What is Tax Reform?

Tax reform is a policy implementation by the government through

which few alterations are made into the tax system in order to overcome
the loopholes and enhance the effectiveness of the tax administration in
the country in order to generate higher revenues from taxes as
compared to the overall spending.

Explanation
Tax reform, as the name suggests, is a kind of reform made in the tax
system of a nation that can help the government of the same in
minimizing the chances of tax evasion and avoidance. It brings
sustainability in the revenue levels, addresses issues and conflicts
concerning inequality employing behavior change and redistribution,
and also aids in the development of a nation.

Purpose
Tax reform is introduced for multiple purposes. The first and foremost
purpose is to minimize the slightest of probabilities of avoidance and
evasion of the tax from the economy. Another purpose is to induce a
higher rate of sustainability in the revenue levels and directing the
public investments into desired avenues by means of providing tax
deductions, tax breaks, and tax exemptions. The ultimate purpose is
to enhance the overall functioning of the tax system and bring
economic growth in the country.

Objectives
 Tax reform is introduced to fulfill multiple objectives. It aims at
improving the efficiency of the tax administration and allowing it to
become more systematic by:

1. Decreasing the marginal tax rates.

2. Lowering the tax implication of savings and investment;
3. Lowering the occurrence and probabilities of tax avoidance and tax
evasion;
4. Lowering the total number of tax defaulters;
5. Improving economic decision-making;
6. Lowering the cost involved and time required to organize, plan and
implement the change in the tax system;
7. Uniform treatment in the case of industries, investments, and
properties.

Effects of Tax reform

The effects of such reform may not be the same for all taxpayers and
economies too. On the one hand, It might enhance the functioning of
the tax system while, on the other hand, it paves ways for political
pressures that are short term in nature. These reforms have somehow
contributed to the creation of certain tax incentives that has ultimately
lead to the distortion in the economy and have even marginalized not
just the efficiency of the tax system but has also allowed it to become
more fair and transparent as compared to what it used to be earlier.

Need for Tax reform

There has always been an undying need for the changes in the tax
system. The collection of taxes is necessary for funding the services
that are arranged and provided by the government of a country. The
tax system must be efficient enough for the collection of a sufficient
 amount of revenues and boosting the economic growth of a country.
No matter how systematic the tax system of a country is, the
taxpayers will find a way by identifying and taking advantage of the
loopholes in the system and avoid/ evade taxes. As a result of this, the
need has risen and ensures that the tax administration of a nation is
totally organized.

Benefits
 Reduces marginal tax rates;
 Ensures that there is the same treatment for all, whether it’s a
property, industry, or an investment.
 Tax reform ensures that the rate of tax evasion and avoidance gets
lowers down.
 It ensures that the tax structure gets fully organized.
 It simplifies tax laws and encourages compliance.
 It widens the tax base and reduces per capita tax by dividing the tax
burden by bringing more and more taxpayers under the umbrella.

Limitations
1. Ignores the fact that it is the impact of the overall tax administration
that is important and not just individual taxes.
2. It makes the tax system more complicated.
3. It ignores the fact that the slightest of change in the tax system can
have a huge impact on the masses.

Conclusion
Tax reform focuses on strengthening the current tax system and
widens out the tax base. Tax reform aims at enhancing the efficiency
of the overall tax system by lowering marginal tax rates, reducing
taxation on investment and savings, boosting the economic
development of the nations, lowering the number of tax defaulters,
etc.