Taxation law in Australia

Taxation law in Australia

Taxes are the primary source of revenue for the government, and it is the responsibility of all citizens to remit their due taxes. The citizens need to understand the tax law to avoid penalties and also take advantage of tax policies that can benefit them and their businesses. Although imposing taxes was initially to finance the running of government functions, tax purpose has been expanded. The broader function of the tax system in the modern economy includes income and wealth redistribution, resource allocation, and stabilizing the economy (Cox et al., n.d.). The tax policy should not interfere with the market-determined allocation of resources unless there is a need to curb pollution.

Implementation of tax policies to achieve economic stability aims at maintaining stable market prices and a high level of employment through debt management, government expenditure, and monetary policy. The redistribution of wealth and income function is meant to ensure that there is even economic growth and that the low-income earners are not adversely affected by taxation policy. The three basic functions of a tax policy often conflict in their implementation. An example of such conflict is, a highly redistributive tax system may affect economic neutrality, which is essential in the allocation of resources.

In Australia, the government introduced import duties on beer, wine, spirits, and luxury goods to raise funds for providing the orphans in the colony and the completion of the first goal in Sydney by Governor Phillip when Australia was still a colony back in 1788. In 1915, Australia introduced federal income taxes that were levied on both federal and state levels to fund Australia’s war in the first world war. Tax laws have since advanced, and there are different forms of excises and taxes at both the state and federal levels in Australia. The present tax policies development and assessment process in Australia is carried out through debates to involve all affected parties.

The elected officials debate the tradeoffs between different priorities and values of the tax policy ideas. The Australian government also involves accountability and extensive consultation mechanisms and the involvement of the private sector through the formation of innovative institutions and to improve the quality of tax policies. There is a range of taxes levied under Australian states, local governments, and territories. The government has also signed income tax treaties that guide its international tax relations with at least 45 countries such as East and South-East Asian countries, western European, UK, US, and New Zeeland (Australian Trade and Investment Commission, n.d.). Tax treaties between countries help to promote collaboration among international tax authorities and avoiding double Taxation.

Types of Business Taxes in Australia

Business taxes in Australia can are collected by the state government revenue offices or the Australian taxation office. Businesses are encouraged to pay taxes on time and pay the right amount to get the benefits of tax concession entitled to business. Businesses have to pay Goods and Services Tax, Company (income) tax, and Capital Gains Tax either monthly, quarterly, or annually (Australian Trade and Investment Commission, n.d.). The government usually sets the corporate tax rates on both residential and nonresidential are taxed using the same rate. The only difference that brings about different tax rates is the type of industry or the business structure.

The capital Gains Tax is a part of income tax, and it is paid when a business gains from the disposal of assets. Business is, therefore, mandated to keep records when they acquire assents that may be disposed of in the future. The Capital Gains Tax to foreign firms is imposed only on assets that were purchased and used to do business in Australia. Goods and Services Tax is a consumer tax on most of the goods and services consumed in Australia.

Businesses that have registered with the Australian Taxation Office are entitled to claim input tax credit equivalent to the amount they paid for business supplies inclusive of Goods and Services Tax. Payroll tax is taxed on wages paid to employees every month if the wage exceeds the exception threshold in the respective territory or state. In Australia, different territories and states have different payroll tax rates. Other business taxes in Australia may include fridge benefits tax and land tax. Individuals and businesses need to familiarize themselves with all the relevant taxes to determine which ones apply in their case and also the benefits they can gain from tax exemptions.

Stages of Formulating Tax Policy in Australia

The Development stage

The government is formed by the party that has control in the House of Representatives under Australia’s parliamentary system. The ministers are elected by both the Upper House, also called the senate and the House of Representatives. The ministers make the executive government, and the policies are made by the cabinet. The treasury is tasked with the responsibility of forming tax policy among other functions such as making economic, monetary, and fiscal policy. The parliament has the ultimate power to make tax laws in Australia.

However, the process of formulating tax policy involves the participation of academics, Senate inquiries, electoral parties, lobby groups, think tanks media, and the tax representative. The cabinet then considers the policy proposals. The treasury holds an influential position from the public sector in offering advice during tax policy formulation. Although policy measures may be introduced in the mid-year update course, the larger part of the tax policy is done during the annual budget course. When a decision to change tax policy has been made, the treasury ensures that the policy intent matches the legislative products by guiding legislative drafters I the office of Parliamentary Counsel on matters tax.

The Legislative Stage

A tax bill has to be passed by Senate and the House of Representatives and finally get the Governor-General assent for it to become a law. All the tax bills in Australia come from the House of Representatives because the constitution prevents bills that impose Taxation and authorize spending of money from being initiated from the senate. The senate, however, still holds an important role in the tax policy process because the senate committees are tasked with carrying out the review function.

The Post-Implementation review stage

At this stage, several departments are mandatory to give information on how the regulation will be implemented, monitored, and reviewed. Regulations that procced without having a compliant regulation impact statements get more post-implementation reviews. The board of Taxation conducts post-implementation reviews on tax policy as a part of its functions and also to assess the policy’s quality and effectiveness

Government departments involved in the formulation of tax policy

The treasury helps the government in the budget formulation by providing it with regulation impact statements, and preparing official costing, advising on tax policy, and the available options. The resources are used to forecast the overall revenue available for government funds. The treasury works hand-in-hand with the (ATO), which is the main revenue collecting agency for the government, and it is also responsible for Australia’s taxation and superannuation laws.

Tax Consultation

For a tax policy to be formulated in Australia, consultation has to be done in policy design and draft registration stages. The practice is different from the one used in the early 2000s, where consultation in tax policy formulated was confined to the administration only. Tax consultants have played a significant role in providing information on the most effective manner of implementing government policy and preventing unplanned consequences. The tax consultants formulate present and future tax policy, and they also help the treasury by clarifying the policy intent on proposed changes. The consultation process involves releasing an initial discussion paper, and then the public is issued with an exposure of the legislation or regulation. The consultation may include a confidential group or a public audience, depending on the level of expertise required in that stage.

Conclusion

The tax system forms an essential role in the social and economic infrastructure of Australia. An open tax policy formulation system encourages participation from all stakeholders, and it makes it easy for a country to own its tax laws. Public participation also reduces the costs involved in following up on the implementation and adherence from the government agencies and the general public. Australia has managed to set up one of the most inclusive tax policy and revenues collected at all levels have increased. The increase in revenue collected by the Australia Taxation Office can be attributed to the individual and business adherence to the tax policy.