The Good, The Bad, & The Ugly of Tax
L ike the old spaghetti western movie,
our current taxation condition can be
analogous to the triad relationship
between The Good, The Bad, and The Ugly. The
Good is the symbol of tax abiding citizen. While
The Bad is the representative of the evaders,
including corporations, with all its kinds of tax
aggresiveness. Then The Ugly represents the tax
regulations. What do I mean by ugly? Tax
regulations over the years have simply become
uglier, much more complex than ever. This
complex tax system makes some new problems,
taxpayer become more reluctant to pay, more
loopholes to exploit, more rules from The Ugly to
evade by The Bad, and finally The Good was
betrayed. This is why the principle of simplicity is
important: the more complex the tax design, the
more lawyers and accountants will find loopholes,
encourage the appearance of unfairness, and
drive up the cost of its administration.
Why'd you have to go and make things so
complicated? A lyric from one song American pop
singer Avril Lavigne, the same questions to assess
the complexity of the rules. As we know that tax
rules was made, one of them is fulfilling the
principle of equality. Vertical equality reflects the
widely held belief that those who have more
should pay a greater proportion of their
resources in tax. But the idea of treating people
equitably is what complicates tax system more
than anything else. Arguments of economic
efficiency, fairness, and effect on tax rates aside,
various credits and deductions increase the
complexity of the tax code and the costs of
paying taxes. Slemrod (1992) stated that the tax
regulations and complex administrative
potentially make taxpayers find it difficult to
meet their tax obligations, thus make them spend
more time and cost. Makes administering the tax
system more time-consuming and costly. And
more complicated systems have lower levels of
compliance.
Why dont we make the simple ones? On
the other hand, the simple regulatory and
administrative systems may not be able to meet
the objectives of taxation as expected by the
state. Tax simplicity almost always conflicts with
other policy goals. Our tax system could be
simple if its only purpose were to raise revenue.
But it has other goals, including fairness,
efficiency, and enforceability. And government
has used the tax system to influence social policy
as well as to deliver benefits for specific groups
and industries. As a result, policies usually
represent a balance among competing goals, and
simplicity often loses out to other priorities. For
example, Indonesia tailor tax burdens to the
characteristics of individual taxpayers. That can
make taxes fairer, but more complex.
So what should we do? Try to see from the
different perspective. Simpler taxes have
numerous benefits. Margaret McKechar (2007)
stated simple policy is a precondition to having
laws that are simple to understand, to implement,
and to administer. To some (uncertain) extent,
people do not pay taxes because they do not
understand the tax law. Clarifying and simplifying
tax rules can only help to make people
understand the law better, and would likely make
it easier to enforce tax law as well. People know
that with simple taxes other parties are also
paying their fair share, and all this enhances the
legitimacy and therefore the compliance of the
tax system. Although Forest & Sheffrin (2002)
- There is Beauty in Simplicity -
stated that simplifying the tax system may not be
an effective deterrent to tax evasion because
taxpayers do not necessarily consider a complex
tax system to be unfair.
But still, its worth to try! As a purely
technical matter, tax complexity and tax evasion
can be reduced, and tax administration can be
made more just and efficient. As a political and
policy matter, however, making these
improvements has proven quite difficult. Efforts
to simplify the tax system typically run up against
conflict with other tax policy goals, political
factors, taxpayers efforts to avoid and evade
taxes, and revenue requirements. Thus,
simplification is an important goal of tax reform,
but lasting and significant simplification may
prove difficult to establish. Policy makers and
grassroots should, therefore, weigh the costs and
benefits of simplification against the other goals
of tax policy. And finally we hope that The Bad
can turn to be the Good while The Ugly turns to
be The Beauty.