Category: taxes

Introduction

The increased need for environmental sustainability within the global perspective has made countries to adopt robust strategies. The effects of global warming and high production levels of carbon have particularly drawn a lot of interests. Countries have extensively debated on the growing concern. Evidently, there have been development and ratification of several policies that have influenced the operations of most global firms.

Australia includes one of the countries that have adopted robust measures towards reducing its carbon production levels (Kenrick, 2011). Through this initiative, the operations of most of its firms have been greatly influenced. Observably, this has occurred within the domestic and the international platform.

Carbon tax refers to the governments initiative for minimizing the level of carbon emissions. Basically, this initiative places a permanent price for the quantity of pollution. The federal government is the sole initiator of the carbon tax principle. Although the policy may have positive implications, it is also notable that there are negative effects (Kreiser, Sirisom, Ashiabor & Milne, 2011). Particularly, this might be applicable to the firms.

The focus of this paper is on the examination of the Australias Carbon Tax and its impacts on the strategies of firms within the country. It also examines the impacts of this policy on the firms local as well as global competiveness. In supporting the discussions, corporate examples drawn from particular industries and nations are given.

Impacts of the Implementation of Australias Carbon Tax

It is evident that Australias manufacturing industry will be grossly affected by the carbon tax initiative. Most corporate leaders have projected that from this policy, nine out ten corporations will bear negative effects from the tax policy. Approximately close to one million manufacturing personalities admit that they are facing pressure. This is mainly because of the carbon tax (Siriwardana, Meng & McNeill, 2011).

The additional taxes imparted on the raw materials have had severe financial implications on the operations of these firms. Most firms have to incur huge expenditures in obtaining locally available raw materials. In effect, this has minimized their level of competitiveness within the global scenery.

Because other global firms do not have to face the same taxes chargeable on the locally available raw materials, they have gained a remarkably competitive edge. Therefore, Australian firms are increasingly getting distinct within the global market place. Already, there are suggestions from the Australian Trade and Industry Alliance to have the government employ the persons severely affected by the tax policy (Reid, 2012).

Such initiatives indicate that the policy has made most firms to lose the grip of their human resources. Due to the severe financial impacts of the firms, they cannot maintain the employment of a large pool of employees. Therefore, the government has been the last resort for reliable employment. The governments Jobs and Competitiveness Program has been widely criticized despite its potential benefits (Rourke, 2012).

The program was established to help the industries, especially the manufacturing as well as the alumina production. These industries have been eminently affected by the tax policy. There is also an indication that approximately 40 per cent of the revenue drawn from this tax policy will be ploughed back into the business and other affected industries. This is proposed to support them to adopt cleaner production technologies.

Generally, this tax policy has drawn very mixed reactions from within the industrial community and other allied stakeholders. Indeed, there exist contradictory arguments as well as opinions across the general industry. Finance, housing and some government agencies also depict conflicting tendencies towards the matter.

Australia hosts the globes giant aluminum corporation. Rusal has high employment capacity and holds about 20 per cent of Queensland Alumina Refinery. However, eminent complaints as a result of the carbon tax policy are already observed from the company. The companys management has indicated that intensive projects that have the capacity to offer several job opportunities are already negatively affected by the policy (Fukasaku & OECD, 2012).

In fact, they indicate that these projects already have to be halted due to the impacts of the carbon tax policy. Concurrently, this has impacted negatively n their international business. For instance, the corporation has continually faced a minimized production and supply capacity within the global marketplace. Some of the projected expenses on the carbon tax policy include an approximate of $40 million annually.

Most officials have indicated that this huge expenditure could be constructively used in the expansion of the firm as well as in other future energy initiatives. There are expectations that this policy is bound to make Australia stand out to be more environmentally sustainable. The country is likely to depend minimally on the fossil fuels.

There are other potential industries that are yet to gain from this policy. For instance, the engagement of the Clean Energy Finance Corporation will be critical in funding other industries for clean energy options (Smith, Vromen & Cook, 2012). There are also indications that the policy is yet to open doors for the development of several greener industries and employment opportunities. Some of these will include the renewable energy development, carbon farming as well as other sustainable designs.

There have also been indications that the observance of the tax policy by the companies might hinder their potential for future expansion and investment. This is because of the heavy and intensive financial impacts of the tax policy. The other industries to be grossly affected include the coal as well as the iron ore industry. Notably, Australia remains as the worlds largest exporter of the coal. Coal is meant for the generation of electric power.

Apart from these, there have been approximations that over 500 companies are bound to be affected by the carbon tax policy in Australia. Amongst some of the highlighted corporations and institutions to be grossly affected include the power generators and the mining companies. Others are intensive industry firms. Institutions that were highlighted include Crown Melbourne as well as La Trobe University, all of which produce their personal electricity (Harrison & Sundstrom, 2010).

The high power generators are also grossly affected by the carbon tax policy. These include the notable firms such as the Latrobe Valley giants. Amongst some of these companies that are top in the list include Loy Yang and International Power. TRUenergy is also bound to be affected. Other potential mining firms that are considered to bear negative implications from the policy include BHP and Rio Tinto. It is also important to note the intensive industry firms like the Alcoa.

The effects of the policy on the operations of these companies may either be realized at the local level or within the international market. Ideally, these impacts are both applicable particularly for companies with a global presence. Because the raw materials are bound to be potentially expensive, the production capacity of these companies will significantly reduce. Consequently, their ability to produce and supply huge stocks within the international marketplace also reduces.

This will decrease their competitiveness and lead to massive losses within the international scene. At domestic level, these companies have projected losses associated with high production costs and lack of funds to maintain skilled and unskilled workforce (Watson, 2012). There are also bound to be huge tax implications on the production systems.

The need to redefine and design new production technologies to be compliant with greener technologies will also require additional funding and finances. From these observations, it is clear to note that severe financial implications must be incurred. Of particular interest is the impacts of this tax policy on the performance and relationship of East Timor with the Australian government. Discussion is already underway on issues concerning the carbon tax policy and its impacts on East Timor.

Generally, it can be noticed that East Timor is more likely to be affected to the tune of millions of dollars annually. This is majorly due to the effects of carbon policy on the Joint Petroleum Development Area . This is co-owned by the two nations. Generally, it is evident that carbon tax policy has significant impacts in almost all sectors of the Australian economy (OECD, 2010). There is an observation that the Queensland small as well as medium level businesses are yet to pay very elevated charges due to carbon tax policy.

The small scale businesses are also bound to suffer intensive losses. This is because of the reduced spending realized on the side of the general consumers. The high costs chargeable on basic utilities such as electricity can never be passed by the small domestic enterprises. This explains why they must be severely influenced or affected by the carbon tax policy. There have been indications that levying high tax rates for the sole bread winners of the country in Queensland will have severe long term economic implications for the entire nation.

Top mining firms such as BHP Billiton have indicatively begun to outlay most of their potential employees. Basically, this is observed mainly due to the impacts of the carbon tax policy (Wroe, 2012). The difficulty in transition for most Australian firms during the period of implementation of the carbon tax policy is also observable. This is mainly due to the financial implications that will be involved in the adjustment process.

Most specialists have indicated the likely effects of the carbon policy on the potential miners. Although the policy costs will not terminate the operations within the minor mines managed by a majority of producers, there will be potential effects. For instance, this will make the firms to evaluate the locations in which the projects are to be situated. They have to reconsider their next locations for investment. The raw materials and the mining sector feel the pressure of competition realized from the presence of the dollar.

It is notable that due to this policy, several firms are presently reviewing the long term sustainability and profitability of some particular operations and investments that they have. There are potential indications that the most Australian producers are disadvantaged. This is relative to some of the potential global competitors who have the capacity to dilute the Australian expenses on carbon as a proportion of the international revenues (Jain, 2011).

It is critical to observe that the carbon tax is bound to have severe direct as well as indirect impacts. There have been other arguments that within the long run, the carbon tax policy is more likely to increase the international dominion and profitability of the Australian firms. In this view, most governments have lauded the initiative and are already implementing likewise policies within their countries.

The arguments supportive of this system indicate that the global business is more likely to favor greener technologies in the future (Wroe, 2012). This is majorly due to the increasing need for economic and environmental sustainability. Other industries to be affected by the policy include the building and construction as well as the firms involved in tourism and hospitality. It is projected that this policy will have severe impacts and increase the costs involved real estate investment.

Conclusion

There have been numerous debates regarding the potential impacts of the Australian carbon tax on firms and citizens. The involvement of politics on the issue has particularly led to conflict of interests. It is observable that both long term and short term impacts of the carbon policy must be comprehensively reviewed.

Although most short term impacts might be detrimental, it is vital to note that the long term impacts are largely beneficial to the whole society. This also extends to the international domain due to the significant cut-offs in the quantities of carbon produced into the system.

Environmental sustainability has become an integral part of sustainable economic development. Therefore, the recognition and adoption of greener technologies must be encouraged. There is evidence that these impacts are severe both at the domestic and international level. Therefore, it is appropriate for the affected firms to apply robust measures towards minimization of the impacts and adoption of greener technologies.

References

Fukasaku, K. & OECD (Organisation for Economic Co-operation and Development). (2012). Southeast Asian economic outlook 2011. Paris: OECD Pub.

Harrison, K. & Sundstrom, L. M. (2010). Global commons, domestic decisions: The comparative politics of climate change. Cambridge, MA: MIT Press.

Jain, S. (2011). Enhancing global competitiveness through sustainable environmental stewardship. Cheltenham: Elgar.

Kenrick, V. (2011).Impact of the Carbon Tax on Australian Business and Economy. Web.

Kreiser, L., Sirisom, J., Ashiabor, H. & Milne, J. (2011). Environmental taxation and climate change: Achieving environmental sustainability through fiscal policy. Cheltenham, UK. Northampton, MA: Edward Elgar.

OECD (Organisation for Economic Co-operation and Development). (2010). Taxation, Innovation and the Environment. Paris: OECD.

Reid, T. (2012). CARBON TAX OVERVIEW. Web.

Rourke, A. (2012). Uncertainty hangs over Australia on eve of carbon tax introduction. Web.

Siriwardana, M., Meng, S. & McNeill, J. (2011). The Impact of a Carbon Tax on the Australian Economy: Results from a CGE Model. Web.

Smith, R., Vromen, A. & Cook, I. (2012). Contemporary politics in Australia: Theories, practices and issues. Port Melbourne, Vic: Cambridge University Press.

Watson, P. (2012). Australians Face Huge Fines For Speaking Ill Of New Carbon Tax. Web.

Wroe, D. (2012). Carbon tax hit list below expected 500 companies. Web.

In the recent past, high profile cases due to fraudulent accounting and tax evasion have led to substantial changes in the regulations of corporate governance and accounting (Crocker & Slemrod, 2005). Fraudulent accounting and tax evasion has been established as an avenue through which corporations can increase their profits and as such requires increased regulation (Crocker & Slemrod, 2005).

In this regard the Sarbanes Oxley bill passed in 2002 set up a regulatory board charged with oversight of the accounting industry. Based on new regulations there are harsher penalties for corporations or officers found to have colluded in the evasion of taxes (Crocker & Slemrod, 2005).

The evasion of taxes is a more serious issue in some economies than in others. It is reported that with moderate government regulation the rate of tax evasion is reduced and an increased compliance is observed coupled with greater economic growth (Chen, 2003). However, the enforcement of law in international corporations is difficult given varying legal requirements.

This problem could be overcome through listing of foreign companies in the U.S. stock trading market with a view to deterring officials from engaging in embezzlement and tax evasion (Siegel, 2005). This can be performed through an American Depository Receipt or direct listing on a major American stock exchange. This procedure has been found effective by international companies seeking to force compliance and deter corrupt officials (Siegel, 2005).

In addition to the above practices insider trading is a practice that has drawn concern among regulators and participants in the financial industry. It is not permitted for banks to use private knowledge based on information such as credit default swaps (CDS) to trade. However, reports suggest that many institutions have been doing this to reduce risks to their own balance sheets (Acharya & Johnson, 2007).

Studies have indicated that there is a flow of information from CDS markets to equity markets most often emanating from sources within the financial organizations (Randazzo et al., 2005).Following such actions the committee that developed the Sarbanes Oxley bill made provisions to allow for prosecution of individuals within the organization as well as provisions that could protect whistle blowers (Wallison, 2005).

Brief Historical Context of Sarbanes Oxley Act

The bill passed in 2002 and implemented by the Securities and Exchange Commission (SEC) came into being following the financial scandals that led to the collapse of Enron, WorldCom and several other major companies (Wallison, 2005).

The main component of the act is that it places responsibility on the shoulders individuals and systems to prevent fraud before it happens. The directors, auditors and accountants must comply with more stringent internal controls in an attempt to end unfair trading practices within organizations thus reducing risks to shareholders investment (Wallison, 2005).

The implementation of the act has been useful in addressing some ethical issues that before were not appropriately catered for thus creating loopholes. Following the huge losses that were made in the scandals involving Enron, WorldCom and the like it became apparent that the CEOs should be held directly accountable for their decisions with regards to the organizations finances (Wallison, 2005).

In addition to this the act through such measures also provided an avenue to curb the actions of insiders who perform illegal trade activities without authorization. The improved requirements for information security thus make it much harder for such actions to be undertaken (Pinder, 2006).

The act has also improved the rate of compliance with regard to taxation by the increased requirement on regular audits. This coupled by the fact that the auditors are also expected to satisfy strict requirements ensures that tax compliance and economic growth can be improved (Kirchler & Wahl, 2010).

It has already been established that moderate degree of government involvement is a key ingredient for improved compliance (Crocker & Slemrod, 2005). In addition to this the requirement for organizational ethics programs are a suitable method of ensuring the selection of the right leaders by shareholders as opposed to the most profitable leaders (Wallison, 2005).

Despite the increased monitoring that has been introduced through the bill it is possible to assume that there has been an improvement in auditing standards within the industry.

Unfortunately the implementation of the act has caused auditing costs to increase significantly. As a result it is still difficult to observe whether the act has made trade in the securities markets more profitable (Vakkur, McAfee & Kipperman, 2010). This has led some practitioners to suggest that the stricter rules based regime may not necessarily produce greater results than a principle based regime.

References

Acharya, V. V., & Johnson, T. C. (2007). Insider Trading in Credit Derivatives. Journal of Financial Economics, 84, 110-141.

Chen, B. L (2003). Tax Evasion in a model of Endogenous Growth. Review of Economic Dynamics, 6, 381-403.

Crocker, K. J., & Slemrod, J. (2005). Corporate Tax Evasion with Agency Costs. Journal of Public Economics, 1-29.

Kirchler, E., Wahl, I. (2010). Tax Compliance Inventory TAX-I. Designing an Inventory for Surveys on Tax Compliance. Journal of Economic Psychology, 31, 331-346.

Pinder, P. (2006). Preparing Information Security for Legal and Regulatory Compliance (Sarbanes-Oxley and Basel II). Information Security Technical Report II, 32-38.

Randazzo, M. R., Keeney, M., Kowalski, E., Cappeli, D., & Moore, A. (2005). Insider Threat Study: Illicit Cyber Activity in the Banking and Finance Sector. Technical Report, CMU/SEI-2004-TR-021, 1-37.

Siegel, J. (2005). Can Foreign Firms Bond themselves effectively by Renting U.S. Securities Laws? Journal of Financial Economics, 1-96.

Vakkur, N. V., McAfee, R. P., & Kipperman, F. (2010). The Unintended Effects of the Sarbanes Oxley Act of 2002. Research in Accounting Regulation, 22, 18-28.

Wallison, P. J. (2005). Sarbanes-Oxley and the Ebbers Conviction. American Enterprise Institute for Public Policy Research, 1-8.

Introduction

This is a detailed report on superannuation and tax implications on SMSF (self managed super fund).Superannuation is a project or rather a system that is used in Australia with the aim of securing the old people and their plans in terms of investments. This is where a regular or a repetitive payment is made by somebody towards their retirement.

This happens through periodic reductions of somebodys income made towards the superannuation. In this research, we will look at the certain implications of superannuation and tax on certain actions. The main aim or advantage of superannuation is that when contributions are made from ones income, tax is lower.

This is according to Dale and Ralph (1993) However; there are rules that govern superannuation. Loopholes or disadvantages that will make this program fail might appear or take shape if regulations are not put into place. According to Myra this are the regulations she hopes will be effective so that her husband does not lose her money.

Methods of research

Through a vigorous investigative exercise, enough information was gathered on the various rules that govern superannuation. The sources for this information included library materials and a small use of questionnaires. The questionnaires were used on tax professionals and financial writers who have been in this field over the years. It took a week to conclusively come up with the relevant information.

An in-depth look at superannuation and tax

Preservation age: This is the first basic rule about superannuation fund. It means that one cannot access the fund until they reach a certain age limit. Here, the age limit is 55 years of age. According to research made by CCH Australia (1994), Contributions made towards the superannuation fund are made by people below the age of 55.

According to the Australian rules also, any person born before the first day of July, 1960 has the preservation age set at 55. Those born later have varying preservation ages which depend on other months of birth. We must remember that the main aim of coming up with this program was to secure the future or the retirement life of the contributors. One cannot withdraw unless they have not reached the specified age.

Lump sum withdrawal: Lump sum here means that of a large quantity. If a lump sum withdrawal is made, tax has to be deducted. Again we must remember that the aim of the superannuation program is to secure the entire retirement life, but not one moment. There is also the medical levy issue.

It is enforced on any lump sum withdrawal. A point to note here is that lump sum withdrawals are highly discouraged. Many people will avoid this withdrawal as they will be taxed. An example here is when one has a collective amount of 100000 dollars and decides to withdraw 90000 of that during retirement: it must be subjected to tax again altogether. (Chris 2007)

Employee contributions: An employee is anybody under the financial rules somebody else. An employee is subjected to rules and regulations of his boss. Also to note here is that, for an employee, his or her salary is fixed. According to Charles (1990), an employee may decide to issue an order towards his monthly or annual salary.

The order here is to direct a certain amount of this salary towards superannuation. Usually a contribution of 9% of income is made towards this program. Of course, one may decide to contribute more depending on wishes and current financial obligations. A key, important factor to note concerning this is that these are

Self employed contributions: Stuart can contribute 25000, somebody who is self employed is that who has had varying income amounts. They are their own bosses and control the financial activity of the business. Examples of these people are entrepreneurs and moguls. The rules on superannuation differ because contributions towards the retirement fund differ according to the performance of the business and the different occurring needs.

The deduction is made before the income is taxed. Here, tax is deducted on any contribution of up to 5000 dollars. Three quarters of Any amount above that are taxed, a closer look into this regulation imply that the more the amount contributed above the 5000 mark, would simply mean the less the tax in terms of percentage to the original amount.(Grant 2008)

Any person willing to make a contribution towards the superannuation program after his or her income is taxed is free to do so. In this case, the contributions will be tax free (Anon 1984).

However, Current changes on laws regarding superannuation. As discussed earlier, one who is employed can sacrifice about 9 % of his salary. This is set to be raised to 12 %. It will have a greater pinch to the employees salary. But on the brighter side after many years of cumulative withdrawal, this will be a larger amount.

Those who contribute around 50000 dollars will not have this cut down to 25000 dollars as expected. This figure is set to be retained. This also like the first rule will mean larger amounts will be saved.

Here are some of the recommendations Myra should consider

Benefits of SMSF

After finding the rules and regulations of superannuation, the relevance of the above actions on self managed super fund could be easily traced and be used. This means that superannuation can be used to hatch a good investment during retirement.

Self managed super funds (SMSF); this is a financial term or activity which means that the contributions made towards a superfund are used to come up with a business scheme. According to the latest research (James, et al, 2009) the contributors themselves manage the money.

All of them are above the age limit of 65, and nobody is above the other. The members must not be more than five. All activities of the business are carried by the members. Also, important here, is that all the members take part in the management of the business. Authoritatively, all are equal. Stuart will be in charge of his money. The main benefit of the self managed super fund is that there is a merger of contributions to come up with a bigger capital base for a business opportunity.

Tax free fund is used to run the scheme: this will be cheaper for Stuart to invest. Unlike a normal retail enterprise that uses taxed money to operate the self managed super fund is different meaning that a considerable large amount of money will put up a business. Also, here there is no tax issued on any capital gained when a self managed super fund starts making profits.

We have to remember that the self managed super fund run on money invested by the contributors with the aim of securing their retirement. Stuart can claim 25000 as tax deduction. A maximum of 15 % tax is deducted on the earnings. Tax cannot exceed the given percentage but can in some cases fall to 0%. Myra should not be worried as Stuarts money will not be taxed.

What happens when one transfers shares to a super fund?

One can transfer his or her shares to a superfund to an SMSF to reduce or offset tax. This can be offset by the use of imputations credits. (Taylor, et al 2010) Imputation credits are in a system whereby one buys shares from the company in case he or she has tax to buy. This system reduces the amount of tax to be paid and at the same time increases the business share volume.

Pension: This being the monthly salary for the contributors is tax free. Lisa (2010) clearly explains that, unlike the income from the business which is minimally taxed, the pension is not. Here, we must note that the pension is like a form of monthly withdrawal system of the money that was saved during early years. It is zero taxed.

In some cases, death of a member of a self managed super fund organization may occur. Here, a system to ensure that the benefits passed on to the inheritors are not taxed is put in place

Other benefits of self managed super funds fee over other funds are:

We have to remember that superannuation is managed by the members who are the contributors.

A study by the national library of Australia (1984) showed that, there are no extra or added fees on the SMSF. Other funds have to consider management fee, termination fee, audit fee, account balance fee, administration fee, contribution fee and even withdrawal fee. This entire fee is not included in SMSF.

Also member can have his or her value on the sums passed down to their generations. Just like the essence of a will is to hand down your wealth to the future generation, ones share can also be handed down.

There are also freedoms that are enjoyed by the self managed super fund groups according to Jimmy (2011) these are:

A super managed super fund can be allowed to deposit its funds with any bank. It cannot be limited to any banking institution. Members can choose their banker depending on the most suitable policies towards them or their businesses.

It can also insure its property against unforeseen circumstances with the insurance company of its choice. Again here it cannot be limited to any or special firm due to its nature. The fact that dealing with people of the old age may tend to put the members at a larger risk. This may in turn make one think that this needs a special insurance. The truth is that it does not. (Kumar, 1995)

A self managed super fund is not also limited to a selected service provider, engineer or a planner. According to a report by CCH Australia Limited (1994), it is free to select or appoint its services from whom it requires. The government or any other institution is not allowed to intervene with the activities of the self managed super fund by dictating from whom it may acquire its services.

Members look for their services from the best provider or who they deem fit for operating or carrying out a task. A team of highly experienced tax and finance professionals (1999) found out that, for this to happen, it has to take place via the consent of all the members of the self managed super fund.

Conclusion

A super managed super fund uses the money from superannuation to run its activities. All members are the contributors and are involved in running of the business. Due to the nature of the fund any money allocated to the members as pension is not taxed. The main aim of the super managed super fund is to pull funds together to realize a larger business capital source.

This source is greater in volume than a normal retail as it is untaxed fund or superannuation. Supperannuation rules change only to benefit those involved; Stuart should not be scared of these rules. This means it will put up a larger business. Mendel (2011)

References

CCH Australia Limited, (1994), Australian master tax guide, Volume 1994, CCH Australia Limited.

Charles A S, (1990), Staples Guide to New Zealand Income Tax Practice, Taylor & Francis CCH Australia Limited, Australia.

Chris A, (2007), Howards fourth government: Australian commonwealth administration, UNSW Press.

Dale W. J, Ralph L, (1993), Tax reform and the cost of capital: an international comparison, Brookings Institution Press.

Editor-in-Chief Mendel, CCH Australia Limited, (2011), Australian master financial planning guide, CCH Australia Limited, Australia.

Gerald. E, Whittenberg, Martha Atulus-Buller (2010), Income Tax Fundamentals: Cengage Learning, 2009 Stamford USA.

Grant A, (2008), Self Managed Superannuation Funds Strategy Guide, CCH Australia Limited, Australia.

Iris C, (2010), Tax reform in open economies: international and country perspectives, Edward Elgar Publishing.

James L, Shirley M, Giles H, (2009), Australian master superannuation guide, CCH Australia Limited, Australia.

Jimmy B. FCPA, (2011), Superannuation and Taxation: A Practical Guide to Saving Money on Your Super or SMSF, John Wiley and Sons Press.

Kumar D, (1995), Title Managerial finance in the corporate economy, Routledge, London.

Lisa M, (2010), the Politics of Retirement Savings Taxation: A Trans-Tasman Comparison, CCH Australia, Limited.

National Library of Australia, (1984), APAIS, Australian public affairs information service: a subject index to current literature, National Library Australia.

Salvador V. (1999), the Economics of Pensions: Principles, Policies, and International Experience, Cambridge University Press.

Taylor S, et al, (2010), Financial Planning in Australia 4th edition, LexisNexis Butterworths, Sydney.

Introduction

Carbon tax is a type of tax levied on the amount of carbon emitted during the burning of fuel (hydrocarbon fuel). It an environmental tax that puts a price on the amount of carbon produced in order to reduce the impact it has on the environment. When fuel burns, the carbon in the fuel mixes with air and forms carbon dioxide that is released in the atmosphere as a waste product.

This type of greenhouse gas has the ability to trap heat within the atmosphere and cause climatic changes. Governments have thought it wise to put in place measures to try to reduce the negative effects of carbon by using the carbon tax (Prof and Skou, 2010). Australia also introduced this legislation and it has had both negative and positive effects.

Advantages of carbon tax in Australia

Reduction of the effects of global warming

The levying of tax on the amount of carbon dioxide produced is an important step towards the reduction of the effects of global warming. This is because carbon dioxide is a greenhouse gas that has been determined to cause global warming (Hansen et al., 2000). Carbon dioxide has a blanketing effect on the atmosphere and it traps and reflects heat back to the surface.

This translates to the increase in temperature of the oceans and atmosphere. This can generally cause climatic changes that may be unsuitable. One of the effects is the change in the precipitation patterns. This is due to the changes in sea temperatures. This might also have an effect on the level of the sea as it rises. There is also a possibility of the subtropical deserts expanding.

The Australian government decided to levy tax on the amount of carbon emitted through any process in order to combat climate change (BBC, 2011). This legislation mainly affected the biggest polluters of the environment and these were mostly the producers.

They were forced to pay for each ton of carbon dioxide emitted. However, the huge costs imposed on the producers also translated a substantial cost on the consumers. This is because the producers increased the prices of their commodities in order to subsidize the costs imposed on them.

In the long run, the costs imposed on both the producers and the consumers would work well to reduce the effects of global warming. This is because the producers would try their best to avoid coal as a form of energy and start to use other cleaner fuels that have less harmful effects on the environment.

This would make coal a less competitive fuel type and people would prefer other sources. This would translate into less carbon dioxide emissions and consequently, the protection of the environment from the harmful effects of greenhouse gases.

The consumer, on the other hand, would also help in the realization of the same goal of reducing the effects of global warming by making some changes in their everyday lives. For example, in order to reduce the costs incurred while driving fuel-guzzling vehicles, one might be forced to exchange it for one that is more fuel-efficient.

This would mean that the vehicle would go for more kilometers for the same amount of fuel. In effect, this means that the amount of fuel used is reduced and the total amount of carbon dioxide produced is also reduced. This is important while considering reducing the effects of global warming.

Compensation for low income earners

The low income earners would be able to be compensated due to the Carbon Tax (Lucas, 2012). This is because of the carbon-pricing scheme. Alison said that this is especially important because those individuals who earn a low income are usually the first ones to be affected by climate change. She also said that they are the ones who are worst hit. The pricing scheme would help to tap back the revenues from the tax to favor the low income earners.

In order for the government to ensure this happens, it must first impose carbon tax on producers. The high cost of production then translates to higher pricing of commodities. This means that the consumers need to go deeper in their pockets to pay for the commodities.

The government then returns some of the funds collected from the Carbon Tax to the most deserving consumers. Those deserving consumers are selected using a minimum income threshold. Therefore, they are not affected by the increase in prices.

Disadvantages of the Carbon Tax

Negatively affect the Queensland Tourism Industry

Queenslands tourism industry was worried about the effects that the legislation would have on the tourism industry. The Council Chief executive argued that the legislation would cause an increase in the cost of doing business. This was due to the indirect and direct impacts that the legislation had on energy costs. The cost of traveling would increase since the cost of fuel would increase (Barlow, 2012).

The tourism companies would then be forced to hike their prices in order to meet the costs and make profits. To make things worse, the industry was already struggling to get back to its feet after it had been crippled by natural disasters. However, it was not possible to measure the exact cost or damage figure that was going to be incurred.

Gschwind argued that the Australian tourism and hospitality industry was going to be adversely affected. He also said that it was going to lose its international competitiveness. Since the holidays would be more expensive to spend locally, many travelers would opt to go abroad to spend their holidays elsewhere. This would mean that the revenue would be shifted and it would benefit the economy of other countries.

Increase in cost of living

The Carbon Tax has a rippling effect on the costs of goods and services (Martin, 2012). As the cost of producing commodities goes up, the cost of purchasing them also goes up. This means that individuals would need to pay more for the commodities that they paid less for initially.

The costs of running businesses also go up due to the costs incurred by the businesspersons during transportation and the purchase of raw materials. This might have negative effects on the profitability of businesses. Individuals would also need to pay more in order to use their vehicles. This increases the cost of living especially if one needs to travel to the place of work by car.

The chief executive of the Housing Industry Association (HIA) also proposed an increase in the cost of building a new home and this was due to the Carbon Tax. This was due to the increase in the cost of raw materials that need to be sourced from overseas. Those willing to buy a house would be required to make higher mortgage repayments and those interested in building would need to incur higher building costs.

References

Barlow, G 2012, Carbon confusion, Weekly Times Now, 23 May, p. 3.

Hansen, J., Sato, M., Ruedy, R., Lacis, A & Oinas, V 2000, Global warming in the twenty-first century: An alternative scenario, Proc. Natl. Acad. Sci. U.S.A., vol. 97, no. 18, pp. 9875-9880.

Lucas, C 2012, Carbon rebate should not affect minimum wage, National Times, 22 May, p. 12.

Martin, D 2012, Australia adjusts to its new energy role, Wall Street Journal, 20 May, p. 9.

Prof, A & Skou, M 2010, Europes experience with carbon-energy taxation, Sapiens, vol. 3, no. 2.

Introduction

Across the world, governments tax peoples income in order to generate revenue for economic development of nations. It is imperative to note that income tax revenues constitute the biggest percentage of the revenue generated by the government. For instance, in Canada, the biggest share of government revenue comes from personal income at 75% compared to 25% that come from other forms of taxation.

So far, the progressive tax structure employed by the Canadian government seem effective than flat rate structure that other countries use, at least according to some analysts.

In Canada, the Canadian Revenue Agency has the responsibility of collecting personal, corporate and other income taxes on behalf of the federal government. It has the responsibility of collecting all forms of taxes in all provinces and territories with the exception of Alberta and Quebec (Aronson, Johnson and Lambert 262-270).

Taxation is not a new phenomenon as it is an old practice well known and supported by numerous acts and statues, as part of legislation. In Canada for example, the Income Tax Act empowers the federal government the ability to collect all forms of taxes from incomes. Among the taxes are personal and corporate income taxes. Different counties have different tax regimes.

In Canada, self-assessment regime is common where individual citizens evaluate their tax liability by making tax returns to the Canadian Revenue Agency within the stipulated time. Consequently, the Canadian Revenue Agency will evaluate the tax returns and data in order to ensure that there are no obvious errors.

In case the taxpayer does not agree with the Canadian Revenue Agency in terms of his or her tax assessment, there are proper channels of making an appeal (Gentry and Hubbard 283-287).

Implication

There are two major structures, the progressive tax structure and the flat rate structure. To start with, the progressive rate structure of tax requires individuals with tax ability should not only pay more taxes for their higher income, but also pay a larger percentage of their incomes in tax.

On the other hand, the flat rate structure of tax takes away a same percentage of incomes from everyone who has the duty to pay taxes without considering the gap of different taxpayers. These two structures have their own merits and demerits (Auerbach, Kotliko and Skinner 81-100).

To start with, the progressive tax structure emphasizes on equality rather than the general collection of personal income tax. Under progressive tax structure, the more the personal income, the more tax, hence it brings equality. In addition, progressive tax is also efficient because it can adjust itself to the changes in economy.

In times of inflation, the progressive tax structure is the best as it corresponds to the hard times of inflation, for example, the widespread wage increase. Additionally, the progressive tax structure enables distribution of wealth among all classes of people with an aim of bringing social equality (Clemens and Veldhuis 5-7).

Progressive tax structure versus Flat tax structure

According to many analysts, the progressive tax structure that the federal government of Canada uses is advantageous towards the realization of full economic of the citizenry and the country at large. In fact, they credit it as the best structure of taxation as compared to flat structure.

As Calsamiglia and Kirman notes, there has been a growing concern that personal and corporate taxes discourage economic growth by making many Canadians less interested to work. This is especially evident if a country applies the flat structure.

In addition to this, entrepreneurs always complain of additional incurred costs arising from the flat tax code and the inefficient collection system. Consequently, this has created huge and unmatched incentives owing to the distorted supplementary costs (1142-1154).

Simplicity: In terms of simplicity, Canadians believe that the progressive tax structure is simpler as compared to the flat tax structure. For example, in order to file tax returns, people spend so much money and time to not only file the records, but are also able to maintain them due to the simple tax code.

On the other hand, under the flat tax structure, the Canadian Revenue Agency will spend so much money to enforce tax laws and collect personal income taxesover $30.8 billion annually. Thus, comparing the two structures, in terms of compliance, progressive tax structure is proficient, while in terms of administrative costs, flat tax is proficient.

Efficiency: In terms of efficiency, the progressive tax structure raises the projected revenue, and addresses the economic disruptions arising from taxation. Personal income taxes change incentives that are paramount in the production behavior, meaning, many people would invest or even have money to save. In fact, progressive tax structure may be efficient in terms of establishing equality, but it has disadvantages too.

A good example is that it slows the pace of economic progress of activities. On the other hand, flat tax is an epitome of efficiency, but it fails to address some of the issues arising from taxation such as consumption rather than income. In other words, the Canadian-tax system should stick to the progressive tax structure in order to promote savings and investments.

Flat tax structure mandates the federal government to tax individuals or families on expenditure rather than their incomes. In a way, this will affect government revenue and the general economy. The progressive tax structure minimizes the progressive tax structure rates through rising rates, thus, creating equality in terms of taxation (Calsamiglia and Kirman 1160-1172).

Fairness: As discussed above, although flat tax has some advantages, it fails to address some pertinent issues. For example, in order to bring equity to the current tax system, horizontal and vertical equity are necessary, and this is only possible under the progressive tax structure.

Horizontal Equity: In economics, horizontal equity is a situation whereby all persons or households who get the same amount of income pay equivalent tax deductions. It is true that the current progressive tax structure achieves horizontal equity because people pay tax according to their income. Consider an example where a corporate pays dividends to a Canadian with a shareholder of 21% in a firm.

The progressive tax structure proposes a 19.6% tax rate at provincial level and 14.5% tax rate as federal income tax. It therefore means that progressive tax structure rates vary unlike the flat rate structure where rates are the same even for people with low income. Additionally, unlike the progressive tax structure, flat tax encourages equal pay of tax for every individual without considering the levels of their income (Kaplow 139-143).

Vertical Equity

Under vertical equity, people who generate more income ought to pay corresponding higher taxes. In all provinces that make up Canada, with exception of Alberta, individuals with high personal income pay higher tax rates on their income. As Kaplow notes, in terms of progressivity, the flat tax structure needs more attention, and Canadians do not enjoy progressivity owing to flat marginal income tax rates.

On the other hand, the progressive tax structure brings equality as the more the income, the more the tax; hence, it not only removes the negative aspect of increasing marginal tax rates, but also ensures progressivity.

In other words, a single-flat tax will encourage distinctiveness of individuals or households, but the progressive tax structure encourages investment in entrepreneurial activities at much lower marginal tax-cut rates (147-154).

Government Revenue

Many Canadians prefer the progressive tax structure rather than the flat tax structure. This is simply because they believe that the flat rate structure comes with many risks, which will paralyze the operations of the government. A flat rate structure on personal income means that all people irrespective of their income levels will have to pay similar amount as taxes. In other words, the revenue generated would not be high.

Additionally, the flat rate structure will be a disadvantage to low income earners who would like to save some money and invest it in entrepreneurial activities. It is also important to note that the median income earners and the above pay more than 95% of federal personal income taxes.

Notably, the government will have difficulties to retain the same revenue under the flat rate structure of personal income tax on conditions that other terms remain constant(Hall and Rabushka 465-476).

Another disadvantage of the flat rate structure is that it functions as auto stabilizer. Meaning, the revenues collected by the government will be low in comparison with the progressive tax structure. Largely, under the flat tax structure, the economy of a country is likely to deteriorate or remain the same.

Certainly, the government can respond to the risk by enlarging tax-base, lowering marginal tax rates, and canceling tax exemptions. This is the reason why progressive tax structure is more convenient than the flat tax structure.

It is also imperative to note that in terms of administrative and operational costs, the progressive tax structure is more convenient than the flat tax structure.

The Canadian government has put in place proper infrastructure, and an impeccable administration management system for both personal and corporate income taxation. Consequently, this will not only improve tax collection afterwards, but also increase the gross government revenues (Paulus and Peichl 620-636).

Conclusion

In Russia, a country that introduced 13% flat rate tax in 2001, government revenue did not increase. Instead, flat rate structure made it easier for some people to evade paying personal income taxes. The government of Russia does not collect the same amount of revenue it used to collect under progressive tax structure.

There are also reduced incentives and decreased labor supplies among other things, which are bad to the economy. Looking at the implications of flat tax on vertical equity, government revenue, fairness, generation of incentives, and economic efficiency, one cannot easily choose between flat rate and progressive tax structures.

In terms of efficiency, flat rate is more convenient, but on economic efficiency, government revenue, increase of incentives and effectiveness, the progressive tax structure is effective. Therefore, the progressive tax structure is the best suited for personal income structure.

Works Cited

Auerbach, Alan, Joseph Kotliko and Jeff Skinner. The efficiency gains of dynamic tax reform. International Economic Review 24 (1993): 81-100. Print.

Aronson, Richard, Paul Johnson and Peter Lambert. Redistributive Effect and Unequal Income Tax Treatment. Economic Journal 104.1 (1994): 262-270. Print.

Calsamiglia, Xavier, and Alan Kirman. A Unique Informationally Efficient and Decentralized Mechanism with Fair Outcomes. Econometrica 61.5 (1993): 1147-1172. Print.

Clemens, Jason, and Niels Veldhuis. Growing Small Businesses in Canada: Removing the Tax Barrier, Ontario: The Fraser Institute, 2005. Print.

Gentry, William, and Glenn Hubbard. Tax Policy and Entrepreneurial Entry. American Economic Review 90.2 (2000): 283287. Print.

Hall, Robert, and Alvin Rabushka. The Route to a Progressive Flat Tax. Cato Journal 5 (1985): 465-476. Print.

Kaplow, Louis. Horizontal Equity: Measures in Search of a Principle. National Tax Journal 42 (1989): 139-154. Print.

Paulus, Alari, and Andreas Peichl. Effects of Flat Tax Reforms in Western Europe. Journal of Policy Modeling 31.5 (2008): 620-636. Print.

Introduction

The increased need for environmental sustainability within the global perspective has made countries to adopt robust strategies. The effects of global warming and high production levels of carbon have particularly drawn a lot of interests. Countries have extensively debated on the growing concern. Evidently, there have been development and ratification of several policies that have influenced the operations of most global firms.

Australia includes one of the countries that have adopted robust measures towards reducing its carbon production levels (Kenrick, 2011). Through this initiative, the operations of most of its firms have been greatly influenced. Observably, this has occurred within the domestic and the international platform.

Carbon tax refers to the governments initiative for minimizing the level of carbon emissions. Basically, this initiative places a permanent price for the quantity of pollution. The federal government is the sole initiator of the carbon tax principle. Although the policy may have positive implications, it is also notable that there are negative effects (Kreiser, Sirisom, Ashiabor & Milne, 2011). Particularly, this might be applicable to the firms.

The focus of this paper is on the examination of the Australias Carbon Tax and its impacts on the strategies of firms within the country. It also examines the impacts of this policy on the firms local as well as global competiveness. In supporting the discussions, corporate examples drawn from particular industries and nations are given.

Impacts of the Implementation of Australias Carbon Tax

It is evident that Australias manufacturing industry will be grossly affected by the carbon tax initiative. Most corporate leaders have projected that from this policy, nine out ten corporations will bear negative effects from the tax policy. Approximately close to one million manufacturing personalities admit that they are facing pressure. This is mainly because of the carbon tax (Siriwardana, Meng & McNeill, 2011).

The additional taxes imparted on the raw materials have had severe financial implications on the operations of these firms. Most firms have to incur huge expenditures in obtaining locally available raw materials. In effect, this has minimized their level of competitiveness within the global scenery.

Because other global firms do not have to face the same taxes chargeable on the locally available raw materials, they have gained a remarkably competitive edge. Therefore, Australian firms are increasingly getting distinct within the global market place. Already, there are suggestions from the Australian Trade and Industry Alliance to have the government employ the persons severely affected by the tax policy (Reid, 2012).

Such initiatives indicate that the policy has made most firms to lose the grip of their human resources. Due to the severe financial impacts of the firms, they cannot maintain the employment of a large pool of employees. Therefore, the government has been the last resort for reliable employment. The governments Jobs and Competitiveness Program has been widely criticized despite its potential benefits (Rourke, 2012).

The program was established to help the industries, especially the manufacturing as well as the alumina production. These industries have been eminently affected by the tax policy. There is also an indication that approximately 40 per cent of the revenue drawn from this tax policy will be ploughed back into the business and other affected industries. This is proposed to support them to adopt cleaner production technologies.

Generally, this tax policy has drawn very mixed reactions from within the industrial community and other allied stakeholders. Indeed, there exist contradictory arguments as well as opinions across the general industry. Finance, housing and some government agencies also depict conflicting tendencies towards the matter.

Australia hosts the globes giant aluminum corporation. Rusal has high employment capacity and holds about 20 per cent of Queensland Alumina Refinery. However, eminent complaints as a result of the carbon tax policy are already observed from the company. The companys management has indicated that intensive projects that have the capacity to offer several job opportunities are already negatively affected by the policy (Fukasaku & OECD, 2012).

In fact, they indicate that these projects already have to be halted due to the impacts of the carbon tax policy. Concurrently, this has impacted negatively n their international business. For instance, the corporation has continually faced a minimized production and supply capacity within the global marketplace. Some of the projected expenses on the carbon tax policy include an approximate of $40 million annually.

Most officials have indicated that this huge expenditure could be constructively used in the expansion of the firm as well as in other future energy initiatives. There are expectations that this policy is bound to make Australia stand out to be more environmentally sustainable. The country is likely to depend minimally on the fossil fuels.

There are other potential industries that are yet to gain from this policy. For instance, the engagement of the Clean Energy Finance Corporation will be critical in funding other industries for clean energy options (Smith, Vromen & Cook, 2012). There are also indications that the policy is yet to open doors for the development of several greener industries and employment opportunities. Some of these will include the renewable energy development, carbon farming as well as other sustainable designs.

There have also been indications that the observance of the tax policy by the companies might hinder their potential for future expansion and investment. This is because of the heavy and intensive financial impacts of the tax policy. The other industries to be grossly affected include the coal as well as the iron ore industry. Notably, Australia remains as the worlds largest exporter of the coal. Coal is meant for the generation of electric power.

Apart from these, there have been approximations that over 500 companies are bound to be affected by the carbon tax policy in Australia. Amongst some of the highlighted corporations and institutions to be grossly affected include the power generators and the mining companies. Others are intensive industry firms. Institutions that were highlighted include Crown Melbourne as well as La Trobe University, all of which produce their personal electricity (Harrison & Sundstrom, 2010).

The high power generators are also grossly affected by the carbon tax policy. These include the notable firms such as the Latrobe Valley giants. Amongst some of these companies that are top in the list include Loy Yang and International Power. TRUenergy is also bound to be affected. Other potential mining firms that are considered to bear negative implications from the policy include BHP and Rio Tinto. It is also important to note the intensive industry firms like the Alcoa.

The effects of the policy on the operations of these companies may either be realized at the local level or within the international market. Ideally, these impacts are both applicable particularly for companies with a global presence. Because the raw materials are bound to be potentially expensive, the production capacity of these companies will significantly reduce. Consequently, their ability to produce and supply huge stocks within the international marketplace also reduces.

This will decrease their competitiveness and lead to massive losses within the international scene. At domestic level, these companies have projected losses associated with high production costs and lack of funds to maintain skilled and unskilled workforce (Watson, 2012). There are also bound to be huge tax implications on the production systems.

The need to redefine and design new production technologies to be compliant with greener technologies will also require additional funding and finances. From these observations, it is clear to note that severe financial implications must be incurred. Of particular interest is the impacts of this tax policy on the performance and relationship of East Timor with the Australian government. Discussion is already underway on issues concerning the carbon tax policy and its impacts on East Timor.

Generally, it can be noticed that East Timor is more likely to be affected to the tune of millions of dollars annually. This is majorly due to the effects of carbon policy on the Joint Petroleum Development Area . This is co-owned by the two nations. Generally, it is evident that carbon tax policy has significant impacts in almost all sectors of the Australian economy (OECD, 2010). There is an observation that the Queensland small as well as medium level businesses are yet to pay very elevated charges due to carbon tax policy.

The small scale businesses are also bound to suffer intensive losses. This is because of the reduced spending realized on the side of the general consumers. The high costs chargeable on basic utilities such as electricity can never be passed by the small domestic enterprises. This explains why they must be severely influenced or affected by the carbon tax policy. There have been indications that levying high tax rates for the sole bread winners of the country in Queensland will have severe long term economic implications for the entire nation.

Top mining firms such as BHP Billiton have indicatively begun to outlay most of their potential employees. Basically, this is observed mainly due to the impacts of the carbon tax policy (Wroe, 2012). The difficulty in transition for most Australian firms during the period of implementation of the carbon tax policy is also observable. This is mainly due to the financial implications that will be involved in the adjustment process.

Most specialists have indicated the likely effects of the carbon policy on the potential miners. Although the policy costs will not terminate the operations within the minor mines managed by a majority of producers, there will be potential effects. For instance, this will make the firms to evaluate the locations in which the projects are to be situated. They have to reconsider their next locations for investment. The raw materials and the mining sector feel the pressure of competition realized from the presence of the dollar.

It is notable that due to this policy, several firms are presently reviewing the long term sustainability and profitability of some particular operations and investments that they have. There are potential indications that the most Australian producers are disadvantaged. This is relative to some of the potential global competitors who have the capacity to dilute the Australian expenses on carbon as a proportion of the international revenues (Jain, 2011).

It is critical to observe that the carbon tax is bound to have severe direct as well as indirect impacts. There have been other arguments that within the long run, the carbon tax policy is more likely to increase the international dominion and profitability of the Australian firms. In this view, most governments have lauded the initiative and are already implementing likewise policies within their countries.

The arguments supportive of this system indicate that the global business is more likely to favor greener technologies in the future (Wroe, 2012). This is majorly due to the increasing need for economic and environmental sustainability. Other industries to be affected by the policy include the building and construction as well as the firms involved in tourism and hospitality. It is projected that this policy will have severe impacts and increase the costs involved real estate investment.

Conclusion

There have been numerous debates regarding the potential impacts of the Australian carbon tax on firms and citizens. The involvement of politics on the issue has particularly led to conflict of interests. It is observable that both long term and short term impacts of the carbon policy must be comprehensively reviewed.

Although most short term impacts might be detrimental, it is vital to note that the long term impacts are largely beneficial to the whole society. This also extends to the international domain due to the significant cut-offs in the quantities of carbon produced into the system.

Environmental sustainability has become an integral part of sustainable economic development. Therefore, the recognition and adoption of greener technologies must be encouraged. There is evidence that these impacts are severe both at the domestic and international level. Therefore, it is appropriate for the affected firms to apply robust measures towards minimization of the impacts and adoption of greener technologies.

References

Fukasaku, K. & OECD (Organisation for Economic Co-operation and Development). (2012). Southeast Asian economic outlook 2011. Paris: OECD Pub.

Harrison, K. & Sundstrom, L. M. (2010). Global commons, domestic decisions: The comparative politics of climate change. Cambridge, MA: MIT Press.

Jain, S. (2011). Enhancing global competitiveness through sustainable environmental stewardship. Cheltenham: Elgar.

Kenrick, V. (2011).Impact of the Carbon Tax on Australian Business and Economy. Web.

Kreiser, L., Sirisom, J., Ashiabor, H. & Milne, J. (2011). Environmental taxation and climate change: Achieving environmental sustainability through fiscal policy. Cheltenham, UK. Northampton, MA: Edward Elgar.

OECD (Organisation for Economic Co-operation and Development). (2010). Taxation, Innovation and the Environment. Paris: OECD.

Reid, T. (2012). CARBON TAX OVERVIEW. Web.

Rourke, A. (2012). Uncertainty hangs over Australia on eve of carbon tax introduction. Web.

Siriwardana, M., Meng, S. & McNeill, J. (2011). The Impact of a Carbon Tax on the Australian Economy: Results from a CGE Model. Web.

Smith, R., Vromen, A. & Cook, I. (2012). Contemporary politics in Australia: Theories, practices and issues. Port Melbourne, Vic: Cambridge University Press.

Watson, P. (2012). Australians Face Huge Fines For Speaking Ill Of New Carbon Tax. Web.

Wroe, D. (2012). Carbon tax hit list below expected 500 companies. Web.

Evidence shows that low-income countries collect significantly fewer taxes on their Gross Domestic Product (GDP) than high-income countries. In their article Why Do Develop Countries Tax So Little?, Besley and Persson try to find the reason for the matter by introducing a baseline model that aims at explaining the forces that influence taxation decisions and capabilities. The present paper offers a response to the article by discussing the major strengths and weaknesses of the arguments provided in the article and describing the implications of the findings.

The central question discussed in the reviewed article can be found in its title. The authors provide a systematic analysis of economic, political, social, and cultural behaviors to answer the question of why the taxation level in developing countries is low in comparison with developed economies. The authors argue that the central economic reasons for the matter are the ubiquity of informal and small-scale firms, international aid and resource dependence, and failure to modify the tax system by governments (Besley and Persson 109-112).

At the same time, weak institutions, fragmented polities, absence of transparency, weak sense of national identity, and a poor norm for compliance also determine the poor tax collection culture (Besley and Persson 113-117). The researchers justify their position using analytical reasoning, statistical analysis, and the opinions of experts.

The central strength of the argument is the holistic approach to the discussed question. The authors acknowledge that countries economies are influenced not by economic factors, but also by political and socio-cultural aspects. The provided baseline model considers the major characteristics of developing countries and draws direct and indirect links between the maturity of systems and taxation level. The evidence behind the claims is substantial, which implies that the strength of the argument and reliability of findings are high. Moreover, the model is applicable not only to developing countries; instead, it can be used to explain the reasons behind taxation patterns of all nations.

Despite having some distinct strengths, there are some weaknesses of the argument that should be acknowledged. As all baseline models, the findings cannot be applied directly to many real-world situations. In other words, while the tendencies described in the article are accurate on average, the financial performances of countries may differ considerably. For instance, the residuals in the linear regression model of the share of income taxes in revenue against the size of the formal economy are dispersed considerably, which implies a high margin of error. Therefore, economists can use the model only as a starting point for policymaking. In other words, before translating the model to practice, additional research should be conducted using the insights provided by Besley and Persson in the article.

When applying the baseline model, a policymaker should want to gain specific knowledge about the country of interest. The research should be based on up-to-date data to discover if the factors discussed by Besley and Persson have the same influence on the countrys economy and taxation patterns. The knowledge gained from the article can be used for creating hypotheses and borrowing methods for testing these hypotheses. After additional research is conducted, I would use the findings to determine the strengths and weaknesses of a reviewed economy and identify the most efficient places for interventions. These interventions would aim at increasing the amount of taxes collected in relation to GDP by addressing the problems in political, economic, cultural, and social spheres.

Works Cited

Besley, T. and Torsten Persson. Why Do Developing Countries Tax So Little? Journal of Economic Perspectives, vol. 28, no. 4, 2014, pp. 99-120.

Introduction

The tax of the $11,000 fees paid to the attorney by Sarah is a fixed amount hence no deductions will be made on the value.

This memo identifies the judgmental considerations and relevant section of the law that explains how the decision was made.

Relevant facts

In this case Sarah, the petitioner, clearly understands the market value of the property she acquired. The property, a parcel of land, is the property inherited from her mother meaning that the acquisition and ownership of the property are not meant for the sole purpose of sale. Receiving the parcel in 2009 and inquiring about the market value of the property does not rule out the prospects of a future sale.

The intentions of increasing the number of residences per acre after defining the reason as to why the price low indicated future sale. Consequently, after the Texas County Board of Supervisors began deliberating on the enactment of the zoning law, she suspended the case appeal and after the ruling, the new value of the property was raised at $25,000 from $15,750. She incurred attorney fees of $11,000. The paradox involves the determination of the status of these charges as either deductible or not.

Issues identified

The cost incurred in this case charges for the services offered by the attorney. She did not incur them in reproducing the property. In addition, she is an economist meaning she is aware of the market-value price of land, hence she will do everything possible to get the best value of the property. Should the cost incurred by Sarah as attorneys fees are deducted?

Conclusion

The amount of $11,000 is not deductible and is capitalized. This is according to IRS 263A-1T which states that in case there are costs incurred in a new building or for activities aimed at improving the quality or increasing the value of a building, there will be no deduction allowed. The amount is the attorneys fee and is not for tangible improvements to the land according to IRS 263A (g) 1 which includes the actions of building, constructing, installing, manufacturing, developing, or improving as the only means by which the amount can be deducted. It is therefore concluded that the amount should not be taxed.

An example of the regulation governing capital expenditure provided by the department of the treasury is IRS 1.263A-2T. Capital expenditure under this section has been defined as the cost incurred when acquiring or creating interest in land which includes minerals and timber rights among others. This supports that the fee paid by Sarah to the attorney should be capitalized.

Authorities and reasoning

This case is supported by the ruling of Lee D. and Marjorie L. Hustead v. Commissioner, U.S. Tax Court, CCH. 50,022(M), T.C. Memo. 50,022(M), 68 T.C.M. 342, T.C. Memo, 1994-374, (1994) case. This case was decided on the following section 263A on the general rule. Also, It is of course well established that rezoning expenses are not deductible when made, since they represent a capital outlay, as ruled by Chevy Chase Land Co. v. Commissioner, 72 T.C. 481, 487 (1979); see also Galt v. Commissioner, 19 T.C. 892, 910 (1953).

Introduction

The article titled Chicagos Soda Tax is Repealed, published by The Economist on October 13th, 2017, celebrates the repeal of the infamous soda tax, which received large amounts of criticism from both the soft drink lobby and the regular customers, who were upset with how their soft drinks suddenly went up in price. The price increases were quite significant, ranging from 10% to 50%, depending on the amount of added sugary sweeteners (Terruso 2017).

This caused a panic among the populace of Illinois, some of the more industrious citizens driving to other states in order to stock up on soft drinks. While the article seems to lend support to the bold claim that the tax was a beverage taxes are really a money grab that has nothing to do with public health, the issues regarding the tax run deeper than being an attempt to clog an 1.8 billion hole in the budget (Chicagos Soda Tax 2017).

Analysis

The main issue with sugary drinks is closely related to Americas ongoing obesity problem. The author cites this and even shows some statistics to back up the claim, but never lends any narrative credibility to the healthcare statement. On the other hand, the preference for the narrative of the soft drink lobby. The title itself describes the authors position perfectly  the second line under the article says the repeal is A big victory for makers of sweet drinks, but does not mention that it is a loss for the pro-health care lobby (Chicagos Soda Tax 2017).

The sad truth is that sugary drinks are directly responsible for the obesity problem currently plaguing the USA. While the authors mention that sugary drinks provide empty calories and that 20 to 23% of all Americas children are obese, it is not the whole story (Chicagos Soda Tax 2017). Various researchers have been alarmed with increasing rates of obesity ever since the beginning of the 21st century, and all of them point out towards sugary drinks as a prominent factor. Actual obesity numbers for US adults are even higher  30 to 32% (Caprio 2013).

In many cases, the foundation for long-term weight problems was laid out during youth and adolescence. Caprio (2013) states that the calories in soft drinks are dangerous because the body does not register them as food. A person who consumes hundreds of calories via sugary drinks does not feel sated, which is an effective path to overeating. In addition, caffeine and sugar, which are present in many soft drinks, actually cause dehydration instead of quenching thirst, contrary to popular advertisements (Caprio 2013).

Lastly, the author fails to mention that the so-called soda drink tax is not an American invention. Similar laws have been passed in many countries, such as the UK, France, Denmark, Norway, Ireland, Hungary, and others (Forster 2017). According to a meta-analysis performed by Escobar et al. (2013), taxation of sugary drinks leads to a decrease in demand for them as well as to a decrease in the prevalence of overweightness and obesity.

The article correctly pinpoints the weaknesses of the tax in its current form. One of the major complaints is considering fruit juices, which also contain added sugar (Chicagos Soda Tax 2017). Other concerns revolving around the Soda tax are related to the economic prosperity and needs of the customers. As the population of Illinois demonstrated, they do not need the government to tell them what is healthy and what is not, defending their freedom of choice, even if the said choice is poor from a healthcare perspective. Soft drink producers, on the other hand, are unhappy with profits decline from the artificial price increase. Such an intervention is against the laws of the free market.

Conclusions

On the one hand, there is a clear health benefit to the tax, even in its current and imperfect form. On the other hand, however, is the profitability of large corporate entities and the freedom of choice of many American citizens. According to the National Diabetes Statistics Report (2017), more than 29 million Americans have diabetes, which is often associated with and caused by obesity and overweightness. At the same time, statistics show that the primary consumers of sugary drinks come from impoverished backgrounds.

In other words, these people lead an unhealthy way of life and then demand the government to pay for their healthcare. In my opinion, if the government provides for these peoples insurance, covering more than 50% of its initial costs, then it has a say in what kind of lifestyle they get to live.

Bibliography

Caprio, Sonia. 2012. Calories from Soft Drinks  Do They Matter? New England Journal of Medicine 367: 1462-1463.

Chicagos Soda Tax is Repealed. 2017. The Economist. Web.

Escobar, Maria Cabrera, Lennert Veerman, Stephen Tollman, Melanie Bertram, and Karen Hofman. 2013. Evidence that a Tax on Sugar Sweetened Beverages Reduces the Obesity Rate: a Meta-Analysis. BMC Public Health 13: 1072.

Forster, Katie. 2017. Budget 2017: New Sugar Tax Confirmed by Philip Hammond in Fight to Combat Rising Obesity. Independent. Web.

National Diabetes Statistics Report, 2017. 2017. CDC. Web.

Terruso, Julia. 2017. Philly Finds New Tax not so Sweet. The Inquirer. Web.

Introduction

Due to globalization which is characterized by advanced technology especially in transportation, coupled with the desire to learn from other countries, it has been realized that the rate of students seeking education in foreign counties has increased.

However, changes and development of internet contributed to the fact that learners are able to obtain desired education certificates by studying in their motherland (Dwyer, 2009). This does not mean that there are no international students. It is worth mentioning that Universities and collages have relied heavily on international students for income as well as resources.

Although there have been serious issues facing international students such as cultural differences and communication or language barriers, there is no such burning question as whether or not these students should pay taxes. There are those that should be exempted from paying taxes regardless of whether these students work or not; on the other hand, there are those who believe that they opt to pay taxes since they enjoy the services and goods of the host countries (Vance & Ahlstedt, 1996).

The title of persuasive essay is international students should be exempted from paying taxes, unless they are working in the host country. According to Dwyer, 2009, international students refer to those individuals who are seeking education in other countries and they will stay in that country for the period they will be studying.

I believe relieving foreign students from paying taxes will go long way in ensuring that they are not further troubled since they have a whole host of issues to handle such as language barrier and cultural differences. The paper is divided into the following sections, introduction where the thesis statement is brought forth, the main body where the supporting arguments for my case are succinctly covered and lastly the conclusion section where the summary of main points are brought forth. The thesis statement is then re-stated.

Supporting arguments

I believe that exempting those international students who are not working will go an extra mile in ensuring that Universities and collages open doors for more international students.

This is a good concept since it allows to share and learn about other cultures which will help in ensuring that the worlds populations partially or fully understand the various cultures hence they are able to do business successfully in various destinations (Rajapaksa & Dundes, 2003).

Assuming that international students are taxed, there will be higher chances that new and prospecting students will be discouraged from seeking studies overseas. In addition to hindering cross-cultural learning and knowledge sharing, this will compromise the advantages Universities and collages enjoyed such as financial gains (Goodman, 2006).

On the same note, this act will deny majority of international students the opportunity of enjoying the services and high quality education that could not be obtained from their home countries. This will have a serious long-term impact not only on individuals but also on the entire country of students origin.

Additionally, when such students are not allowed to learn in foreign countries, they will develop hard feelings about the potential host country. This kind of hostility combined with other causes of perceived injustices will make such individuals a security threat in terms of terrorism. If the host countries try to invest in the countries by sending students to study overseas, it will be fully supported in all spheres (legally, politically and economically) and it will enjoy doing business in that country (Ault & Martell, 2007).

Secondly, I hold the view that exempting international students from paying taxes especially those who are not working will ensure that they are relieved from the hustle involved in dealing with tax issues; this will provide them with an ample opportunity to fully concentrate on academics (Vance & Ahlstedt, 1996).

Additionally, having in mind that the majority of international students face serious challenges such as language barrier, cultural differences, changes in climate among others, it would be a plus if the host country has an arrangement where these kind of students are exempted from paying taxes (Goodman, 2006). It will reduce the number of issues they have to worry about, hence, giving them an opportunity to adapt to the new environment quickly and with ease.

Thus the students will be in a better position to concentrate and do well in class. In my thesis statement, I said that there is need to tax those international students who are working. This will discourage international students from seeking job opportunities instead of learning. Additionally, it will encourage students to go back to their countries once they complete their education.

This will ensure that the host countries are not too congested which will put less pressure on existing resources and at the same time allow new students to seek education in foreign countries to get the opportunity (Rajapaksa & Dundes, 2003).

I do believe it is the responsibility of richer countries to encourage individuals from developing countries to seek studies and support them. This in the long run will help balance the existing inequality between developed and developing countries. To accomplish this, foreign students should not be taxed.

Another reason to support my thesis statement rests on the idea that if international students are compelled to pay taxes, they will indulge in illegal activities to raise money for the same personal upkeep and entertainment.

In the United States, for instance, those who have engaged in drug trafficking are students who do so with the aim of raising more money to meet their daily need since little money they receive is taxed (Rajapaksa & Dundes, 2003).

To avoid such a scenario, it would be rational to exempt international students from paying taxes. On the same note, being compelled to pay taxes will add frustration to international students. This will drive them to engage in drug abuse such as alcohol, bhang, heroine and cocaine in the pretense that it will help relieve stress.

More importantly, since some of the international students are from third world countries who are sponsored by the government, family members or organizations, it would be unreasonable to tax them, bearing in mind that going overseas is costly.

There are cases where the government of the host country and the one sending students have reached an agreement not to tax the students. Not taxing them will uphold such an agreement leading to a mutual understanding between the two countries (Ault & Martell, 2007).

Conclusion

International students should not pay taxes. I believe that having an arrangement where those who work in the host country should pay taxes while those not working should be exempted; it will be important in encouraging students. International students are those individuals who seek higher education in a foreign country stay there as long as the study continues.

Exempting international students from paying taxes will help encourage more prospecting students to get the same opportunity. At the same time, it will encourage cross-cultural learning, knowledge sharing and ensuring that Universities and collages continue gaining financial benefits associated with the program. I have also argued that exempting international students especially those who are not working will help in ensuring that the students are relieved from the burden of worrying about tax issues.

This will further provide them with an ample opportunity to concentrate on their studies and even complete the program within the stipulated time. Additionally, the exemption will ensure that international students do not get engaged in heinous activities such as drug trafficking and drug abuse. More importantly, when international students are exempted from paying taxes, the relationship created among such students of different origin improves due to mutual respect.

This in the long run will provide a favorable environment for Foreign Direct Investments. However, I think taxing international student who are working will help fight the problem of brainwashing which is rampant in the developing countries as well as easing pressure on the available resources in the host countries.

References

Ault, D. & Martell, K. (2007). The Role of International Exchange Programs to Promote Diversity on College Campuses: A Case Study, Journal of Teaching in International Business 18(2):153-77.

Dwyer, J. (2009). Communication in Business: Strategy and skills. Prentice Hall: New York.

Goodman, A. (2006). Why they Come: Connection, The Journal of the New England Board of Higher Education, 21(2): 15-6.

Rajapaksa, S. & Dundes, L. (2003). Its a Long Way Home: International Student Adjustment to Living in the United States, Journal of College Student Retention, 4 (1): 15-28.

Vance, D. & Ahlstedt, D. (1996). U.S. Federal Income Tax Guide for International Students and Scholars, NAFSA Association of International Educators.