Characteristics of A Good Taxation System

Running head: TAX
Tax
Name of the Student
Name of the University
Author Note

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Table of Contents
Part A...............................................................................................................................................2
Functions of Taxation..................................................................................................................2
Characteristics of a good taxation system....................................................................................2
Tax imposed by Western Australia..............................................................................................2
Evaluation of the State Tax..........................................................................................................4
Part B............................................................................................................................................4
Ways of Improving the Gambling Tax of Western Australia......................................................4
Part C............................................................................................................................................6
References....................................................................................................................................8

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Part A
Functions of Taxation
Tax can be defined as the amount collected by the government from the general public
from the annual income and profits earned by them. All forms of involuntary levies imposed by
the government are covered under the term ‘taxation’. Some of the different type of taxes levied
by the government include Income Tax, Corporate Tax, Property Tax, Sales Tax and Inheritance
Tax. The primary function of taxation is to finance the expenditure incurred by the Federal and
State governments of a nation by raising revenues for the government (Kiprotich, 2016). The
other purpose of the taxation system is to act as a specialised instrument for allocation of the
resources and charge taxes from people on the basis of the income earned by them. The other
important functions of the taxation system include stimulating growth, preventing exploitation of
resources and promote fair competition in different industries of a nation.
Characteristics of a good taxation system
In general, the most commonly observes features amongst a good taxation system include
fairness, transparency, simplicity, adequacy and ease of understanding. The tax regulations
imposed by the government should be easy to understand and generally considered to be fair by a
majority of the taxpayers of a nation (Luttmer & Singhal, 2014). The costs involved in
maintaining the taxes should also be not very high as the taxes collected by the government
should be utilised for other important purposes.
Tax imposed by Western Australia
In Australia, the majority of the taxes paid by an individual are levied by the federal
government and collected through the Australian Taxation Office (ATO). However, some of the

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taxes are also levied by the State Governments and the local authorities. The guidelines of these
taxes are recommended by the authorities of the State. One such form of taxes levied by the state
of Western Australia is the Gambling Taxes (Treasury.wa.gov.au, 2020). In these taxes, the
amount levied on the revenue of the Lotteries Commission are quite significant. These are
mainly governed by the regulations of the Lotteries Commission of Western Australia which was
set up in 1932 to raise money for the charitable organisations and hospitals. This Commission
operates under the Lotteries Commission Act 1990. The taxes that are charged from the revenues
of the Lotteries Commission of Western Australia (WA) are segregated into different categories.
In WA, a 12.5% tax is charged on the net subscriptions of the organisations approved by the
Commission. Here, net subscriptions is calculated by adding the commission amount to the
revenue from sales and deducting the prize liability of the competition. A further 40% taxes are
to be paid to the State Pool Account and 5% taxes are paid to the Spots Lotteries Account.
Additional 5% taxes are to be paid to the Arts Lotteries account and an additional 5% taxes are to
be paid to the Festival of Perth and the WA film industry (Lotterywest.wa.gov.au. 2020). After
the agreement between the various state governments, there has been a reduction in the gambling
tax rates of states from 1 July 2000 to also be able to charge GST in the state. As a part of these
reimbursements, the Lotteries Commission received $39.2 million from the state government.
Other taxes which form a part of the gambling taxes include the Casino Taxes and the Betting
Taxes collected by the government. The casino taxes are charged at different rates like 12.92%,
12.42%, 9.37% and 1.75% on the basis of the game conducted by the Casino. In the betting tax,
initially the tax free threshold was $150000 but was changed to $75000 from 1 January 2019 to
30 June 2019. This ‘point of consumption’ levy increases the complexity involved in
understanding the tax system.

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Evaluation of the State Tax
The gambling taxes charged from the Lotteries Commission can be suggested as a good
taxation system. This is because of their operating mechanism. The taxes are levied by the
government on the basis of the revenues earned by the Commission less prize liability.
Deducting the prize liability from the hands of the Commission ensures the avoidance of Double
Taxation and the taxes on winnings are only paid by the final consumers. Hence, it is evident that
the taxes charged by the government are extremely fair and do not levy any unnecessary burden
on the Commission or the final taxpayer. The description of the taxes is stated very clearly by the
State government. The taxes collected from the Lotteries Commission are used for a variety of
purposes like the State Pool Account, Sports Lotteries Account and the Arts Lotteries Account.
This suggests that the taxes are transparent in nature and there is a clarity about the manner in
which they will be spent by the government. In other states like New South Wales and Victoria,
this tax is as high as 76.918% and 79.4% and there is also a lack of clarity about the manner in
which they are being spent by the government. The fairness aspect is also significant as the tax is
not unreasonably high like in Tasmania and Victoria or is very low such as the 41% in South
Australia. This tax is also easy to understand in terms of the payments made by the Commission
to the government. However, there are also a few aspects regarding this tax which are not very
clear.
Part B
Ways of Improving the Gambling Tax of Western Australia
At present, the manner in which the taxes from the Lotteries Commission is charged is
very clear in terms of calculating the tax liability and the payments made to the different
Associations from the revenue generated through the tax payments. However, there are a few

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areas in which this system can be significantly improved upon by the State government of
Western Australia. One of them includes the impact of GST on the taxes. While the Lotteries
Commission received a GST reimbursement worth $39.2 million in the year 2018-19, the
manner in which it is calculated by the government or the reimbursement provided to the
Commission is complex in nature and not very easy to understand. While the tax system supports
different products provided by the Lotteries Commission, there has been a decline in the
revenues collected by the Western Australia government. The nominal revenues collected fell
from $179.6 million in 2018-19 to $163.6 million in 2019-20. Similarly, the real revenues
collected by the government reduced from $182.8 million in 2018-19 to $163.6 million in 2019-
20. One of the reasons for the same is the reduction in the products offered by the Lotteries
Commission. Previously offered products like the Soccer pool ceased to be offered from 2018.
This is another area in which the taxation system can be improved. Including additional products
results in the generation of more revenue from the activities of the Commission. Hence, a slight
reduction in the tax rates will result in an increase in the revenues generated from the products
utilised by the Commission. The current revenues generated from the taxes collected by the state
government are used for a variety of reasons like State Pool Account, State Lotteries Account
and Film Festivals. However, there is a better manner in which these taxes can be utilised for the
benefit of the public. A consolidation fund should be started by the government to directly
collect the tax revenues from the taxpayers and the Lotteries Commission. This results in a
reduction in the complexities involved in the tax system like the different contributions made to
various associations across the country (James, Sawyer & Wallschutzky, 2015). The spending of
the tax revenue should be increased with regards to areas like the contribution of funds towards
the healthcare of the individuals. As the lotteries are entered into by all members of the

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population of the state, the contribution should also be made towards the benefit of all the
individuals belonging to a country. The current nature of the taxes are extremely complicated to
calculate and maintain. Simplifying the tax further would result in the better understanding of the
tax system by the individuals entering into lottery contests during a year (Rankin, 2017). The
other forms of gambling taxes like the casino tax and the betting taxes can also be improved
upon by the government. Similarly, other forms of betting taxes like the racing bets levy are also
extremely complicated in nature. The different tax rates charged towards different races like
standard and premium race meetings discourages the people from conducting races of higher
amounts. The concepts involved in this system like Non-exchange fixed odds bets and other
forms of bets are also difficult to understand for the taxpayers. While the complications of the
tax provisions makes it difficult to understand the amount of tax and the manner in which it is
charged, there has been a steady increase in the revenues generated by the betting taxes levied by
the government. In order to continue this collection of revenues, the government should work
towards simplifying the point of consumption scheme and also increase the ease with which the
tax is charged from the parties involved in conducting betting in race tracks. It has been found
that a majority of the taxes levied in Australia are extremely costly in maintaining and collecting
due to the excessive funds involved in managing them. This needs to be reduced to ensure a
better distribution of the tax revenues for the welfare of the public (Braithwaite & Reinhart,
2019).
Part C
The Goods and Services Tax (GST) in Australia 1999 (GST Act) was passed to collect
taxes from a variety of goods and services consumed and sold in Australia. In the given situation,
the property of Jon is related to two aspects defined in GST. One of them is related to the term

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‘residential property’ and the other is related to the term ‘commercial property’ (GST and
residential property, 2020). Places like shops and factories are covered as examples of
‘commercial property’ and the sellers are required to be registered under GST and are liable to
pay GST on their sale. Tax credits are available in relation to the purchases made in the future. A
residential property includes houses, flats, units and other buildings which are charged under
GST if the property is sold by a registered party. In the given situation, Jon is selling a two-
storey building which has both commercial and a residential premises. The business premises is
a taxable supply while the residential property can be constituted under a mixed supply
(Ato.gov.au, 2020). In this case, the margin scheme can be applied to the taxable part of the sale.
Hence, GST is to be paid on the sale of the shop while the amount of GST on the sale of the
residential property can be used in reducing the tax liability from the purchase of the property.

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References
Ato.gov.au. (2020) Retrieved 19 January 2020, from
https://www.ato.gov.au/uploadedFiles/Content/ITX/downloads/ITX21960.pdf
Braithwaite, V., & Reinhart, M. (2019). The Taxpayers' Charter: Does the Australian Tax Office
comply and who benefits?. Centre for Tax System Integrity (CTSI), Research School of
Social Sciences, The Australian National University.
GST and residential property. (2020). Ato.gov.au. Retrieved 19 January 2020, from
https://www.ato.gov.au/Business/GST/In-detail/Your-industry/Property/GST-and-
residential-property/
James, S., Sawyer, A., & Wallschutzky, I. (2015). Tax simplification: A review of initiatives in
Australia, New Zealand and the United Kingdom. eJTR, 13, 280.
Kiprotich, B. A. (2016). Principles of taxation. governance, 5(7), 341-352.
Lotterywest.wa.gov.au. (2020). Retrieved 19 January 2020, from
https://www.lotterywest.wa.gov.au/
Luttmer, E. F., & Singhal, M. (2014). Tax morale. Journal of Economic Perspectives, 28(4),
149-68.
Rankin, K. (2017). Public equity and tax-benefit reform.
Treasury.wa.gov.au. (2020) Retrieved 19 January 2020, from
https://www.treasury.wa.gov.au/uploadedFiles/Site-content/State_Taxes/Overview-of-
State-Taxes-and-Royalties-2019-20.pdf