There is a definition of tax in the Webster's Dictionary--"...a compulsory payment of a percentage of income, property value, sales price, etc. for the support of a government". In theory the collection of taxation should be fair, simple, efficient and neutral.
Australia inherited a convoluted and complex taxation structure from its British Colonial past. Australia's economy has become more dynamic, efficient and productive over recent decades. However, the tax system has only adapted slowly to these changes. In particular, Australia's high personal tax rates and low thresholds are uncompetitive by international standards.
Comparing the Australian Income tax system with the Eastern Europe (e.g. Russia), this paper provides an analysis and discussion of the Australian Income tax reform has become complex, inequitable, difficult to understand and almost impossible to implement effectively.
"The hardest thing to understand in the world is the income tax."1
The primary purpose of income taxation is to raise revenue for the governments.
The criteria of equity, simplicity, efficiency and neutrality are the traditional criteria used to evaluate how effectively a tax system carries out its purpose of raising revenue. Since 1901 successive Australian Governments have struggled to find the "perfect" tax system to achieve those targets.
Nowadays, there are two main types of income taxation system. One is a progressive tax system which the Australian Income taxation system is; the other is a flat tax system which the Eastern Europe (e.g. Russia) uses. Comparing with the Eastern Europe, the Australian Income tax system does not have only one single rate and has hundreds of deductions, credits, exclusions, etc. The Australian Income tax system can not produce the desired results. It sinks further into the mire of confusion, clouded by deception and self interest. Following is the brief review.
1. Fairness or Equity