Tax System Design

Date: 2015-10-07; view: 487.

Ex. 12. Read the text below carefully and underline the parts of it giving basic ideas about the desired features of a tax system.

Ex. 11. Go to the library and read on taxation in major industrialized countries and countries in transition. Does our system of taxation have much in common with them?

READING PRACTICE

Recent studies have singled out some of the desired features of the tax system that should emerge as countries develop. They are as follows:

• Concentration of revenuesources. A system that raises revenue from a limited number of taxes and rates may substantially reduce administration and compliance costs. Avoidance of numerous taxes may also facilitate the assessment of the effects of policy changes and avoid an impression of excessive taxation.

• Broad and objectively defined tax bases.A broad tax base with limited exemptions enables revenue to be raised with relatively low rates. Substantial erosion of the tax base through exemptions requires much higher rates to achieve a given amount of revenue. Tax bases should be defined so as to ensure that producers and consumers can clearly estimate their tax liability when they plan activities.

• Minimization of collection lags.In an inflationary environment the real value of tax receipts may decline substantially when there are long lags in payments. High penalties are necessary to ensure that legal delays are not compounded by delinquency lags.

• Tax neutrality.The tax system should finance government operations with the least cost and disturbance to the patterns of production, and the generation and use of income. Hence, neutrality of the tax system is considered desirable, in the sense that distortions in incentives should be limited unless there are compelling reasons to discourage the production, consumption or trade of a particular commodity. The activity, most profitable before tax, should remain most attractive after tax.

Based on: Macroeconomic Adjustment, IMF Institute
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