes have been paid on foreign affiliates’ income in different countries, any extra profit can simply escape US tax legislation by not being remitted back to the US (Contractor, op. cit.).

A reduction in tax revenue can be seen as disadvantageous to the Governments and citizens of the UK and US as less money is available to invest in national operations such as infrastructure, health and education. On the other hand, how negative this outcome could be depends on what and where such tax revenue would have actually been spent on and its positive effects on the domestic economy. Moreover, it could be argued that if such loopholes exist, it is a firm’s legal right to retain such tax planning gains. The above sources simply convey a negative effect through figures of lost tax revenue but on the contrary, such tax gain by MNCs could be re-invested back into the country, cancelling out the negative effect of lost tax revenue. Hong and Smart (2010) suggest such tax planning opportunities allow countries to at least maintain corporate tax rates whilst still attracting foreign direct investment (FDI). Therefore, tax gain here could be seen as advantageous to a country as well as the MNC, subject to how such tax gain is spent. The positive effects MNCs can bring to nations through investment may be the reason why such loopholes still exist whilst also simultaneously attempting to prevent expatriation of key MNC operations.

Tax avoidance and its effect on MNCs’ reputations and corporate social responsibility

Brennan and Atkins (2008) provide an insight into the evolution of corporate governance and how MNCs have started to shift from the agency theory where a business’ processes solely account for its shareholders to a more inclusive, stakeholder-orientated approach. This elucidates how MNCs may be starting to self-regulate themselves in terms of the amount of tax they pay in order to sustain a positive reputation in society by harnessing their corporate social responsibility. Elbra and Mikler (2016) further support this in portraying corporate reputations are integral assets which can be heavily affected by not paying tax appropriately. This shows that the negative effect reputation can have on financial performance could offset the extent to which MNCs avoid paying tax. Real life instances can support this argument, for example, due to prior tax avoidance that gravitated solely towards the accountability of shareholders, Starbucks moved their headquarters from Amsterdam to London in an attempt to reprimand previous tax avoidance and showcase their acknowledgement of all stakeholder accountability and social responsibility (Marriage, 2018) . Facebook also announced they will report their revenue from advertising in UK instead of re-route through Ireland, the spokesman of the company said that this action is to show company’s increasing concentration on social responsibility, and earn public trust back (The Guardian, 2017).

Here, the ambiguities in global tax laws can be seen to regulate themselves and the MNCs utilising them, through reputation and corporate social responsibility, showing how such ambiguities can be advantageous. However, the extent to which this supposed trade-off is reached could still mean a significant amount of tax avoidance is carried out, again creating the disadvantages aforementioned through a reduction in government tax revenue. Moreover, despite Brennan and Atkins (2008) suggesting a trend in MNCs behavior, this doesn’t prove all MNCs are doing the same which can create significant inequalities in the amount of tax being paid by different firms. On the contrary, if it is the choice of the firm to exploit legal loopholes in the law then equally, it is the choice of the firm to realise its corporate social responsibility and act on it. Therefore, if a MNC does not correlate their brand value with their social responsibility, they are unlikely to voluntarily pay tax, negating the potential for such positive effects from existing ambiguities in global tax laws.

Global tax competitiveness

Ambiguities in global tax laws create international tax competitiveness which has the potential to fuel the global economy. For example, Neate (2014) conveys how the double Irish loophole allows multinational US companies to funnel a substantial amount of their income through Ireland to reduce their national tax bill by paying a corporate tax rate of 12.5% or less. O’connor (2014) highlights how Ireland’s low corporate income stance can encourage labour supply and demand whilst simultaneously incentivising FDI. Here, ambiguities in global tax laws are shown to benefit Ireland but also in this example disadvantage the US through reduced tax revenue. This is a prime example of tax competitiveness and shouldn’t discourage Ireland’s tax policies but yet exist as just one part of a competitive global economy.

A study by Deloitte (2014) which involved 800 corporate executives in 20 jurisdictions discovered that corporate taxation policy and transfer pricing abilities were of upmost importance for MNCs when making key FDI decisions. This further highlights how tax competitiveness brought about by global ambiguities in tax laws is fundamental in MNCs’ decision making. Therefore, a country’s tax policy can be either advantageous or disadvantageous depending on the stance of the policy towards MNCs and hence attracting FDI. This relates back to international economic rivalry stated in this paper’s thesis statement; it is ultimately at the choice of the MNC where to base and transfer operations and finance and therefore at the choice of government tax policies to incentivise such.

On the other hand, Elbra and Mikler (2016) point out that the tax competition global ambiguities create can be detrimental and have the ability to actually distort trade and investment whilst diminish national tax bases. This is not necessarily true as those countries with high tax-rates such as the UK and US are already global hubs for investment and trade which is why they are able to charge such high corporate tax-rates. Therefore, the tax avoidance incurred in such highly industrialised countries by large MNC’s can be offset by not only the sheer scale of investment and trade but also the high levels of income tax and corporate tax of solely national operating firms.

In addition to this, Contractor (2016) states that’s many executives of MNCs in highly industrialised countries like the UK and US already think taxes are too high and in turn suffer a competitive disadvantage, especially against rival MNCs which operate in countries with less rigorous tax laws. I believe global tax competition resulting in less after-tax income for MNCs can also be disadvantageous to their domestic economies and stakeholders. For example, suppliers who rely on large MNCs can be heavily affected if stringent tax laws are enforced on their biggest customers. Moreover, customers of the MNCs themselves get less benefit from new, innovative and better quality products due to a lack of research and development which could have been funded by corporate tax deductions.

Conclusion

In conclusion, whilst loopholes in global tax law exist, I believe MNCs should be allowed to exploit them as long as doing so is legal. The disadvantage of reduced tax revenue for governments through tax planning in highly industrialised countries could be offset by re-investment back into the country whilst on the other hand, if not re-invested, the extra tax revenue could have been invested by the government into integral infrastructural projects. This brings about the question of whether the money will be spent better in the hands of an MNC or a government which can be extremely subjective and depends whose interests are most regarded. To ensure such tax gain is spent effectively, global laws could be implemented to guarantee that any tax gain by MNCs is spent through FDI and/or product/service research and development.

Corporate social responsibility and reputation can act as an effective form of self -regulation, highlighting further that ambiguities in global tax laws won’t be exploited indefinitely by most MNCs. Moreover, through obvious exploitation of such ambiguities and MNCs stating it is their legal right to do so, they are potentially exposing themselves to international re-regulation which could alleviate any disadvantages at present. Palan and Wigan (2014) state the success of a global tax reform simply depends on sustaining international cooperation whilst Sharman (2006) believes it is a near impossible task due to global economic competitiveness and national sovereignty.

I believe Fischer’s theory used by economists to manage foreign exchange risk can be applied to ambiguities in global tax laws so that firms, through the implementation of a global tax rate, cannot benefit through the channelling of funds to tax havens or the stockpiling of assets in shell companies.

The federal government collects revenue from income taxes, capital gains taxes, and payroll taxes. Tax rates depend on income types. Income taxes are progressive – that is, initial dollar amounts are taxed at a lower rate and additional dollars are taxed at higher rates. Income from investments (capital gain) is taxed at a flat 15%. Payroll taxes are charged at a flat rate only on the first $113,700 an individual earns. Let’s look at the tax rates for 2012 and see how they influenced five different earners (George C. Edwards, 2012). Each administration gathers tax chargers from its residents so as to have the option to satisfy its duty of giving legitimate streets, water, sanitation offices, human services and instruction to people in general. The legislature would require billions of dollars to do every one of its obligations and it is because of the citizens’ cash that this work is finished. In this way, residents are normal and commanded by law to make good on the proper duties. They need to pay tax charges to their nearby state or region governments just as to the government in specific examples. Numerous individuals don’t care for settling tax charges, obviously. They trust that they could hush up about the entirety of their income. They feel that it isn’t reasonable for the administration to get an enormous level of their well-deserved cash. They at times think about the duty rates in different nations and feel that the measure of cash they pay is too high when contrasted with different countries.

Moreover, all said and done, charges are incredibly basic for the smooth running of a country. Without charges, the legislature would not have the option to satisfy its commitments. It is essential for us to get a legitimate point of view of why charges are inescapable. Despite the fact that we don’t care for the way that we need to leave behind our income to help the administration, regardless we need to consider this to be an advantage. Truth be told, we are paying the administration to give all the infrastructural offices that we appreciate in our day-today life. On the off chance that we can see imposes as a charge that we spend on ourselves for our own advantage, much like the cash we pay at an eatery to have a decent feast, we would think that its simpler to pay our duties without feeling the squeeze. So, paying taxes make our self a proud civilian and it helps the government to make USA a better place for living people.

The general arrangement of tax assessment in the United States is dynamic. There are three kinds of tax assessment framework, the principal being dynamic expense, the level of salary an individual (or family) pays in charges will in general increment with expanding pay. The second is backward duty, which something contrary to dynamic assessment. The last sort of tax collection is relative duty, which implies that everybody pays a similar level of expense. The US tax charging framework is obsolete as per idea of the majority of the people live in United States. Finance charges — which spread quick rising social security and medical care consumptions — basically can’t address future issues. Also, a decent expense framework would keep the duties low and reasonable. However, they ought to likewise raise enough income for the administration to run. There are numerous reasons why the US tax charging framework is uncalled for, here are a couple. And also, one more thing which shows us that US flat taxation system is fair is that it eliminates other taxes and its fairly simple.

Despite the fact that the US tax assessment framework is dynamic, each state’s duty framework is on a very basic level out of line, by taking a lot more noteworthy portion of salary from low-and middle-class salary earning families than from well off families. The nonattendance of a graduated individual annual assessment and overreliance on utilization charges aggravates this issue. Itep.org says that “State individual annual charges are commonly more dynamic than the different duties that states demand (for example property, utilization)”. Sales assesses in the states are more backward than dynamic, poor families paying just about multiple times a greater amount of their salary in these expenses than well off families, and middle-class families paying multiple times more. ITEP additionally says that States lauded as ‘low assessment’ are regularly high duty states for low-and middle-class salary families, which implies high duties are forced on the least fortunate while low on the wealthiest. As I said before this flat tax system punish low- and middle-class income earning people than that of wealthy people.

The Institution on Taxation and Economic Policy (ITEP) shows how states will control their wording to make individuals believe that the affluent compensation more than poor people, additionally shows how each state’s expense tax charging framework is uncalled for and not what the United States tax charging framework says it runs on. US charge framework is out of line since anybody under the top 1% settle more duty and that any persevering individual has an excessive amount of duty deducted from their check leaving them with nothing to live on. From the measurements given above and other data we realize that the rich compensation is nothing from their check, consequently amassing billions while the lower classes are making around $30,000 – $70,000 if fortunate. In spite of the fact that the United States government says that us the public run-on dynamic exhausting procedures, which expresses that the well-off pay more than poor people, the state tax assessment process is totally extraordinary with regards to acquiring merchandise from stores and online sites. In undercover this flat tax system benefits rich. For an example if a person earns $10,000 while the other makes $100,000. Both the people live in a taxation system where the flat tax system rate is 10%. While first person getting $9,000 remaining after taxation and the other will get $90,000 after paying tax charges. Do you think it’s fair enough? This proves that United states flat tax system remains rich as rich and poor as poor even for the future.

As United States of America is consisting of many states few are using the flat tax system at the moment and the rest of the states are using progressive tax system which is much more fair then that of flat tax system as flat tax system support rich to be progressive tax system works in a fair manner as people who make low amount of money will pay a low amount and the rich will pay an amount which is fair for their level of earning income. State which still using flat tax system are Colorado, Illinois, Indiana, Massachusetts, Michigan, North Carolina, Pennsylvania and the rest of the states are using the progressive tax system. A Flat tax framework is the place all citizens pay tax as the government considers they are making the same amount of income. This tax charging framework is reasonable while the individuals who don’t think that it’s a terrible circumstance particularly for the lower salary class. While the US receives a dynamic assessment of tax framework, there are different nations on the planet who have forced a level duty rate framework on the two people and organizations. Estonia, Lithuania and Latvia have all accomplished financial development since changing to the framework. Estonia embraced the flat tax framework in 1994 and put a 26% duty on both individual and corporate salary. The nation encountered a 11.7 percent (GDP) development in 1997 which ceaselessly developed somewhere in the range of 7 and 10 percent all through the mid-2000s. Of course, different elements are added as well.

In 2009, 42 percent of those documenting personal government forms paid no annual expense by any stretch of the imagination. Subsequently, the 1 percent of citizens with the most elevated assessable earnings pay around 37 percent of all the government personal duties, more than the last 95 percent of duty filers (George C. Edwards, 2012). The main 10 percent pay in excess of 70 percent of all government annual duties, while those in the last 50 percent of assessable pay about 2% (George C. Edwards, 2012). A few people feel that a dynamic assessment is the most attractive sort of tax collection on the grounds that the individuals who have the most pay higher rates. Others, in any case, have proposed a ‘level’ charge, with everybody exhausted at a similar rate; still others have recommended that we desert the annual expense and depend on a national deals charge, much like the business assesses in many states. It is anything but difficult to censure the annual assessment yet hard to get concurrence on a substitution (George C. Edwards, 2012). The personal expense is dynamic in that those with higher earnings commonly pay a higher pace of assessments. A many people would likely think that it’s uncalled for to pay charges at a similar rate as a mogul. In the event that a uniform expense rate was set at a level that everybody could stand to pay, it would need to be set exceptionally low. For this situation there may not be adequate incomes to finance basic government programs.

Mainly one positive point of using progressive taxation system is every single civilian can invest their money in their own country for its wellness. An arrangement of progressive tax assessment makes it possible for all family units to add to the welfare of their nation here and there. In spite of the fact that the commitments might be insignificant, the way toward paying expenses still makes a customized assumption into their citizenship. Simultaneously, genuine incomes can be created through duties charged inside the upper expense sections. It makes a type of balance through energy, regardless of whether financially, two family units are exceptionally far separated from one another. Low-pay workers battle to have the estimation of their pay have an effect inside their lifestyle. An arrangement of dynamic tax collection animates the economy more since it can improve the impacts of development while lessening the impacts of downturn. That permits lower pay workers to extend their cash more distant than in different frameworks of tax collection. In other words, progressive tax method improves the spending power of the whole country.

Also, progressive tax system makes the public feel that the tax is not a huge thing to consider in their day today life expenses. That’s because progressive tax charging method is all about paying tax in an ongoing method. Moreover, that means for an example when we are purchasing a good or a service, we are paying the tax along with the price tag, so majority of the time people won’t consider it as a huge expense which make them feel uneasy, unlike flat tax system which people have to pay that as a monthly payment to the federal government. Same as flat tax even progressive tax system has some negative points which people do consider. They are, it creates reasons to reduce taxable income, it costs more to apply than implementing flat tax system. The arrangement of sections that is utilized in the United States makes a tax charging framework which boosts certain buys or financial exercises. By diminishing assessable salary levels, motivations are made to abstain from paying charges inside the section of the genuine pay earned. The quantity of expense findings or exclusions that were accessible in the 2017 require very nearly 74,000 pages of documentation to audit to guarantee every one taken is in consistence. Also, inequity among people is a rising problem as of starting progressive tax system, as I said before some rich people will pay a lot of tax from their income while some middle class and poor people will pay nothing at all if this system start to work.

Moreover, progressive tax charging system will be considered as a payback or a method of torturing and punishing people who work hard on their jobs. And later on, which will make them demotivate to work on their jobs as they did before. A rise in income when we work hard being taxed by federal laws is not a good thing for people who are millionaires and billionaires. As of an idea about progressive taxation system it’s considered as a way of social improvement among economists which is practical enough. After comparing about flat tax system and progressive taxation systems and their merits and their demerits, progressive taxation system is fair enough and perfectly matching for United States as of considering above information stated. Also, progressive taxation is now being used in many states in USA at the moment. South Africa is a good example for a country using progressive taxation system and it’s the country which have the highest growth in tax reserves in their government world-wide.

At last, a U.S. study from the National Bureau of Economic Research inspected the impact of assessments on the pay of individual business people and its effect on their venture choices. The creators gauge that a 5% ascend in minimal duty rates decreases the extent of business visionaries making new ventures by 10.4% and cuts speculation spending by 9.9%. High dynamic annual duty rates in this manner deflect business people from participating in more noteworthy capital spending. These discussions at some point disregard that the U.S. government charge progressive tax as of now its dynamic. Under current law, high-salary citizens pay a bigger portion of the taxation rate, while lower-and middle class pay people shoulder a generally smaller taxation rate. This is genuine both for government annual assessments and the administrative duty code generally. Besides, such a high-rate, restricted base proposition is probably not going to produce a lot of income (Robert Bellafiore-2019). With regards to pay tax, there is a solid case for keeping things straightforward: separate payroll costs with a stipend and multiple rates specified, combined with a single benefit to help those with low wages or potentially high needs. The plan of the rate calendar ought to mirror the best accessible proof on how responsive individuals at various salary levels and with various statistic qualities are.

Pay from all sources ought to be burdened by a similar rate plan. In any case, not at all like a standard personal duty, our methodology would permit all expenses of producing that salary to be deducted, as we clarify underneath. Applying various rates to various salary sources muddles the framework, unreasonably supports those burdened all the more daintily, misshapes financial movement towards delicately exhausted structures, and encourages charge evasion. Burdening pay from all sources similarly doesn’t simply mean exhausting incidental advantages similarly as money profit. It likewise implies applying that equivalent rate calendar to, entomb alia, independent work pay, property pay, reserve funds pay, profits, and capital additions. Under the ability-to-pay principle, tax burdens should be related not to what taxpayers receive from government, but rather to their ability to bear the tax burden—that is, to tolerate a sacrifice. Reasoning from the plausible, but unprovable, idea that paying a dollar is a lesser sacrifice for a well-to-do person than for a poor person, an equal sacrifice requires higher tax payments from the well-to-do person. But as with the benefit principle, this reasoning does not point to a particular relationship between income and tax burden. A proportionate tax, whereby everyone pays the same percent of income, would take more from the rich person than from the poor person. Even a regressive tax, with everyone paying 25 percent on the first $20,000 of income, and 10 percent on all additional income, would take more from the rich than from the poor. Yet under other assumptions about sacrifice, a steeply progressive tax system is appropriate.

A flat rate annual expense framework regards the guideline of correspondence of residents under the watchful eye of the law. The standard is the equivalent for each of the: one rate for all residents. The assessment is set at a rate that doesn’t shift dependent on wage levels, similarly as the property charge rate is uniform for all occupants of a district and doesn’t change as indicated by the estimation of a structure. After considering all this information with regarding to the Unites states federal laws, we can arrive at a conclusion that progressive taxation system is more friendly to all the people in an average who wish to live an easy life with no trouble. Why most of the economists and the government state that this is more of an effective way to collect money from civilians as it’s not like paying a mortgage to the government which is similar to flat tax system.

So, I assure that progressive tax system is fair than that of flat tax system and also when we consider as a country United States of America has a fair taxing system in average.