Category: taxes

Introduction

Many proposals have been put forward in the United States to reform the corporate tax system into a better and adaptable system as the current system hinders the American companies’ competitiveness. These proposals are aimed at reducing the country corporate income tax rate, which is very high as compared to those of other countries. Some of these include Dave Camps (R_MI) proposal of reducing the corporate tax rate to 25 percent, Sen Rob (R-OH) proposal to overhaul corporate tax, president’s commission of lowering the corporate tax rate to 28 percent and Sen Ron and Dans proposal to lower the corporate tax rate to 24%.

Attractive proposal for U.S. corporate taxpayers

Dave Camps the chairperson of the House ways and means committee proposal of lowering the corporate tax rate from 39.2 % to 25 % is the most appropriate to the U.S. corporate taxpayers (Ernst & Young 2011). His proposal is aimed at exempting foreign income obtained from controlled corporations and minimizes shifting investment income abroad. His proposal would retain a few elements of the present international system like the anti-deferral rules with some modification of making them attractive to the US corporate taxpayers. This proposal is not only going to attract investors but also enables the US multinational companies to increase their competitiveness in the global economy (Anderson, K. E., Pope, T. R., & Kramer, J. L. 2013). Camp proposes that this will be achieved through, developing a new group of subpart F ‘’foreign base company excess intangible income’’ developing another group “low tax cross border income and finally group three for the foreign intangible tax income. All these will minimize the foreign income exempted.

Impact to corporations and the US economy

Repatriation of the foreign profits will have a great impact on both the US economy and the corporations; first, reduction of unemployment. There will be a favorable business environment encouraging investments. There are high chances of an increase in research and developments in the country mainly because many companies will operate in the United States and will hire skilled and unskilled personnel from the country.

The repatriation process will also increase the total US income; since many companies will relocate, back home and their tax revenues will benefit the country. Also, it will encourage companies to repatriate most of the foreign income that could have been invested overseas, this results to increase revenue income in the short term. This income can be spent in the country development programs and hence boost the country development goals.

Repatriation also increases the amount of share revenues earned by the shareholders; this income will be spent in the United States and thus will result in shareholders satisfaction and the country benefits from money circulation.

Corporate taxes I would propose to be eliminated

I would eliminate the corporate income tax and increase the capital gains tax rate. This will make the US tax system fairer, simple and rational. Eliminating the corporate income tax, avoidance and evasion will reduce. The elimination of the corporate income tax will also encourage the repatriation of income to overseas holding which done to avoid the high taxations. This is harmful in that it hinders growth by affecting the wage level negatively since an increase in the corporate rate will result to increase in the corporate tax resulting in companies devoting resources to avoid or minimize it and thus increasing the cost of its collection. Thus, it will not reduce the amount of income received by the United States as argued in some studies, instead, it will attract many investors and they are very many positive impacts associated with this investment.

The elimination of corporate income tax will cause divided income will also cease because cooperate tax is charged together with dividend tax and this will make the US most favorable country for both local and foreign investors. This is mainly because most companies will be able to maximize their profits and increase the shareholder’s returns. I would also eliminate the double taxation policy as it hinders many investors from investing in a country. This will guarantee high investor attraction and the growth of the country development. Double taxation hurts foreign companies since they have to pay tax at the home and the foreign country, this reduces the shareholder’s fund, and to avoid these most companies tend to invest in countries where double taxation does no longer exists to maximize their profits.

Consumption tax should also be abolished as it is costly to collect and the income obtained from it is insignificant. The elimination of this tax will result in increased economic growth. Though it does not have a direct impact on companies its elimination will make investing cheaper to the companies and this will be profitable to the economy.

Positive and negative impacts of the proposed elimination of tax

The positive impact of eliminating the corporate income tax includes the huge income that will result from investor attraction and the income repatriation. Also, there will be job creation as many companies invest in the country. The wage level will also increase since there will be no more increase in wages as a result of an increase in the rate of corporate – income tax ( Toder, Eric & Joseph Rosenberg 2010). The abolition of double taxation will promote the competitiveness of the home companies as they will not have to pay tax twice, also it will make the US an attractive foreign investment.

President’s Advisory Panel on Federal Tax Reform, (2005) stated that the elimination of the above costs would also result in long-term US economic growth, increase the US companies’ competitiveness in the market, lead to better living standards, increase entrepreneurship /productivity and encourage foreign direct investment.

Alternative tax method for corporations

The following is an alternative proposal to the current corporate tax in the US together with the benefits that will result if it is applied.

I will reduce the corporate tax rate to 23 %. This will make the US companies competitive as the rate is not too high nor low as compared to the rest of the countries this will also minimize the number of companies that prefer investing in foreign countries and increase the country’s employment/ wage level. I will also abolish the double taxation tax as it hinders companies from investing due to double taxation.

Apply a 90% deduction on foreign dividend income received from Controlled Foreign Companies. This will minimize the total divided tax and help the states be competitive globally.

I would also subject 10 percent of the divided received to taxation. In addition to these, I would treat the United States company foreign branches as controlled foreign corporations.

These would encourage most companies to invest at home especially the reduction of the corporate income tax rate; it would also have a positive impact on the research and development.

References

Anderson, K. E., Pope, T. R., & Kramer, J. L. (2013). Prentice hall’s federal taxation 2013 corporations, partnerships, estates, and trusts: Strayer Custom Edition. Prentice Hall – Pearson.

Ernst & Young. (2011). Chairman Camp’s territorial tax plan: five things businesses should know. New York: Mc Graw Hill.

President’s Advisory Panel on Federal Tax Reform,. (2005). Simple, Fair, and Pro-Growth: Proposalsto Fix America’s Tax System. Washington, D.C: Urban-Brookings Tax Policy Center.

Toder, Eric & Joseph R. (2010). Effects of Imposing a Value-Added Tax to Replace Payroll Taxes or Corporate Taxes. Washington, D.C.: Urban-Brookings Tax Policy Center.

Introduction

The topic of Estate tax has been a major area of concern in the recent past. It has sparked a lot of arguments across the United States. With the ratification of the ‘American Tax Relief Act of 2012’, the laws relating to Estate tax have been made simpler. The estate tax is levied on handover of the ‘taxable estate’ of a deceased person irrespective of the method of transfer. The tax is applied to every citizen and resident of the United States of America. This paper seeks to discuss various aspects of the estate tax. Specifically, it seeks to advise a couple on how to protect their estate from taxes in the event of death.

Tax minimization related to estate taxes

The estate tax is administered by the requirements of the Internal Revenue Services (IRS). Under the current requirements of the IRS, the estate tax is taxable at a maximum tax rate of 35%. Further, it is exempted up to $5.12 million. The first step of computing the estate tax is estimating the amount of the gross estate. Further, in the provision of the IRS, the gross estate is computed using the fair market value of all the estate of the family. Further, several deductions can be subtracted from gross tax before arriving at the taxable estate. Some of the deductions are funeral expenses, mortgage payable contributions to charity and selected items of property left to the surviving spouse (Internal Revenue Services, 2013). The fair market value of the estate is adjusted with the amount of related allowable deductions to obtain the value of the net value of the Estate.

The exemptions provided in the laws are deducted from the amount of the net value of the estate. Thereafter, the tax rate is applied to the resulting amount. Planning for Estate tax before death is significant since it ensures that the process of transferring the Estate to the descendants is successful. Besides, the process ensures that the couple reduces the amount of Estate tax that will be deducted from the value of their estate. As mentioned in the case study, the family owns a farm and several business houses (Internal Revenue Services, 2013). They need advice on how to protect their wealth from Estate tax upon death. Based on the provision of the IRS, Estate tax is unavoidable just like the gift tax. However, there several legal methods that an individual can use to reduce the amount of the Estate tax. The methods will allow the couple to transfer their wealth to the three children in a tax-effective method. Therefore, the couple needs to use tax-efficient ways to plan for their estate tax (Anderson, Pope & Kramer, 2013).

Most viable legislative proposals related to estate tax

As mentioned in the section above, under the current requirements of the IRS, the Estate tax is taxable at a maximum tax rate of 35%. Further, it is exempted up to $5.12 million. As outlined in the guidelines of the IRS, these provisions were applied until the end of the previous year. From the beginning of this year, the provisions provided by the IRS were changed. The Estate tax is taxable at a higher maximum tax rate of 55% up from 35%. Further, it is exempted from a lower value of $1 million down from $5.12 million. However, the president of the US proposed more lenient changes to the Estate Tax. He suggested that the tax rate be lowered to 45% up from 55% while the exemption amount should be increased to $3.5 million down from $1 million.

Apart from the US president’s proposal, the Congress also proposed some changes to the Estate tax. The Congress was divided into three groups. The first group comprised of Extenders. The group comprised of people who originated from the farming states. The group suggested that the previous provisions provided by IRS be applied, these are, a maximum tax rate of 35% and an exemption amount of $5.12 million. The second group comprised of Conformers. They followed the president’s suggestion. The final group was ‘reverters’. They suggested a tax rate of 55% and an exemption amount of 55%. Based on these several proposals, several actions can be taken. The first is not to take action. The second action is coming up with a new proposal. The third action is sanctioning a concession bill. The fourth action is extending TRUIRJCA and the final action is annulling the Estate tax. The most feasible suggestion is the 2012 Estate tax provisions since it is just to all players.

Impact of the estate tax on a taxpayer’s ability to transfer wealth to their children

As mentioned in the previous section, the Estate tax is unavoidable. However, there several legal methods that can be used to reduce the impact of the tax burden. The first method is by rescheduling of tax. Under this approach, wealth is transferred to a spouse as a lifetime gift. In this case, it will not be subjected to tax until the death of a spouse. Therefore, this method does not eliminate the estate tax but postpones it. The second method is by executing a uniform transfer. In this case, an estate can be transferred to minors in the form of a gift. In this case, the gift will be managed by a custodian and be transferred once the minors attain the age of majority. The transfer includes Estate tax. The third method is by forming a trust. Two types of trust can be created, these are AB trusts and QTIP trust. Trust has a provision of a unified credit and it provides a more efficient way of minimizing Estate tax. The fourth method is through valuation discounts.

It is a scenario where the assets owned by an individual cannot be valued. Since the computation of taxable amount is based on fair market value, taxing such an asset will not be possible. Therefore, a discount will be levied upon the transfer of such a property. This reduces the amount of estate tax. The fifth approach is by forming a family limited partnership. This method will allow the couple to transfer the family business at a lower tax (income tax) as opposed to the Estate tax. The sixth approach is by transferring some of their wealth to charity since it reduces taxes. The next approach is by transferring the proportion of the estate to irrevocable life insurance trusts. This also reduces the taxable estate. The next approach is through private annuity. In this scenario, the couple can sell a proportion of their estate to their children in exchange for future unsecured pay. The final method is by giving their children a gift worth $24,000 annually. This amount of the gift is not subject to gift tax. This reduces the amount of the taxable estate (Forbes.com LLC, 2013a).

Strategy that can eliminate estate tax

Based on the above analysis, it is evident that there are several legal methods through which the couple can reduce the amount of the Estate tax. An example of an efficient way is creating a trust. This approach will reduce the amount of tax liability by a large amount. Further, the couple will transfer a large amount of their property without losing control of ownership of the Estate. The second strategy that can be used by the couple is transferring some of the amount to an irrevocable life insurance trust. In this case, an equal to life insurance is transferred to the trust. It is also an effective strategy for reducing the amount of Estate tax. Finally, the couple can also gradually transfer a lifetime gift to their children up to a maximum of $24,000 per annum (Forbes.com LLC, 2013b).

Estate tax provision that would most likely to be abused by taxpayers and increase the potential risk of an IRS audit

As discussed in the earlier sections, it is observed that several tax provisions are susceptible to abuse by taxpayers. Therefore, the couple should abuse provisions otherwise they may be exposed to the risk of possible audit by the IRS. One such provision is by reclassifying allowable deductions to suit the requirements of the provisions. In this case, the taxpayer will reduce the amount of the taxable estate by subtracting some of the expenses that are not allowable. In this case, the taxpayer can face the risk of being audited. Thus, provisions that relate to allowable deductions can be easily abused and increase the risk of facing an IRS audit.

Changes that can simplify the estate tax code related to estate taxes

The estate tax code can be made simple with the intention of making it fair to both the taxpayer and the treasury. The first change can be to slightly increase the exemption amount and increase the tax rate. In this case, the federal treasury will gain from the increase in the amount of the tax rate, for instance, from $5.12 million to $5.5 million. On the other hand, the taxpayers will gain by the slight increase in the exemption amount for instance, from $5.12 million to $5.5 million. The second change would be to reduce the businesses that are taxable under the estate tax. These two changes in the Estate tax code will be appealing to the taxpayers. Besides, it will also increase the amount of revenue earned by the federal treasury (Citizens for Tax Justice, 2013).

Conclusion

Based on the discussion above, it is apparent that Estate tax is a major area of concern to taxpayers because they would wish to pass on their entire estates to their descendants. It can be observed that the new Estate tax laws passed in 2012 are a cliff tax to taxpayers. However, the laws contain several loopholes that provide taxpayers with legal ways to either not pay the tax or minimize the amount of tax they can pay. Therefore, Estate tax can be viewed as a voluntary tax.

References

Anderson, E., Pope, R., & Kramer, L. (2013). Prentice hall’s federal taxation 2013 corporations, partnerships, estates, and trusts: Strayer Custom Edition. US: Prentice Hall – Pearson.

Citizens for Tax Justice. (2013). Max and Dave do Silicon valley. Web.

Forbes.com LLC. (2013a). Rather than tackle tough tax reform, congress focuses on the death tax again. Web.

Forbes.com LLC. (2013b). Want to avoid the estate tax cliff? Five ways to help. Web.

Internal Revenue Services. (2013). Estate tax. Web.

Executive Summary

The study examined the problem of identifying critical success factors in the tax preparation industry. Most firms in the tax preparation industry have one major objective. The objective is to emerge the best in the industry. However, companies operating in this area differ significantly with regards to their level of success. It is important to determine what makes some tax preparation offices highly successful than others.

The differing level of success is in spite of the fact that the firms are operating within the same industry. The paper looked at the issue of whether or not becoming the best tax preparation office in Tampa can be explained by the various strategic alternatives adopted by the company.

The question of the implementation of the correct strategy was also addressed. A research on Tampa’s tax preparation industry was carried out with the aim of identifying and understanding the various success factors that are essential for the achievement of competitive advantage. The researcher predicts that there are significant differences between the various firms with regards to the perception of critical success factors in the industry.

Introduction

Explanation of the Project

The United States of America’s income tax laws are some of the most complex in the world. Due to this complexity, more than 60% of American taxpayers prefer using a paid tax preparer. In other words, they prefer paying someone to file their income tax returns for them.

Through the use of a tax preparation service provider, a consumer can reduce the amount of tax they pay to the government. At the same time, the individual can increase the amount of their tax refund from the government (Edwards, 2013). Tax evasion is a very serious offense in the United States of America.

The offense attracts hefty fines from those found guilty, including both individuals and organizations operating in the country. Perhaps this legal strictness is another reason why people seek professional services in filing their tax returns.

The increasing demand for professional tax preparation services in the country has a number of impacts on the economy. For example, the increasing demand has resulted to a subsequent increase in the number of professionals offering tax services in the market. A case in point is the number of such professionals in Tampa, Florida. For example, there are over 100 tax preparation firms in the region (Slemrod, 2006, p. 23).

The existence of such a large number of tax firms is an indication of the fact that tax services in this region are in high demand. Just like other firms in other sectors of the economy, all these tax firms aim to be successful. However, they differ significantly with regards to the level of their success.

The observation raises a number of pertinent questions that any new entrant needs to address. For example, why does the success of firms operating in Tampa varies? Why are some of them successful, while others are not doing very well? Does the adoption of a given strategy determine the success of the company? Can the success be explained by the implementation of the correct strategies?

A review of most tax preparation offices in Tampa reveals that they rely on quick turnaround work and high volume to increase their revenue. Due to this factor, there is increased fee-based competition within the industry. The reason for such an increase is because by lowering their prices, tax preparation firms can increase the number of clients that walk through their door (Long & Caudill, 2008, p. 40).

Furthermore, tax preparation firms in Tampa have been forced to deal with competition from external players. For example, the companies are competing from operators in the software publishing industry that develop at-home tax filing programs. The development and supply of such programs has resulted in increased price competition in the industry. The new developments have decreased the profits in an industry that already has high internal competition (Caralli, Stevens, Willke & Wilson, 2008, p. 300).

Tax preparation offices primarily exist to provide services to a wide of clients. The clients in this case include, among others, customers, shareholders, employees, business partners, and the communities that benefit from the existence and growth of the firm (Maddala, 1988). The firms achieve this objective by formulating effective organizational values, purpose, and vision.

Scope of the Project

The management of the new firm has to take into account the dynamics of this industry when launching the operations. It also has to take into account the various limitations that firms operating in this firm have to contend with. The aim of the firm is achieve goals and objectives.

To this end, a firm is required to develop a strategy to inform its operations. In this case, the firm outlines a set of goals and targets. It comes up with a strategy to attain them within a given time period. The functions of different departments in the firm are derived from these goals. The process of strategy development ensures that the entire organization is focused on the implementation of a defined purpose and vision (Caralli et al., 2008).

It is important to note that developing a strategy and setting goals and objectives is not enough. It is just a single factor determining the success of a tax preparation firm. More is needed. For example, the firm must perform exemplary well in a number of critical areas. The areas in this case are those that are critical to the firm’s goals and objectives. In fact, performance in these key areas is critical to the firm’s success.

Failure to perform well in the areas may be a major barrier to the success of the firm (Caralli et al., 2008). The critical areas can be identified as a set of critical success factors for the firm. Critical success factors include the specific areas in which the firm must excel. Positive results in these areas will guarantee a competitive performance for the tax preparation firm. It will help the firm to emerge the best in the area (Maddala, 1988).

Significance of the Study

According to Vasconcellos, Sousa and Hambrick (1989), the concept of strategic management depends on the ability to develop and sustain useful assets. It also depends on the nature of skills the firm has access to. Furthermore, strategic management requires the ability to select competitive strategies and areas that would support the developed assets and enable them to create meaningful competitive advantage for the firm.

In turn, this should be developed in line with critical success factors. Most firms have identified a set of critical success factors that are developed according to the industry’s unique features and characteristics (Aaker, 2001). A tax preparation firm’s successful performance within the industry can be determined using a number of factors. One of them is how well the company aligns its success factors with those that give it an edge in the industry.

There are a number of reasons why it is important to identify critical success factors in the tax preparation industry. First, it gives rise to a comprehensive understanding of the industry’s competitive environment. Such understanding is important in making decisions that determine the success of the firm.

According to Aaker (2001), understanding and identifying critical success factors is important to a firm if its entrance into an industry is to succeed. It also helps the firm to find a different position in the industry and successfully develop strategies to achieve the perceived value and cost reduction (Rockart, 1979).

In 1989, a research was carried out to test critical success factors in different fields. The researchers aimed to investigate two hypotheses. The first was that critical success factors varied from one industry to the other. The second was that firms with strengths similar to the industry’s critical success factors are more likely to be successful within the industry than other firms.

Research carried out in six industries supported the above hypotheses (Vasconcellos et al., 1989). Other researchers from the industry provided data that supported the arguments above. For example, the studies showed that the success of a given firm is determined by how well the management aligns the positive attributes of the firm to the factors significant in that industry.

Problem Statement

The current study was guided by a number of research questions. The following are the research questions:

1. What makes some tax offices in Tampa more successful than others?
2. How do strategic alternatives and implementation of the correct strategy inform the success of tax offices in Tampa?
3. How can a tax office in Tampa succeed in the industry?

Becoming the Best Tax Preparation Office in Tampa, FL.

Literature Review

The tax preparation industry: background

The primary services offered by firms in the tax preparation industry include the preparation of tax returns. Tax preparation experts offer this service as a standalone endeavor. Other services, such as book keeping and billing, are not offered. Although CPA offices are not classified in the tax preparation industry, basic knowledge on filing requirements and tax law is critical for members of staff in this industry (Swingen, Green & Long, 2009).

Between 2008 and 2013, the revenue generated in the tax preparation industry contracted at an annual average of 0.2%. The revenues fell to about $9.4 billion. The industry recorded some growth in 2008 (Edwards, 2013). However, the growth declined between 2009 and 2010. The decline can be explained by the rise in unemployment levels and decreased disposable income leading. The factors forced many consumers to prepare their own tax returns (Edwards, 2013).

The tax preparation industry is facing increased competition from external players. A case in point is competition from the software publishing industry. Software for the preparation of tax, such as Intuit’s TurboTax, are widely accepted because they make electronic tax filing more accessible (Swingen et al., 2009).

Tax preparation offices have reacted to this threat. For example, they have stopped charging for some basic services. The offer attracts consumers who end up signing up for fee-based services. The services include state income-tax filing because most states have not adopted electronic tax filing (Dubin, Graetz, Udell & Wilde, 2007).

The tax preparation industry is highly seasonal. Demand for tax preparation peaks between January and April. While most small firms operate during this period only, large firms operate at a loss during the off-season (Slemrod, 2006).

The seasonal nature of tax preparation services, together with low barriers to entry, makes the industry an ideal field for entrepreneurs working on a part-time basis. The seasonal nature of the industry also results in relative decreased average wages for operators. Because most firms in the industry only operate during the peak season, the average industry wage is set at about $12,660 as of 2013 (Edwards, 2013).

Though the recent decline in demand for tax preparation services has resulted in pricing competition, tax preparation firms, historically, increase prices of tax preparation services each year (Swingen et al., 2009).

However, due to the threats arising from increased use of computer software by individuals seeking to file their own taxes, basic tax preparation services are offered free of charge. The offers reduce profit margins. The tax preparation firms are forced to offer the services for free since numerous other free services exist. The firms, however, sell additional services for more complicated taxes to make money (Slemrod, 2006).

Many large tax preparation firms offer tax related financial products. An example of such a product is Refund Anticipation Loans (RALs). The product is offered by a partner lender based on an anticipated income tax refund. From the fees paid by the borrower, the lender and the tax preparation firm are able to generate revenue (Dubin et al., 2007).

Another product is Refund Anticipation Change (RACs). The product works by simply placing a customer’s tax return in a bank account which is linked to a prepaid credit card. Tax preparation firms are expected to increase the number of personalized products that software companies cannot compete with. Additionally, the firms are expected to increase the number of services they provide for free (Edwards, 2013).

IRS has formulated new regulations and changes to the tax regime. The tax preparation industry is most likely to benefit from at least one government regulatory framework. Such a regulation is the one requiring paid tax ‘preparers’ to have a Preparer Tax Identification Number (PTIN). The regulation came into effect during the 2011 tax season.

It reduces the number of players in the industry. The reduction reduces competition and increases revenue. In future, things will change with regards to PTIN. For example, practitioners in this industry will have to meet a given threshold to be certified. The requirement will further limit the number of firms operating in the industry, leading to a growth in the industry (Edwards, 2013).

Additional regulations need to be formulated by the federal government for firms that offer electronic filing services. One of the focus areas should be the advertising standards, which the tax electronic filing firms must adhere to. In addition, firms providing electronic filing services should be required to provide filing information to the taxpayer.

The government has formulated additional rules regarding electronic filing. Recently, the IRS announced that tax preparers with 11 or more trust or individual tax returns will be required to file returns using IRS electronic filing system (Edwards, 2013).

The cost structure of firms operating in the tax preparation industry varies based on a number of factors. Firms operating a franchise incur fees for royalties and marketing. Such fees are not incurred by small firms. Due to the seasonal nature of the tax preparation industry, large firms that continue operating during the off season incur additional costs not incurred by small firms that close down during this period. As a result, the cost structures of large firms differ significantly from those of small firms (Dubin et al., 2007).

The concept of critical success factors

The concept of critical success factors has a long history. The history is traced back to 1961. It was proposed by Ronald Daniels to address some issues in corporate management. Daniel used the concept of critical success factors to identify information that is critical to successfully perform managerial duties (Daniels, 1961).

According to this scholar, the information systems of a given organization should have a specific goal. The goal is to achieve the success factors. Identifying the success factors should be carried out carefully to enhance the progress of the company (Daniels, 1961).

Rockart (1979) further developed the concept by introducing four primary sources of critical success factors. The first is the structure of the specific industry. The second is environmental and temporal factors. The third is position and location in the industry. The last factor is competitive strategy.

The concept helps the management to develop the appropriate strategies to run the firm. In addition, it helps in identifying problems that may hinder the success of the organization. According to Dickinson, Ferguson and Sircar (1984), critical success factors can be defined from a specific perspective. They are regarded as any circumstances, events, activities, or conditions that, because of their importance, require special attention from the firm. The factors may be internal or external.

There are various advantages associated with critical success factors. They include comprehensiveness, operational value, and flexibility. In another study involving small businesses, Dickinson proposed that identification of critical success factors may be useful at various levels.

The first level involves evaluation of the chances for success with regards to a new firm. The second is the planning process of a firm’s opportunities. The third is the effective implementation of a firm’s planned activities. In their case studies, Boynton, Shank, and Zmud (1985) attributed the success of the concept of critical success factors to two of its advantages. First, the concept is widely recognized and accepted among top level management. Secondly, it enhances the planning process.

Boynton et al. (1985) conducted a study aimed at analyzing the dependence of critical success factors on a firm’s hierarchical nature. The study also looked at the level at which strategic management decisions are made. The study distinguished between individual, sub-organizational, corporate, and industry success factors. One can assume that business success is the achievement of the pre-set goals and mission.

With such an assumption, it is clear that critical success factors are very important. They help the firm to achieve its goals and objectives. The achievement of the goals and objectives set by an organization is informed by a number of factors. On their part, the determining factors are influenced by others. The observation gives rise to a form of dependency arrangement unique to a given organization or industry.

Dickinson et al. (1984) distinguish between internal and external critical success factors. For example, the scholars argue that the former are affected by the internal dynamics of the firm. They include structures, people, products, and processes. The factors are an indication of the competencies and capabilities of a given organization. They determine the firm’s competitive advantage. External critical success factors, on their part, are different from the first set of factors. They are informed by the firm’s external dynamics.

According to Rockart (1979), it is more difficult to control external critical factors than internal ones. However, external success factors may be measured and controlled to some degree. Dickinson et al. (1984) classified critical success factors into two main categories. The first is perceived or actual (Dickinson et al., 1984) group of determinants. The second is ‘conjunctive or compensatory determinants (Dickinson et al., 1984).

The critical success perspective helps in defining tasks. Such a definition can in turn help in task selection from the numerous duties that a manager is required to perform daily. The definition sets priorities to enable the manager to concentrate on the core activities. Consequently, a group of managers may identify their firm’s critical success factors. In addition, organizations operating within the same industry may define the sector’s critical success factors (Boynton et al., 1985).

Boynton et al. (1985) provides an analysis of the application of critical success factors in an American high-tech engineering company. The factors were raised and discussed in a meeting. Participants in the meeting were asked to list a number of factors that they thought were critical to the success of a firm. It emerged that most of the factors mentioned by the participants were similar. The managers expressed the desire to delegate some of their duties.

Some of the delegated activities interfered with the performance of top management team if not clearly defined. The perspective clearly emphasizes on the significance of the perception of critical success factors. After some time, the management should come together to analyze and consolidate differences between individual perceptions of the significance of critical success factors (Caralli et al., 2008).

According to Rockart and Bullen (1981), critical success factors of a particular industry provide a firm with the opportunity to achieve competitive advantage. A firm must establish the various critical success factors in the sector within which they are operating. Mapping out these dynamics helps the firm to attain and sustain a competitive edge. For any firm to survive and succeed in a particular market, it must meet two conditions.

First, the company must offer a product or service that is in line with the market demand. Secondly, the company must be able to withstand competition in the market. The identification of critical success factors within a particular industry, therefore, begins with two critical questions. The first question addresses the issue of what the consumers want. The second question involves the issue of how the firm can survive competition.

Research Questions and Hypothesis

Overview

The current study helps in identifying a number of critical success factors in the tax services industry. The dynamics identified help to establish and sustain a competitive edge in the tax preparation industry. The objectives of the study were achieved by reviewing how different firms review success dynamics differently. The study focused on highly successful and unsuccessful tax preparation firms in Tampa, Florida.

Hypothesis statement

Different firms in the tax preparation industry perceive success dynamics differently. The differences are significant between the successful and unsuccessful tax preparation firms in Tampa, Florida.

Research questions

The research questions are restated below:

1. What makes some tax offices in Tampa more successful than others?
2. How do strategic alternatives and implementation of the correct strategy inform the success of tax offices in Tampa?
3. How can a tax office in Tampa succeed in the industry?

Research Methodology

The current research study analyzed information on the tax preparation industry and the fragmentation of the firms in this sector. The study focused on the firms operating in Tampa, Florida. The study focused on the correlation between critical success factors and the success of tax preparation offices in Tampa. To identify critical success factors in the tax preparation industry, the researcher began with a definition of the scope of the industry.

Individuals are required to file a tax return if their income is above a certain threshold. Income return depends on a number of factors. They include age of the individual, type of income, and the filing status of the person. Many taxpayers hire the services of experts to file their tax returns. Consumers seek assistance from the tax preparers because they make a necessary task simple (Long & Caudill, 2008).

The researcher made use of secondary data in conducting this study. To this end, a critical review of literature existing in this field was conducted. In addition, information on the firms already existing in the industry was analyzed. Information was accessed from the school’s library and other public resources, such as online databases.

The researcher made use of secondary sources of information for a number of reasons. First, information about tax preparation firms was readily available from the libraries accessed. Secondly, the researcher was unable to collect primary data due to time constraints. As such, the researcher was unable to conduct interviews or administer questionnaires. According to the report by IBISWorld, there are over one hundred tax preparation offices in Tampa, Florida.

There are over 100 tax preparation firms in Tampa. However, there is no specific data on the operations of tax preparation offices in Tampa. As a result, the research population was identified based on a number of characteristics. For an office to qualify as a tax preparation entity, it must primarily provide consumer tax services, including electronic filing and tax preparation.

Secondly, the primary services of the office must be generating revenue. The selection criterion was very helpful in identifying the borders of the study. It helped in identifying offices that were directly related to the provision of consumer tax services. 110 companies were selected using the criteria above.

Findings

The recent economic meltdown led to, among others, a rise in levels of unemployment and reduced household income. As a result, demand for tax preparation services decreased significantly between 2009 and 2010.

The reason for this is because fewer individuals attained the income threshold that requires tax filing. The reduced income, in turn, slowed the growth of the tax preparation industry over a period of five years ending in 2013. The industry’s growth has also been affected by the inability of some firms to offer refund anticipation loans.

The tax preparation offices in Tampa are highly competitive in terms of price and quality of services rendered. This is due to the large number of tax preparation offices operating in the region (Edwards, 2013). Based on reports from IBISWorld (and cited in Edwards, 2013), it is revealed that the tax preparation service offices in Tampa are highly fragmented. Majority of the operators in Tampa are small firms.

According to IBISWorld, about 85.1% of offices operating in Tampa’s tax preparation industry are small firms. Furthermore, more than 80% of the offices have between one employee and ten employees.

Most small scale offices offer their services on a part-time basis because of the seasonal nature of tax preparation services. The offices mainly rely on reputation to market themselves. In addition, they do not charge a lot for their services. As a result, the offices in Tampa account for only 20.0% of the total revenue generated in the industry (Edwards, 2013).

Vasconcellos et al. (1989) helped the researcher identify a number of critical success factors in the tax preparation industry. Some of the factors identified by this researcher include experienced work force and a loyal customer base. Other factors included reputation and reliability of the firm as far as the clients are concerned.

The introduction of new and innovative services, as well as aggressive sourcing for customers, is the other success factors. According to Edwards (2013), critical success factors in the tax preparation industry are identified with the help of a structured strategy. According to the scholar, the factors are identified as a result of generalization of answers from two questions. The questions touch on consumer preferences and strategies used by the firm to survive competition.

Dickinson et al. (1984) conducted studies on the basis of the success factors identified above. The first part of the study aimed at investigating the significance of the listed critical success factors on a ten-point scale. A scale of one stood for ‘totally irrelevant’ while a scale of ten stood for ‘extremely significant’.

The second part of the study was developed to evaluate the significance of critical success factors to the success of the business over its competitors. The last part of the study looked into the nature of the firm. It critically assessed the success of the entity.

Analysis and Results

Auruskeviciene, Salciuviene, Kazlauskaite, and Trifanovas (2006) developed a model to explain the perceived significance of the critical success factors and individual importance of each of them. The critical success factors are ranked according to their perceived significance.

Reputation and reliability were regarded highly by a large percentage of the participants in the study. The factor was ranked 9.36. The perceived significance of the other factors was also recorded. According to the scholars, experienced work force and a loyal customer base followed at 9.16 and 9.04, respectively. The development of new products was fourth at 7.76. Aggressive sourcing for clients came last with a score of 7.52. The findings are indicated in the figure below:

Auruskeviciene et al. (2006) carried out their research to identify how different firms regarded the issue of success. They compared the opinions of employees in successful and unsuccessful firms.

The analysis conducted in their study is very important. It helps identify determinants of a firm’s competitive edge in the industry. The success of a firm is determined systemically using specified parameters. Such parameters include, among others, the organization’s profit margins. Auruskeviciene and colleagues conducted this analysis and made the findings in the table below:

Table 1. Criteria to determine the success of a firm.

Source: Auruskeviciene et al. (2006)

There are differences between firms that succeed in a given industry and those that do not make it. First, the differences are seen in the launch of new products (+3.29). The second factor that varies involved experienced work force (+1.29). Compared to unsuccessful firms, successful firms attach more importance to new service and product development.

Reputation and reliability pertains to credibility among consumers due to recognition. Firms operating franchises and a high number of branch offices can positively impact on the public’s perceptions of a service provider (Swingen et al., 2009). In addition, the firms spend a lot to advertise compared to small firms.

Through rigorous advertisements, a firm can increase its exposure in the market, building a brand and a reputation easily. In turn, brand and reputation translates to success for the firm. Munro and Wheeler (1980) support this assertion. They argue that it is the most significant critical success factor in the tax preparation industry.

According to Auruskeviciene et al. (2006), experienced workforce is ranked the second most significant critical success factor in the industry. To be the best tax preparation firm in Tampa, a firm requires experienced tax preparers. The reason is that the preparation process involves completion of large volumes of work.

The employees in the firm are generally required to have knowledge on accounting and tax law. Furthermore, the employees require specialized knowledge and skills. They should always keep track of legislative changes and decisions made by the IRS. They should pay attention to changes that impact on tax filing (Swingen et al., 2009).

A loyal customer base was also identified as a significant critical success factor. Retaining customers in the tax preparation industry is negatively affected by increased rates of unemployment and unfriendly regulations in the tax preparation sector (Dubin et al., 2007). Changes in employment levels affect the customer base. A decrease in employment levels reduces the number of individuals required to file tax returns.

The federal government is working towards the simplification of the tax filing system. The government will make it easier for individuals to file their own tax return. The development will reduce demand for tax preparers because most individuals will be able to file their own returns. As a strategy of retaining their customer base, most successful firms in Tampa have started to offer basic tax preparation services for free (Swingen et al., 2009).

Caralli et al. (2008) identifies the development of new services and aggressive sourcing for new clients as other critical success factors in an industry. There are various services offered by the tax preparation firms. The services depend on how complicated an individual tax return is.

Most firms offer basic services for free due to the fact that most taxpayers can access electronic filing services for free. Although this has led to decreased revenues, it has also promoted the cross-selling of financial service products. The financial service products include refund anticipation loans and refund anticipation checks. Though these services are provided by a partner lender, the revenue generated through borrowers’ fees is split between the lender and the tax preparation firm (Swingen et al., 2009).

Conclusion

Evaluation of Analysis and Problem Solution

The literature review in this study goes a long way in meeting the objectives of the study. It helps determine the critical success factors in the tax preparation industry. The review also helps understand competition and other dynamics in the industry.

The study carried out demonstrates the correlation between a firm’s success and profitability and the fit between its strengths and the critical success factors in the tax preparation industry. Furthermore, the study shows that different firms tend to identify different critical success factors. In most cases, the firms combine factors that help them survive competition with those that guarantee the achievement of a unique competitive position.

The information generated helps in making the deduction that critical success factors identified in the tax preparation industry are strategic necessities. Furthermore, the relative significance of critical success factors applies to all firms in the industry (Dubin et al., 2007). Becoming the best tax preparation firm in Tampa depends on strategic implementation of these critical success factors.

The researcher compared the significance of critical success factors between firms classified as successful and firms classified as unsuccessful. The study indicated that the strength and importance of strategies adopted by organizations vary. One of the success factors that showed significant variations between the firms as far as ranking is concerned include strategic strengths (Vasconcellos et al., 1989).

The revealed differences tell a lot about players in this sector. For example, it appears that some firms in the tax preparation industry have failed to identify and take advantage of mechanisms relevant to their sector. What this means is that these firms do not attach significance to these critical success factors.

Research Limitations

There are several limitations associated with the current study. For example, there was lack of adequate data to conduct statistical analysis. It is recommended that future researchers in this field should collect more data (especially primary data) to calculate the statistical significance of the two ‘differences’ mentioned earlier.

Recommendations for the Future

Further conclusions can be made from the findings of this study. For example, there are various strategic necessities in this industry. They include having a loyal customer base, as well as reputation and reliability. Strategic strengths include development of new services and an experienced work force.

Managerial Implications

The current study has implications in the managerial field. Analysis of information in the tax preparation industry shows that firms in the sector vary. For example, they regard success factors variously. Firms may lack financial resources to carry out independent strategic analysis of the market.

However, the firms are encouraged to use the critical success factor concept as a means of strategic analysis. The strategy allows for efficient use of resources and skills. The method can be used both at the industry level and at the firm’s level (Auruskeviciene et al., 2006).

Critical success factors identify key areas of performance that are crucial to a tax preparation firm. The factors help the firm to accomplish its strategy, making it the best in the industry. Management in most tax preparation firms identify and highlight these critical factors. They take them into consideration when setting organizational goals and objectives. To be the best tax preparation firm, the management must sustain positive performance in critical success areas.

References

Aaker, D. A. (2001). Strategic market management (6th ed). New York: Wiley.

Auruskeviciene, V., Salciuviene, L., Kazlauskaite, R., & Trifanovas A. (2006). A comparison between recent and prospective critical success factors in Lithuanian printing industry. Managing Global Transitions, 4(4), 327-346.

Boynton, A., Shank, M., & Zmud, R. (1985). Critical success factor analysis as a methodology form MIS planning. MIS Quarterly, 9(2), 121-30.

Caralli, R., Stevens, J., Willke, B., & Wilson, W. (2008). The critical success factor method: Establishing a foundation for enterprise security management. Technical report, 28(2), 234-354.

Daniels, D. R. (1961). Management information crisis. Harvard Business Review, 39(5), 111-121.

Dickinson, R., Ferguson, C., & Sircar, S. (1984). Critical success factors and small business. American Journal of Small Business, 8(3), 49-58.

Dubin, J., Graetz, M., Udell, M., & Wilde, L. (2007). The demand for tax return preparation services. The review of economics and statistics, 75(5), 75-82.

Edwards, J. (2013). IBISWorld industry report 54121d: Tax preparation services in the US. Web.

Long, J. E., & Caudill, S. B. (2008). The usage and benefits of paid tax return preparation. National Tax Journal, 40(9), 35-46.

Maddala, G. S. (1988). Introduction to econometrics. New York: McGraw-Hill.

Munro, M., & Wheeler, B. (1980). Planning, critical success factors and management information requirements. MIS Quarterly, 4(4), 27-39.

Rockart, J. F. (1979). Chief executives define their own data needs. Harvard Business Review, 57(2), 81-94.

Rockart, J., & Bullen, C. (1981). A primer on critical success factors. Cambridge: Massachusetts Institute of Technology.

Slemrod, J. (2006). The return to tax simplification: An econometric analysis. Public Finance Quarterly, 56(7), 23-47.

Swingen, J., Green, P., & Long, S. (2009). Tax payer compliance burdens: An examination of factors affecting tax returns preparation fees. National Tax Journal, 89(6), 629-698.

Vasconcellos, E., Sousa, J., & Hambrick, D. (1989). Key success factors: Test of a general theory in the mature industrial-product sector. Strategic Management Journal, 10(4), 367-83.

Tax inequality is a crisis affecting many countries. For that reason, there should be a way of balancing the budget without overtaxing the poor in the society. The low-income bracket spends a large portion of their pay on sales tax. Additionally, income taxes are not proportional to the amount of income generated.

As a result, the poor spend a larger percentage of their income on tax than the rich. However, the government needs taxes to provide basic services. Therefore, a fair tax regime is necessary for a country’s economic growth. This essay evaluates income and sales taxes in terms of tax equity.

Sales tax refers to the tax paid by a seller to a government for selling goods and services. Thereafter, this tax is transferred to consumers as part of the prices of goods and services. In most cases, tax inequality is brought about by over reliance on sales tax. As a result, the low-income bracket spends a large portion of their pay on excise or sales tax.

For instance, in Washington the low-income bracket spends 15.7 % of its income on sales tax. On the other hand, the rich spend 4.4% of their income on sales tax. This leaves the poor with little or no savings. Nonetheless, if sales tax is lowered, poor people will use the extra cash available to them for personal development.

Income tax is tax imposed on incomes. This refers to the deductions made on incomes and salaries. When all forms of taxes are taken in to consideration, poor people spend a larger percentage of their income on taxes than the rich. Therefore, a tax bracket should be created to cushion the poor from high income taxes. Additional, there should be different tax brackets for the merely well-off and the super rich.

These tax brackets will ensure basic fairness in taxing incomes. In this regard, those who have benefited most from the economy will have to pay more. However, those with identical incomes should pay equal taxes. On the other hand, those with varying incomes should pay different taxes.

If the inequality in the taxation system is to be brought to and end, there should be a means of shifting the corresponding tax burden. This is the only way tax equity can coexists with a government’s need to collect taxes for its revenue. This is because a government requires finances to implement its budget. Therefore, a reduction in sales tax should correspond with an increase in other forms of tax.

Likewise, a reduction in tax for the low- income bracket should correspond with an increase for the high- income bracket. Moreover, tax payment is evaluated using two principles. These principles include the ability to pay and the benefit. In this regard, taxes should be paid by those who benefit from them and those who have the capability to pay them. Therefore, fair taxation should not be contested.

In conclusion, it is agreeable that tax inequality is a debatable issue in many countries. However, governments should find ways of settling expenditures without shifting the burden to the poor. This is because the poor will be forced to spend a large portion of their pay on taxes. Nonetheless, a government requires taxes to provide basic services. Therefore, a fair tax regime is crucial for a country’s economic growth.

Introduction

Tax shelters refer to any technique of trimming down taxable proceeds or returns and this ends up in a decrease of imbursements to duty gathering organizations. These entities include civic, state and central administrations. The techniques used in carrying out this out differ in accordance to home and/or global tax regulations.

The KPMG tax shelter disgrace entailed purportedly unlawful United States excise shelters by the firm which were brought to the fore at the commencement of 2003. Later on at the start of 2005, the US affiliate organization of KPMG International, KPMG LLP, was charged of dupery.

This was carried out by the US Department of Justice and the sham involved selling of obnoxious income tax shelters. Under an adjourned hearing concurrence, KPMG LLP made a clean breast to illegal acts in crafting counterfeit tax shelters to aid well-off customers evade $2.5 billion in dues and concurred to shell out $456 million in fines (Tax shelter frauds, 2003).

As a result, KPMG LLP will not appear for any unlawful trial as long as it acts in accordance with the conditions of its accord with the government. On January 3, 2007, the unlawful plot accusations in opposition to the firm were thrown away. On the other hand, the national trial lawyer who presided over the hearing affirmed that the accusations could be re-established if the firm could not keep up to putting forward continual monitorial all the way through to September 2008.

Legal tax shelters

These are tax shelters that do not deny the government revenue and are thus allowed. Such tax shelters are crafted by the government to endorse a given advantageous activity(s), normally a long-run venture. On the other hand, such shelters may be a way to prop up societal behaviors.

Flow-through shares are an example of such shelters. Another commonly used name for this is limited partnerships and they apply to specific entities like mining firms. These one normally take a number of years before they begin to put forth constructive returns. Some of them usually collapse.

This usually puts off investors who seek speedy or safe incomes. To egg on such ventures, the American government makes it possible for the searching expenses of the firm to be doled out to investors as excise subtractions (Donaldson, 2007, p. 730). In this arrangement the shareholders are recompensed in two ways; the first one is the almost immediate tax savings while the other one is the probable huge returns in the case that the firm discovers the mineral.

Another legal tax shelter is the retirement plan. In a bid to cut down on the load of the government-financed retirement schemes, administrations may permit citizens to devote in their own annuity. The put in proceeds will not be taxed at the moment, but will be taxed when the contributor stops working. The benefit of such arrangements is that funds that would have been deducted as duty are now amalgamated in the account waiting when the money will be taken out.

Abusive tax shelters

An illegal tax shelter is generally a venture design that lays claim to cut down on returns tax whereas it does not alter the worth of the user’s returns or property. These shelters hold no financial benefit but diminish the central tax that is supposed to be received. In most cases, these ventures move monies through trusts or joint ventures to evade taxation.

These questionable tax shelters come about through a number of ways. The foremost manner is through offshore corporations. As a result of conflicting income tax charges and regulations in each nation, excise reimbursements can be taken advantage of.

For instance, if firm A purchases commodities worth $1 from Sri Lanka and puts these good up for sale for $3, the income tax they will be required to pay is on the $2 profit. On the other hand, excise paybacks can be taken advantage of if this same firm is to institute an offshore auxiliary company in say Comoros Islands to purchase the same commodities for $1, sell the commodities to A for $3 and put them up for sale once more in the local market for $3.

This makes it possible for firm A to account taxable returns of $0, reason being that the commodities were bought for $3 and put up for sale for the same amount. Thus, they will pay no duty. Whereas the auxiliary will need to pay duty on $2, this amount is owed to the tax collecting firm of Comoros Islands. If the Comoros Islands has a company excise charge of 0%, no duty is payable (US Corporate Tax Shelters, 2010).

Another illegal way for tax shelters is through financing agreements. If one pays unduly far above the ground interest charges to an associated entity, he or she may trim down the returns of a venture by great magnitude(s). In fact, this can end up in a loss, while at the same time, it will generate a huge capital return the moment one takes out the venture. The duty benefit here arises from the actuality that investment growths are levied at a lesser charge than the usual asset proceeds like interest or share.

The defects of these dubious excise shelters are normally that deals were not accounted at just market rate or the interest rate was excessively elevated or too little. In a broad-spectrum, if the aim of a business deal is to cut down on tax accountabilities but if not contain no profitable worth, and in particular when positioned between associated entities, such deals are in most times regarded as unscrupulous (Donaldson, 2007, p. 734).

Reference List

Donaldson, S. (2007), Federal Income Taxation of Individuals: Cases, Problems and Materials (2nd ed.), St. Paul: Thompson West .pg. 730-734.

Tax shelter frauds: should KPMG be ‘sheltered’? – case details. (2003). Retrieved from web

US Corporate Tax Shelters. (2010). Web.

Illinois Governor Pat Quinn was re-elected with a platform built on higher tax rates. According to many analysts, it was an improbable win because of the prospect of higher taxes. But to the surprise of many pundits, Governor Quinn was ushered into the office for another term.

The reaction can be understood if one takes a look at the figures. The proposed income tax hike amounted to a significant increase from 3% to 5.25%. In addition, the state would also impose a tax increase in personal property tax. As a result, the corporate tax rate would increase to 10.9%. It was a major upgrade and a burden to many businessmen.

The expected and unexpected outcome of the proposed tax increase was to initiate a chain-reaction of events that forced big businesses to search for a place to relocate. In other words, Illinois could no longer be considered as a practical place to conduct business. It triggered a panic reaction from the governor, and he offered tax breaks for companies like Motorola, Sears, and Caterpillar.

However, medium-scale enterprises were unable to avail of multi-million dollar tax breaks enjoyed by previously mentioned conglomerates. The tax problems prompted many to offer solutions to the burgeoning budget deficit of the state, and some said that it could be solved not by higher tax rates but reduction in expenses.

Macroeconomics

The articles offered a good case study of macroeconomics. Roger Leroy Miller’s book provided a clear discussion of macroeconomics because it is one of the means to study the economy of a state or a nation.

In this particular case, the macroeconomic consideration for the state of Illinois examines the impact of the new tax laws not only on the giant corporations that can be found in the state but also on the economy of neighboring states. In addition, a macroeconomic view of the tax issue enables the analysts to see the cause and effect of certain policies. In other words, the macroeconomic view considers the wide-range effect on an area not just an individual.

It must be pointed out that when Governor Quinn increased the tax rate, he also considered the macroeconomic impact of his decisions. Although the tax hike could be seen as an additional burden to the families which saw their tax bill increase significantly, the positive impact of the said move should not be discounted.

Governor Quinn made the argument that this move could narrow down the budget deficit and provide a better future for everyone. On the other hand, the neighboring states began to entice corporations to relocate. Viewed from a macroeconomic perspective, this means that unemployment rate in Illinois will skyrocket if Governor Quinn cannot stop the exodus from happening.

Tax Issues

The proposed tax hike was a reaction to the problem of budget deficit that threatened to derail the state of Illinois. The current figures indicated that Illinois could not pay 40% of needed expenditures. In other words, there was no way to generate $15 billion. If this amount were not in the government coffers, then there would be no money to pay for pension and healthcare expenses.

It was a devastating prospect for the workers who diligently toiled for decades in anticipation of an idyllic retirement period. It was also a nightmare for those who depended on the state for employment benefits and healthcare. The public school system would be affected and other services that the government had to support.

As a result, Governor Quinn was forced to increase the tax rate. The people acceded to his request because he made it clear that there was no other way to solve the problem. The people voted for Quinn because he convinced them that he could solve the problems that buffeted the economy of the state of Illinois.

The main component of the campaign promise was to force giant corporations to fork out more taxes. It was a proposition that was easy to understand. Big profits could be translated to more tax money and, therefore, could increase the funds of the state. Unfortunately, the plan backfired when corporations like Caterpillar and Motorola threatened to relocate to another state where the tax laws were not as crippling.

When Governor Quinn began to offer tax breaks, the average tax payer began to recoil in dismay and unbelief. It came to a point when an expert weighed in and said that the decision of Governor Quinn to appease big businessmen with tax breaks was not only disturbing but could also create a dangerous precedent that could significantly erode public confidence. It could even create a major financial crisis in the said state.

Solutions from Taxpayers’ Point of View

There were two major groups of tax payers. The first group was comprised of employees and entrepreneurs. The second group consisted of the multinational companies like Caterpillar and Motorola. From the perspective of the first group, the solution to the problem was to increase the taxes imposed on big corporations. They also proposed to lessen expenditures. A specific suggestion was to reduce the amount of money that the state committed to pay retirees.

The second group, on the other hand, offered a one-sided solution to the problem. The solution came in the form of tax breaks. In other words, they were amenable to the idea of raising the tax rates, but when it came to the giant corporations, the amount that they had to pay was covered with the millions of dollars in tax breaks given by the state.

Solutions from Selected Officials

The solution provided by Governor Quinn was to raise the income tax of the workers and to increase corporate tax. But at the same time, he turned around to offer a tax break for big business groups like Motorola and Caterpillar.

It should be made clear that government officials agreed with the proposal to cut government spending. As a result, the state legislature proposed a pension-reform bill. The purpose of the said bill was to reduce the commitment of the government to future retirees. Thus, the newly hired workers are not going to enjoy the same type of benefits received by present day retirees.

Conclusion

The budget deficit forced Governor Quinn and the state legislature to increase the income and corporate taxes. The campaign promise was anchored on the idea that giant corporations located in Illinois would help shoulder the burden.

But when the new tax rate was announced, big corporations threatened to relocate, and this prompted another impulsive reaction from Governor Quinn. He offered tax breaks for these corporations. The people were dismayed with this new development and suggested other solutions that could help solve the tax problems faced by the state.

Introduction

The following is an essay discussing the Mineral Resource Rent Tax introduced in Australia with the aim of ensuring that the mineral resources in Australia benefit citizens. This is because; they have benefited the mining companies due to the increase in the price of minerals.

This has especially affected large companies that deal with mining of coal and iron ore. The tax law gears towards utilization of the resources in a way that is reasonable and helpful to both the country and the mining industry in Australia. This essay will look into the effect of Mineral Resources Rent Tax on the accounting policies of the affected mining industry prior to the introduction of the tax and after the introduction of this tax.

The essay will have a literature review on the effects of the mining industry on the life of individuals as well as accounting policies of the affected companies. The essay will have a critical analysis of the tax and its effect on the mining companies as well as on the life of the people of Australia. The final part of the essay is the conclusion on the way forward.

Literature Review

The Mineral Resource Rent Tax is a tax proposed by the government of Australia on the mining companies, which extract non-renewable resources in Australia. Such minerals include iron ore and coal. The reason for this tax is that the mining industry is getting a lot of money due to the increased global prices of minerals.

The government of Australia therefore found it prudent to ensure that the taxes or revenues collected by the government from the Taxes reflect the increased revenues from this industry. The revenues generated from such activities will improve the country’s infrastructure as well as ensuring that every citizen has benefited from the mineral resources available in the country.

The government proposes to obtain forty per cent of the profits generated by these companies. This is because previously the companies were paying royalties to the government and they were smaller compared to the revenues generated (Mercer 2011).

The proposal to do this has led to huge public debate on the effects of the Mineral Resource Rent Tax on the accounting policies of the affected companies. This is because the tax policy will change the accounting policies of the affected companies. The main argument however is on the implication of these changes and their effect in future accounting of the affected companies.

Previously, the mining companies were paying royalties to the government. The royalties were a fixed amount of money expected from the mining activities. These royalties are similar to federal taxes and they were not fully dependent on the amount of income generated from the sales of the minerals.

However, the new tax policy on mineral resources will ensure that the companies pay tax according to their earnings. This has raised concerns from stakeholders on whether the tax will apply on the gross income or on the net income (Price Water House Coopers 2012).

Concerning whether the MRRT is an income tax the Australian Accounting Standards Board interpreted the act as an income tax with respect to the previous Petroleum Rent Resource Tax because both are similar in many ways.

The MRRT is therefore an income tax as it proposes taxation on the profits earned after deducting qualifying expenditure from the gross revenues. This then makes the tax an income tax according to the Australian Accounting Standards Board (Price Water House Coopers 2011).

The other issue brought about by this bill is the accounting for transitional tax. This is because transitional tax requires accountability as well as time to ensure that there are no losses incurred from double taxation. MRRT tax requires the financial statements to reflect deferred tax accounting (Hughes 2011).

The other tax accounting issue raised in The MRRT is the mining companies starting base. The starting base is the value of assets required by the company in order to start making profit. The companies must submit their assets value and the methodologies that they have used to determine the starting base.

This aspect is raising a number of issues, as there is need for a standard methodology to evaluate the assets. This is because some of the companies may overvalue their assets with the aim of deferring their tax payment period.

Since there is no formal starting base, it is wise for companies to start preparing their methodologies of calculating the assets and the starting base to ensure that there is appropriate response (Hughes 2011)

This also raises another issue where mining companies may use the starting base to defer tax for a certain period. This is especially in situations where the government may not have formulated clear starting base. This may provide the mining companies with a tax holiday where they are not obliged to pay tax until their assets value reaches a particular point (Hughes 2011).

When the market value methodology is used, the companies will be obliged to support their valuations as per the existing market value of their assets. It is necessary to note that the market value approach only applies to the existing projects. This means that the new projects will not feature as a starting base as soon as the bill comes into effect.

This is because some companies may engage in start up projects to defer their tax payments for unspecified period. This is necessary to support the deferred tax balances and to enable the company prepare market valuations. This calls for the company to have asset valuations to estimate assets before the financial enactment of the bill (Blanchard 2011).

The other issue raised by the bill regards the current treatment of the state royalties. Previously these royalties were pre tax costs deducted before as a pre tax cost. However, MRRT does not specify clearly calculation of these royalties. However, there are two options about how they may be treated. The first one is operational cost and therefore deducted as an expense before taxation. The other option that is very likely to apply is for the inclusion of royalties as part of the MRRT.

This will mean that the royalties charged by the state and federal government will be part of the tax. This means that the forty percent will be inclusive of the state royalties’ deductions. There is need for clarification on the way to handle this to reduce ambiguity (Blanchard 2011).

The other factor for consideration regards the market value of the assets as the market value is ever rising or falling. There is need for a mechanism to determine the value of an asset as per the market value. This is important to ensure that there is cohesiveness between the entity and the government methods of determining the market value (Blanchard 2011).

There is need for the preparation of tax sharing agreements between the taxpayers such that the company receives issues or regulations in a way that is responsible.

The agreement preparation regard the time in which the organization prepares for its time and opportunity of raking in revenues. This is because there are smaller mining companies affected by the PRRT and MRRT in various ways. The first issue of necessity is that of the fact that there is need to establish how tax deductions will be done (Blanchard 2011).

Analysis of the MRRT

The influence of Mineral Resource Tax has many ways of interpreting and calculating the payable taxes. This analysis will delve into the various points of view that are likely to occur resulting from the MRRT proposals with the first being deferred payments.

In respect to the start up base where the company must indicate the initial capital invested in the project, new projects are not considered as starting base. Only the existing or ongoing projects will have the advantage of inclusion in the start up base. This is because there are some companies, which may take advantage of this exemption to find ways of having new projects such that this start up base allowance goes higher. The mining companies can however adopt different policies to incorporate the start up allowances (Donaldson 2011).

The first view is that of the company treating the start up capital as a tax break. This is based on the interpretation that the start up capital of one million may mean that the company is exempted from paying taxes until it makes profit amounting to $ 1million. This view holds that the start up capital is a break or government allowances to enable the mining companies have their return on investment.

This affects the manner in which the accounting policies have operated in the mining industry, as there were no such breaks. Tax calculations relied on the net income after deducting the operational expenses.

It is imperative to note that the normal taxation will apply soon after the start up capital utilization. The period in which the company takes to get to the start up base income is the tax holiday (Donaldson 2011).

The other way in which the MRRT can apply is that the start up base may be a form of government grant to the mining industry to stimulate its performance. When viewed as a grant the companies may not defer their tax arrears but will continue to pay the taxes until such a time when the government refunds the tax to fit the grants given.

This will be one of the ways in which the government can make foreign-based companies that are dissatisfied with the laws and they are looking for other countries with lenient taxation measures to remain in the country. The grant means that although the company pays its tax, the government augments the tax paid and exempts the company from paying the tax until a future date (Donaldson 2011).

The question on how the MRRT will affect the accounting policies of the affected companies is important. The first effect of MRRT on the company’s accounting policies is creative accounting. There is high possibility that the mining companies will look for ways of sheltering their taxable income to ensure that they retain much of their profits.

The creative accounting will involve several ways of reducing the amount paid to the government. The first manner that will apply concerning creative accounting is increasing the operational expenses. The affected companies may increase the operational expenses than the previous expenses indicated.

The operational expenses such as the value of the machines and the value of the goods and services may indeed reflect a deduction in the manner in which the company operates. There is need for proper mechanisms concerning the financial reporting of expenses (Blanchard 2011).

The other major aspect of the effects of MRRT is on earnings management policies. Earnings management refers to a situation where the company manipulates its earnings in order to have a stable income projection aimed at boosting the investor confidence. Nevertheless earning management is likely to apply to the companies privately owned or not listed in the stock exchange.

Public companies will have to pay their taxes, as they will have to apply different accounting policies, as the interest of the public investor is to have higher dividends. This will mean that such companies may not increase their operational costs to reduce the payable income as the interests are in the dividends not the value of capital (Blanchard 2011).

While the company may increase their operational costs such as exploration and development, the Mineral Resource Rent Tax only considered the ongoing projects as exempt from the taxation. However, new projects may not qualify as a start up capital or operational expenses and they will therefore pay tax on such projects (Wood 2011)

The role played by the earning management involves inappropriate estimate of liability. This is where the company underestimated its actual liabilities which it owed to the banks and other institutions.

The companies may use excessive provisions to justify those practices in legal terms. This shows that the management irrespective of manipulating the figures are still within the legal provisions of the company and therefore they are not liable for of any wrongdoing. These legal provisions concerning the company assets and auditing structures create loopholes, which allow the manipulation of figures (Wood 2011)

The MRRT will therefore affect the accounting procedures of the company especially the bookkeeping procedures. The bookkeeping enables the company to track its expenses, and profitability and look for situations where the company may be making losses.

However, the earning management adopted by the companies to increase their operational expenses in order to benefit from the tax base assets may rob the investors their profits as dividends that accrue to the company from after tax profits. The book keeping policies of the company reflect the internal transactions of the company.

For the company to operate effectively the records must be authentic and reflect real transactions of the company. Without this happening, there is likelihood that the company will not have the correct financial statements (Wood 2011).

The other accounting policy that is important concerns the financial reporting procedures. This is where the MRRT policies will have effect. This is because the financial reports need to indicate the real financial position of the company in terms of the profits or losses. This is necessary to ensure that the policy benefits both the investor as well as the government (Eseinhardt 2011).

Recommendations

The Mineral Resource Rent Tax is indeed complicated taxation mechanism, which requires the affected companies to prepare their policies and make the necessary adjustments to cope with the changes. The companies will benefit from the policies to ensure that there is proper governance and timing for the necessary changes to take place (Eseinhardt 2011).

The second manner of dealing with the MRRT is setting the assets base so that the company may benefit from the start up capital base. The investors in the mining companies are the greatest losers due to reduced dividend as a result of increased taxes.

For the public investors to benefit, the earning management or creative accounting policies intended to reduce taxes payable to the government must be abolished to ensure that the investors benefit. This is the major reason why the bill has received opposition from the owners of the companies especially the public investors as this will reduce the huge dividends that they have been generating from the venture (Eseinhardt 2011).

Companies must prepare and program themselves through training their accounting staff to handle the new accounting procedures as indicated by the MRRT. This is necessary, as it will ensure that the companies involved anchor towards ensuring that the company aligns with the taxation recommendations of MRRT. The training will enable the companies to cope with the intense and rigorous evaluation process that is going to come after the bill is effected (Clark 2004).

The company must also conduct prior valuation of their assets before the government comes in to value the assets to determine the start up base of the company. This is important in ensuring that the company has a proper estimation of its start up tax base before the financial year begins (Clark 2004).

Informing the investors is also a very important aspect of the way forward in ensuring that the company aligns with the new tax proposals. The investors have to make decision on whether they want increased cost of operation for the company or higher divided. The increased operational costs may increase the share value of the company while reducing the taxes paid to the government as well as the amount of money that the shareholders or the investors will receive as dividends.

It is therefore imperative for the mining companies to conduct meetings or seminars with their investors to inform them of the implications of MRRT on their entity. The shareholders then may decide the way forward, either to allow earning management or to pay the tax as it should be and continue to get more money (Clark 2011)

There are however two options concerning the implication of MRRT on the revenues collected by the government resulting from the measures and the accounting polices which different companies will have.

The first is that it may result to increased government revenues if the companies comply and treat the taxation recommendations as taxable income. Nevertheless, if the companies adopt earning management policies intended to make the companies shelve its income then the government will not collect as much revenues as anticipated.

The investors may also decide to invest their money elsewhere if they feel that the taxes are high in comparison with other countries such as Columbia and Latin America. This may lead to closure of many mining companies that have threatened to do so in protest of the taxation law.

This is because the tax will affect the cost of operation when there are state royalties that the mining companies pay to the state governments. The other aspect of consideration is that if the companies may decide to relocate there will be massive loss of jobs in mining as major industry in Australia (Clark 2011).

However, the law intends to ensure that every Australian benefits from the resources available in the country. Most of the mining companies located in Australia are foreign based and the profits that they obtain from the venture benefit foreign countries. The Mineral Resource Rent Tax is therefore a milestone in ensuring that the mining industry contributes to the infrastructural development of the country. However, it is important to ensure that there is more clarity concerning the manner of paying tax (Clark 2011).

Conclusion

Taxation is a major part of accounting and the taxation measures and procedures adopted by a government determines the policies which the companies affected by the measures adopt. The taxation policies proposed by the Mineral Resource Rent Tax law will affect the terms of taxation policies especially on how to account for the start up base capital.

The other way is adopting the best means of ensuring profitability without increasing operational costs. The third way is reducing profits by increasing the company equity. MRRT will change the accounting policies of the affected companies. The investigations on the effects of MRRT on the accounting procedures of the mining companies are of importance to all stakeholders in the mining industry and the people of Australia.

References

Blanchard, T 2011, Preparing for MRRT: Deloitte’s perspective, Deloitte Australia, pp. 4-11

Clark, T 2004, Theories of corporate governance: The philosophical foundations of corporate governance, Rutledge, London.

Clark. T 2011, Mineral resource taxes in information age, Long Range Planning Publication, pp.1

Donaldson. L 2012, MMRT on governance and shareholder returns, Academy Of Management Review, vol. 20, no. 1, pp. 5.

Eisenhardt, K 2011, An assessment and review of MRRT, Academy of Management Review, vol. 14, pp. 57-74

Hughes, S 2011, Effects of MRRT on public shareholders, Earnest and Young Reports, pp.1-8

Mercer, P 2011, Australia new mining tax and its implications, International Resource Journal, vol. 11 pp. 2-3

Price Water House Coopers 2011, Complexity of MMRT on accounting policies, Price Water House Coopers Reports, pp. 1-17

Price Water House Coopers 2012, Complexity of MMRT on accounting policies, Price Water House Coopers Reports, Vol. 2, pp.1-8

Wood, L 2011, Implications of mineral resources rent tax, Sydney Morning Herald, Sydney.

Introduction

Tax return position is a position about which a receiver of tax services has an understanding of all material details in a tax return and on the foundation of those details has decided that the position is suitable (Murphy & Higgins, 2009).

This essay explores the primary and secondary sources of tax law, substantial authority and the roles of the courts and internal revenue service in interpreting and applying the sources of tax law.

Primary sources of tax law

Primary sources of tax law consist of the law itself which is formed by a government division and is expressed in constitutions, statutes, court decisions, administrative systems and resolution. Primary sources are considered to be moderately more significant as compared to secondary sources.

The sources include statutory sources, administrative sources and judicial sources. Statutory sources or statutory authority includes the constitution, tax treaties and tax laws.

The establishment of treaties with other nations and the power and authority to collect and impose taxes are the responsibilities of the constitution.

Administrative sources on the other hand include the diverse verdict of the treasury and internal revenue service (IRS) which are issued in the form of regulations, revenues and rulings.

Finally, judicial sources consist of the consolidated verdicts of the courts on tax affairs (Smith, Raabe, & Maloney, 2012).

Secondary sources of tax law

Secondary sources of tax law are usually writings concerning the law. The sources are crucial in the advancement and proper comprehension of the law. Secondary sources include articles, journals, newsletters, treaties and textbooks.

Secondary sources are quite superior as compared to primary sources but they are useful in discovering, examining and assessing primary sources.

Secondary sources are normally utilized as a preliminary for research especially when primary sources are unavailable, uncertain or not beneficial.

Substantial authority

Substantial authority is usually used as a criterion for preparation of tax. Substantial authority is a situation that is sufficiently unveiled in the taxpayer’s return, and for which there is a logical basis.

A situation is deemed to have substantial authority when the power of the authorities sustaining the position is significant in relation to the power of authorities sustaining differing treatment.

All tax treatment of the position, including sources opposing to the position are used in establishing the continuation of substantial authority. The significance given to an authority relies on its applicability, influence and the document category offering the authority (Dickinson, 2008).

The role of the courts and IRS in interpreting and applying tax law sources

The Internal Revenue Service is an influential body in many areas apart from its administrative roles. Being the protector of the revenue of the nation, the Internal Revenue Service is responsible for ensuring that the most notorious practice of tax avoidance is stopped.

Tax payers and their advisors have devised various techniques of tax defaulting. The internal revenue service in turn has put in place policies to help in closing the loopholes that taxpayers have noticed and misused.

Moreover, the internal revenue service is also responsible for revenue collection and law administration. In order to ensure effective and efficient revenue collection, internal revenue service placed the taxpayers on a pay as you earn technique.

In addition, it is the role of internal revenue service to make available documents that are designed to assist the taxpayer in complying with the laws of taxation (Murphy & Higgins, 2009).

In the event of a disagreement between the taxpayer and the internal revenue service on the interpretation and application of the code, the issue may have to be settled in the court of law.

The court helps the taxpayer in interpreting the statutory requirements and administrative statements issued by the internal revenue service. The decisions of the court in a dispute are considered official interpretations and applications of sources of tax law.

Therefore, the decision represents primary authority which is deemed superior. In addition, it is the responsibility of the court to determine the facts of a dispute and then interpret and apply the appropriate law.

Conclusion

From the research, it is evident that tax laws are formulated using both primary and secondary sources. Although it is said that primary sources are more superior to secondary sources, secondary sources help a great deal especially when primary sources are unavailable, unclear and unfavorable.

In order for tax laws to be followed strictly, the government has put in place bodies to help in the compliance of tax. The courts and the internal revenue service work hand in hand to ensure effective and efficient compliance with the laws of taxation.

It is evident that taxpayers occasionally try to evade the payment of taxes. This situation is corrected by the internal revenue service by ensuring that all loop holes that encourage tax evasion are sealed.

Moreover, the court also helps the taxpayer in situations where they feel exploited by those who collect taxes. With the presence of the courts, the taxpayer feels protected and is sure to pay only what is necessary, no more and no less.

Reference List

Dickinson, M. (2008). Federal Income Tax. Chicago: CCH Group.

Murphy, K., & Higgins, M. (2009). Concepts in Federal Taxation. Ohio: South Western Cengage Learning.

Smith, J., Raabe, W., & Maloney, D. (2012). South-Western Federal Taxation. Ohio: Cengage Learning.

Introduction

Tax is one of the ways for authorities in the public sector to raise revenue to run their projects. Public administrations are charged with the development of sufficient revenue to finance programs that benefit the society; hence, they have to either raise the money through investments or apply levies on various commodities to generate the funds. The government can also introduce taxes with the aim of aligning the behavior of various entities with a given policy.

For instance, carbon taxes are used to compel different entities to reduce the impact of their business processes on the environment¹. In the case under analysis, authorities in Cook County, Chicago, introduced a controversial tax on sweetened beverages in the soft drink field. Taxes are meant to generate revenue or to regulate the behavior of different entities; hence, the actual purpose of a new tax should be communicated to the public.

Importance of Tax

Lawmakers in the county responded to the pressure from citizens and various lobbying groups that had reviewed the nature and effects of the proposed tax. It is apparent that the tax was meant to reduce the consumption of sweetened soft drinks with the hope that consumers would be discouraged by the increased prices of the products². However, the tax was not effective in attaining the intended health promotion objective because consumers could easily drive to the nearby towns outside the county and shop for the drinks.

A critical view of the tax reveals that its intention was not to boost health outcomes for the citizens of Cook County, but to help the administration in raising about $1.8 billion annually to increase its budget³. The government has been facing challenges in raising the required funds for the budget, and it is apparent that the only option it has is the development of new taxes that help in raising the deficit. Economic principles reveal that whenever an administration is facing deficits in its annual budget, there are some options that it may pursue to raise the required money⁴.

Taxes directly involve citizens in contributing to public programs run by the government⁵. However, the government is always limited by various policies when it comes to the introduction of taxes⁶. The policies are meant to ensure that the administration does not introduce laws that exploit the public in an unfair manner. For instance, in Cook County, the local government observes laws that dictate against the development of additional sales taxes on commodities⁷. The associated lawmakers had to introduce the tax at the point of sale, which was quite a bad choice because it would exempt all consumers using food stamps as stipulated by the law.

This case reveals that while taxes are necessary for boosting the capabilities of the government in meeting its obligations and plans, they have to be introduced in a manner that shows legitimacy and appropriate reasoning on the part of the proponents⁸. The tax on sweetened fizzy drinks was banned because its legitimacy was questionable. First, the administration did not have a solid reason for introducing the tax. Secondly, the intentions of the tax were concealed through the claim that the tax was meant to enhance health outcomes for the citizens of Cook County.

Conclusion

The Cook County administration demonstrated that it is always necessary for the authorities to look into introducing legitimate taxes. By introducing the tax, the government intended to raise more money to boost its budget, rather than promote health outcomes as the leaders claimed. Taxes are normally applied to finance government projects by raising revenue or regulating certain behaviors on the part of various entities.

Bibliography

Auerbach, Alan, Raj Chetty, Martin Feldstein, and Emmanuel Saez, eds. Handbook of Public Economics. Vol. 5. Boston: Newnes, 2013.

“Chicago’s Soda Tax Is Repealed.” The Economist, 2017. Web.

Lawton, Amy. “Green Taxation Theory in Practice: The 2012 Reform of the Carbon Reduction Commitment.” Environmental Law Review 18, no. 2 (2016): 126-141.

Lu, Xiaobo, and Kenneth Scheve. “Self-Centered Inequity Aversion and the Mass Politics of Taxation.” Comparative Political Studies 49, no. 14 (2016): 1965-1997.

Rood, Deborah K. “The Importance of Tax Quality Control.” Journal of Accountancy 219, no. 4 (2015): 24.

Saad, Natrah. “Tax Knowledge, Tax Complexity and Tax Compliance: Taxpayers’ View.” Procedia-Social and Behavioral Sciences 109, no.1 (2014):1069-1075.

Footnotes

1. Amy Lawton, “Green Taxation Theory in Practice: The 2012 Reform of the Carbon Reduction Commitment,” Environmental Law Review 18, no. 2 (2016): 126-141.
2. “Chicago’s Soda Tax Is Repealed,” The Economist, 2017. Web.
3. “Chicago’s Soda Tax Is Repealed.”
4. Natrah Saad, “Tax Knowledge, Tax Complexity and Tax Compliance: Taxpayers’ View,” Procedia-Social and Behavioral Sciences 109, no.1 (2014):1069-1075.
5. Alan J. Auerbach et al., eds., Handbook of Public Economics, Vol. 5 (Boston: Newnes, 2013), 4.
6. Deborah K. Rood, “The Importance of Tax Quality Control,” Journal of Accountancy 219, no. 4 (2015): 24.
7. “Chicago’s Soda Tax Is Repealed.”
8. Xiaobo Lu and Kenneth Scheve, “Self-Centered Inequity Aversion and the Mass Politics of Taxation,” Comparative Political Studies 49, no. 14 (2016): 1965-1997.

Executive summary

In order to meet the challenges, overcome social outcomes and enhance its economic growth, Australia has to restructure its tax and transfer systems. As the nation keeps on restructuring its tax arrangements, it ought to make sure that its standards are unrelenting, strong points are preserved and all the pledges are accomplished.

Indeed, the new world economic order that is characterized by increased competition, international integration, increased opportunities, changing businesses, commerce and personal services through technological advances poses a greater challenge.

Besides, Australia is now faced with domestic challenges that include aging population, increased cost of health, care for the aged and increased population among others. This calls for an expanded economic infrastructure, education, health and social amenities. It must also be assumed that the country will incessantly present elevated risks of clashes which will result into higher costs of security provision.

As a result, the prime undertaking of the kingdom of Australia is to get a hold of transfer tax scheme that look forward to and has the aptitude of acting in response to these prospects. Much of the most recent century main architecture of the existing tax transfer structure still hypothesizes the sound procedural outline which articulates the ethics of the Australian nation.

In fact, much of the tax reforms that have been undertaken in the last few decades have reflected this sound policy framework. One of the reformed tax laws is the mineral resource rent tax that was established to provide a framework together with core rules that would be used to tax miners who persistently ensue to be making abnormal profits.

This paper will be reviewing the mineral resource rent tax bill by taking cognizance of the principle concepts and component of the legislation. The piece of legislation will then be analyzed using the economic concepts and theories focusing on monopolies and their tax practices as applicable in the global context.

Introduction

There are several complicated ways of achieving multiple policy objectives through the utilization of tax and the transfer system. The operational platforms in conjunction with the governmental competence of these tax schemes, that is, the human resources needed to handle any involvedness which might take place has surpassed the leading edge.

Overstraining the transfer and tax architectural designs significantly added to its breakdown in dealing with various guiding standards, aims and demands both resourcefully and successfully. The tax and transfer architecture rationalization should currently be the center of focus and a priority to the policy makers (Asimakopulos & Burbidge 1974, p.268). In reality, any revenue raising strategies are supposed to be concentrated towards the four forceful tax bases.

These include personal income that should be evaluated on a more wide-ranging basis, the business income that should be more growth oriented, private consumption that should apply a wide range of simple taxes and the economic rent that is got from land and natural resources whose basis should be comprehensive (Baily 1995, p.71).

One important thing that should be noted is that income from rent taxes are extremely volatile as compared with the existing resources royalties that would be replaced.

Efficient taxation of resources and land

Basically, the revenues accruing from the production factors which are deemed to be stock-still comprise the tax base which is regarded to be more resourceful and valuable. According to the proposed amendment bill, a rent based tax will ensure just the right quantities of extraction and levels of exploration.

Moreover, the rent based tax will encourage more participation from the private sector. On average, rents from a high value resource will likely in the long-run cause increments on revenues than the output that is based royalties (Laramie & Mair 2000, p.56). Numerous systems are applicable to the rent founded taxes but the most decisive is often dubbed as the transitional arrangement.

Expansively founded property or land taxes are all the time regarded as the most proficient and effectual. The current natural resources and land taxes are inefficient simply because of their narrow considerations.

In other words they are not broad based and their rates are determined by the land use such as extraction processes as well as the landholding aggregation rules (Laramie & Mair 2000, p.56).

The land tax is considered to be efficient if it is universally applicable. In addition, the land tax should have an aggregate holding. Nevertheless, it can have a dissimilar rate or threshold anchored on the cost or worth of every patio gauge of the property or land.

Practically, land that has low value use would not be liable to land tax and the rate would be moderate to average users. The interim rules will be significant in ensuring the changes in which the land taxes are based so as to harmonize the valuation effects as well as to offer sufficient spell to those who seem to have been upset to create amendments in their capital funding in the property.

With exemption of low prized merchandises, the prevailing royalties ought to be substituted with the venture founded unvarying rent tax resources. Besides, Baily (1995, p.71) claims that the taxation of the resources is duty-bound to incorporate the symmetric management of any accruing loss and must be further anchored on investment allowances as opposed to the evaluation of the cash flow.

This implies that with suitable and ample taxation guidelines, the novel tax is bound to be applicable to both already existing as well as the new-fangled projects. In essence, the current taxes which touch on the natural resources ought to be replaced subject to slow evaluation and long transition.

This will facilitate holding adjustments. The adjustments should also be applicable to all regardless of the type of resources that are being extracted (Asimakopulos & Burbidge 1974, p.276).

The implications of the mineral resource rent tax bill

The implications of the MRRT can easily be understood from the post Keynesian tax incidence theory advanced by various scholars. The effect of implementing the MRRT will have no effects on the mining profits within the short period of time.

This is according to Asimakopulos and Burbidge who indicated that the government implementation of higher taxes on profits and spends that revenue obtained from the tax increases; the post profit will be unaffected when the short period of equilibriums is established.

In this analysis the balanced budget multiplier plays a critical role and the result is true in both non-competitive or in competitive market conditions (Asimakopulos & Burbidge 1974, p.271). However this analysis only considers short- term periods.

In considering the effect of such taxes on investments over longer periods, several theories have to be considered. For instance, in analyzing the long term effect of tax incidence on income, the Kalecki theory of taxation is integrated with other elements of the Kaleckian economies.

That is in analyzing the long-term dynamics of taxation, it is essential to link theories of income, profits, wages, investments and business cycles. According to Kalecki all the tax incidences would be determined by the behavior of investments (Tomara 2011). That is changes occurring to the current taxation would impact on future investments hence future profits.

There are two channels through which taxation affects investments. One of the channels is depreciation. The rate of depreciation changes the relative profitability of new and existing plant and equipment. With constant improvement of technology increased taxes on profits will have to decrease the real profits of old equipment compared to new equipment thereby accelerating obsolesces.

New investments are thus encouraged. The second channel is the level of profit (Tomara 2011). The taxation effect on the profit levels is also determined by two channels. That is the effect of taxation on the government budget as well as the impact on the income distribution

The effect through the government purchases is the effect on the balance budget multiplier and not worth considering under this analysis (Tomara 2011).

However the effect through income distribution depends on how shifts in taxation results from firms changing their markup (wages and profits) in response to the structural changes n taxation policy. The degree to which these changes will occur depends on level of monopoly

From the post Keynesian analysis, it can be deduced that average tax rate is essential. In addition it is essential that economic incidence of taxation be explicitly taken into consideration while determining the tax incentive effectiveness.

Moreover, considerations must also include equity efficiency as well as effectiveness (Asimakopulos & Burbidge 1974, p.276). While drafting the MRRT the government did not put a lot of consideration on these economic issues. However, the industry players must be aware of the implications of taxes on their super profits from this perspective.

Looking at the implications of the taxes from a different perspective will produce almost similar results. That is from the economically optimal taxes on commodities. The economic optimal taxes on commodities will only apposite the economic rent that the factor of production earns.

Economic rent is the surplus that is earned by the factor of production in excess of the cost of work that the factor does (Laramie & Mair 2000, p.57). In other words, economic rent is the surplus earnings over the amount that is needed to keep a factor of production in its current work. This definition applies to all natural resources that have no any other use if left untapped.

Proper analysis of economically optimal taxes on natural resources indicates that the economic rent is only due to the unique nature of the natural resources deposit. Since it is in accordance with the perfect competitions within the, it is therefore different from monopolistic profits (Tomara 2011).

Theoretically, the economic rent will be taxed without having effect on prices as well as output so long as marginal revenue and marginal cost remain unchanged. Practically, the natural resources can only be exploited through the use of other factors of production that includes labor, entrepreneurship and capital.

Therefore, the government should thrive to set the minimum rate of return that would be needed to set the transfer earnings. Transfer earnings are what will be used to decide the transfer of factor from different uses. Economic rent is the earnings that is above the transfer earnings (Asimakopulos & Burbidge 1974, p.277).

The economic rent can be taxed without having an effect on efficiency allocation. Moreover, economic rents will tend to be higher during short periods compared to the long-run since in the short-run the capital is fixed.

The taxation of short run rents would in effect prevent further explorations and development of the natural deposits. Therefore the allocating efficient taxes would only be appropriate in the long-run.

In situations where the players in the industry have control over prices, then the mining fields will earn the monopolistic rents or monopolistic super profits. Principally the monopolistic profits will also not change the level of output (Tomara 2011).

Practically, the calculation of maximum tax that would be required considering the monopolistic rents need an accurate knowledge of all factors comprising of the cost functions, prices per unit output, the rate of production as well as the rate of the normal profits.

In case the production yields negative externalities such as the pollution, the taxation can still be used to reduce the rate of output through appropriating excess of economic rent. This would reduce the production in the long run and comparatively be seen as the direct regulation solution.

Direct government regulation of production would dispel economic rent thereby decreasing the amount of resources that can be taxed (Laramie & Mair 2000, p.57). The regulations administrative cost and revenue loss would have an effect on the welfare of the people.

Implementation process

The implementation of any tax policy will need the decisions of all the intergovernmental level together with all other stakeholders such as the industry and will need comprehensive appraisal of all the financial implications. Moreover, the reforms in tax policy will be pursued together with other macro-economic policies in order to achieve its goals.

In most cases, the tax reforms with an aim of long-run benefits would always be implemented after detailed considerations and at appropriate times (Laramie & Mair 2000, p.57). Moreover, the state control is obliged to be very elastic particularly when practicing transformations in line with the macroeconomic as well as monetary situations.

Many industrial players have arranged their priorities according to the existing current policies. Therefore, any policy change must be in a position to confront such a challenge. This is because the adjustments are always costly and require some time.

To those who find adjustments to be costly, some provisions have to be made for their welfare (Asimakopulos & Burbidge 1974, p.281). These possibilities are not always within the tax policy framework rather are encountered during the implementation process.

Conclusion

The aim of the review is to find out whether the future architecture of the Australian mining tax and transfer system is attainable and in accordance to the goals and values that the country is striving to achieve. Nonetheless, the analysis indicate that the draft bill did not explicitly take the economic and taxation theories into consideration.

However as an instrument of government policy it reflected the goals and aspirations of the general policy guidelines. There are some correlations amid the policy of tax transfer and the policy guidelines of the other government especially the regulatory authority and the state expenses.

The future benefits of the MRRT will depend on the theoretical framework that forms part of its fabrics as well as the externalities that may be incurred by the industry.

References

Asimakopulos, A. & Burbidge, J. 1974, “The short period incidence of taxation”, Economic Journal, vol.84, pp 267-288.

Baily, S. 1995, Public sector economics: theory, policy and practice, MacMillan, New York.

Laramie, A. & Mair, D. 2000, A dynamic theory of taxation: integrating Kalecki into modern public finance, Edward Elgar, Cheltenham.

Tomara, J. 2011, Mineral resource rent tax bill, 2011. Web.