Wednesday, October 21, 2009

Tax Reform Will Have Benefits, But Big Brother Will Still Be Watching

Once again, the proposal to abolish income tax returns for ordinary workers has sprung back to prominence, only this time it might actually happen. It’s an idea which has been put forward many times before, and it involves replacing the current complex 200 page tax pack questionnaire with a single page document. This single page would list your income, the tax you have paid, and a standard deduction figure for work related expenses, and it would offer you the opportunity to simply tick the box indicating that you accept the assessment and your refund would be in you account within 14 days. If you don’t accept the assessment, you still have the option of doing it the old fashioned way and filling out all that paperwork.

For most people, the simplified option is not only very appealing because it relieves them of the need to wade through mountains of paperwork, but it also makes a lot of sense. The government already knows how much salary you were paid along with how much tax has been collected from your pay packet, because your employer has provided that information. The government already knows how much you have received from Centrelink because they are the ones who paid you. They already know how much interest you earn on your deposits and how much you are paid in dividends from your share holdings. Why on earth should we have to fill out page after page of forms telling them all the things they already know?

Not only does this make life easier for the tax payer, it also reduces the workload for the Tax Office and makes the whole process immensely more efficient. Time spent processing claims will be dramatically reduced, and everybody will be much better off. Of course, if your affairs are more complex because you have investments or you are self employed, this method would not be appropriate, but for the majority of taxpayers it will be a vast improvement. In fact, the only thing better would be not having to pay tax at all.

Now there’s a thought. If the idea is to make the system more efficient why not allow low income earners to be removed from the income tax system altogether. Already the combination of rebates and allowances, along with welfare payments, provides a result where low income earners pay no tax on balance, but still they have to go through the process of pay-as-you-go, before claiming a refund. Surely it would be more efficient if they weren’t paying the tax at all in the first place. That would further reduce the compliance burden for both the individual and the Tax Office, and allow people to have their money in their hands as they earned it, not at the end of the tax year as a refund.

But wait a minute. That’s never going to happen, because if people were removed from the tax system altogether, how would the government keep track of us all? You can bet Big brother wouldn’t like that at all.

No comments: