Taxation now cite simplification as a justification

Taxation
became vital economic tools to govern economics for any country, especially to
developing countries like Malaysia. In other words, fund collected from
taxation used by the government to provide facilities for its population and
for the development of the nation. Other than that, income tax is one of the
way to make sure the government fund is available for spending. Inland Revenue Board
(IRB) has play their main role as an agent of Malaysian Government and to
provide services in administering, assessing, collecting and enforcing payment
of income tax and other revenue as may be agreed between the Government and the
Board.

Government
revenue has been classified to tax revenue, non-tax revenue and non-revenue
receipts. Tax revenues include both Direct and Indirect Taxes. Direct taxes are
collected by the IRB which consists of income tax from individuals, companies,
stamp duty and real property gains tax. While for indirect taxes the
responsibility of collection is taken by the Royal Customs and Excise
Department. Indirect taxes include import duties, excise duties, sales tax and
service tax. Non-tax revenues of the Malaysian Government consists of fees for
issue of licenses and permits, fees for specific services, proceeds from sale
of government assets, rental of government property, bank interests, returns
from government investments fines and forfeitures.

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SIMPLICITY

Simple tax laws are necessary so that
taxpayers understand the rules and can comply with them correctly and in a
cost-efficient manner. Simplicity in the tax system is important both to
taxpayers and tax administrators. Complex rules lead to errors and disrespect for
the system that can reduce compliance. Simplicity is important both to improve
the compliance process and to enable taxpayers to better understand the tax
consequences of transactions in which they engage in or plan to engage.

Tax simplification will benefit individual
taxpayers, businesses, federal and state tax agencies, and the economy. Many
politicians and tax administrators now cite simplification as a justification
when they initially propose changes to tax laws. Then, as these proposals
proceed through the legislative or regulatory process, budget considerations,
political agendas, and other policy objectives take precedence over the need
for simplification. The resulting tax law changes often increase, rather than
reduce, complexity.

For example, the government must view tax
simplification as a priority tax policy objective when developing legislation
and administrative guidance. Complexity is often overlooked in drafting
legislation because negative impacts on the tax system are often less obvious to
lawmakers trying to solve today’s” problems and only become apparent in the
long-term. The cumulative effect of undue complexity is highly detrimental and
should be addressed now, before the system fails to serve our nation’s revenue
needs. For lawmakers to seek simpler approaches, legislators must better
understand why the current law is difficult from both an administrative and
compliance perspective. They must also believe that a simpler tax law is
possible. Although some may view tax complexity as an insurmountable problem,
incremental steps toward simplification could help reduce complexity for many
taxpayers.

At both the federal and state level,
legislators cite various social and economic objectives as the justification
for tax law changes. Budget considerations then constrain the timing and extent
of these changes. Once lawmakers identify desired tax policy and revenue
objectives, the simplest and most transparent approaches to implementation
should be sought. Complex or multistep calculations should not be required.
Likewise, multiple provisions to achieve essentially the same or similar
objectives should be avoided. Alternative choices between deductions and
credits that require taxpayers to make multiple calculations to determine which
yields the greatest tax benefit should be kept to a minimum. Tax recordkeeping
should closely emulate normal business practices. The language used in
definitions, explanations, and eligibility requirements should be
understandable by the target group of taxpayers.

Individual taxpayers and businesses are
increasingly spending more time preparing tax-related forms and records. An
increasing number of taxpayers are incurring costs for tax guidebooks, tax
preparation software, and tax return preparation. Uncertainties and an
inability to understand the tax laws cause anxiety and frustration for many
taxpayers. Compliance costs, in terms of both time and money, should be
minimized for all taxpayers. Compliance costs also need to be commensurate with
the abilities, business sophistication, and resources of the affected
taxpayers. Higher compliance costs may be appropriate for complex business and
investment transactions, but not for small businesses and middle-income
taxpayers. Likewise, special provisions targeted to low-income taxpayers and
the elderly should not be so complicated and confusing that these individuals
must pay for tax return assistance to benefit.

 

PROTECT ECONOMIC
COMPETITIVENESS

 

A tax system
needs to reflect the realities of competing in a global economy. Information technologies
and other advances are reducing the significance of place in the conduct of
economic activity. No state can afford to ignore this by placing themselves at
a distinct comparative disadvantage relative to other states. Tax systems
should also be responsive to changing regulatory and competitive circumstances.

.           Most
everyone agrees that competition is vital to a well-functioning market economy.
Since the days of Adam Smith, economists have understood that the invisible
hand of the marketplace works only if producers of goods and services vie with
one another. Competition keeps prices low and provides an incentive to improve
and innovate. For much the same reason, competition among governments leads to
better governance. In choosing where to live, people can compare public
services and taxes. They are attracted to towns that use tax dollars wisely.
Competition keeps town managers alert. It prevents governments from exerting
substantial monopoly power over residents. If people feel that their taxes
exceed the value of their public services, they can go elsewhere. They can, as
economists put it, vote with their feet.

 

The
argument applies not only to people but also to capital. This is because
capital is more mobile than labor,
competition among governments significantly constrains how capital is taxed.
Corporations benefit from various government services, including infrastructure,
the protection of property rights and the enforcement of contracts. But if
taxes vastly exceed these benefits, businesses can and often do move to places
offering a better mix of taxes and services.