Tax Law

Australia CGT’s reflection on Tax Policy Criteria

Tax plays an important role in a country’s development, and is necessary for a society to survive and move forward. While a favorite tax system is more important to a society’s economic growth to create a better community. For long term, people have developed four criteria to help design a tax system. These four criteria are used to design a tax system (Kenny 2010). In1985, Australian government introduced capital gains tax to eliminate tax avoidance. In recent Henry report, he analyzes CGT based on the four elements and claims that the introduction of CGT is problematic. In this essay, it will firstly explain the four criteria and their definitions. Then it will talk about how the CGT reflects on the four criteria. It is followed by the impact of the change which is related to both indexation method and discount method for calculation of the CGT. Finally, this paper will have a bit of discussion to the GST in Australia and China. It is argued that the introduction of GST cannot fully meet the four criteria of designing a tax policy; CGT is problematic same as Henry’s point of view.

The four criteria used to design a tax system are fiscal adequacy, economic efficiency, equity and simplicity respectively. Fiscal adequacy means how much tax a government should collect to support a country’s development. Economic efficiency can be defined as the situation when the resources are efficiently allocated to people who need them most within their ability (Kenny 2005). Equity can be categorized into horizontal equity and vertical equity. Horizontal equity deals with the people who have same income threshold or have an equal ability pay the same amount of tax. While Vertical equity means imposing different tax rates on people in different circumstances. Simplicity can be explained as the degree of difficulty of establishing the amount of tax liability,...