Tax Reform

Tax reform is a way of changing the government’s tax collecting system. Many countries around the world have adopted tax reform to improve the tax management system and reduce the tax level of people who are unable to afford high rates.

Personal Income Tax Reform:

Before the reforms were initiated the countries suffered from high income and corporate tax rates. Therefore the tax administration was getting very difficult and tax avoidance became a common practice. So personal income tax reform was adopted.

Globalization plays a major role in the tax reform process in a world of increasing international flow of capital. So governments of many countries are trying to minimize the burden of income tax on the people.

The first step of income tax reform is the minimization of the tax rates. Many developed countries have reduced the tax rate by 15 – 25%, but at the same time the corporate tax rate is increased for better tax compliance.

An efficient design of tax rate schedule is very important for taxation. A progressive tax rate schedule may bring distortion in the tax payers’ economic behavior which will be the reason of inefficiency.

Corporate Tax Reform:

In many countries tax is imposed on the corporate profits.. However, corporate income tax was taken on the basis of the accounting profits calculated according to the historical costs. Through reform, several modifications have been made to increase the profit to counter inflation or for providing incentives to the social and economical activities.