Introduction
Any country will adopt a particular tax system as a way of solving most of the social and economic problems faced by the nation. Therefore, the major purpose of the system will be in raising revenue for use in improving public services and infrastructure which all the people will have to rely on. When a system of taxation in any country becomes flawed and ineffective, it calls for the country to come up with better systems so that socio-economic developments may be realised. In a study by Bradley (2006) it was found that different governments will be needed to have more revenue so that they can provide the necessary healthcare, education and security to all its population. This can only be achieved through an effective tax system which addresses all the loopholes and off-shelters without necessarily having to impose exorbitant taxation rates on the population. There is different taxation systems like the Personal Income Tax, PIT, which is a method of taxation whereby the tax is levied on the income of an individual person. Here, the term a person stands for an individual, some ordinary partnership business, a non-juristic person or body, and an estate that has not been divided. In his study (Brian, 2005) suggested that generally, the individual who will have PIT imposed on is supposed to compute accurately his liabilities to tax, his tax returns, and eventually pay the tax on a yearly basis.
Personal Income Tax System and Tax Player Participation
The personal income tax system is known to be the most progressive taxation system and thus making it quite effective. This system is considered to be effective because it will raise over half of the federal revenue for a country like Hong Kong. This makes it very effective and the reason the necessary changes, when possible, have to be applied in order to improve the revenue collection. In a study by Skousen (2008) looking at the two, it appears that the personal income tax system is very effective as compared with player participation, although each will have a given impact on the economy. In order to raise additional revenue, it would be necessary for the governments to strengthen the existing personal income tax instead of increasing the major consumption taxes. Although it is known that the annual income may be quite far from being the perfect measure for the people’s ability in paying tax, it still remains the fairest method. The major difference between this income and player participation is that the latter won’t tax the income obtained on investments and savings. The indication is that this will greatly benefit the major income earners and give lesser benefits to the low earners.
Basically, it will be agreed that we cannot have enough taxation structures if we do not encourage tax payer participation. This means that the amount of revenue realised by any given organization will be dependent on the willingness in which players are willing to participate in tax paying. Player participation, therefore, will cover a number of sectors and tax systems unlike personal income tax system. A good example is with the company tax, which is as well very vital to the so called progressive system. According to Pechman (2008) this system taxes big companies while the personal income is based on individual and undivided sectors, or any form of business partnership. There should be an equity standpoint which acts as a backstop for the personal income tax system in making sure that all incomes by all investors, whether foreign or local, are appropriately taxed in order to make sure they do not shelter themselves under the personal income tax system.
Engaging Tax Player Participation
With tax player participation, it may not be easy to realise the necessary revenue for developmental purposes in a given country. In a study (Bradley, 2006) argued that different nations will apply different taxation systems and structures in order to engage maximum tax-player participation. There are a number of ways through which tax player participation can be encouraged. For instance, majority of citizens will have very little knowledge on how the governmental budgeting is done, the importance of tax, and how it will impact on the country’s development and stabilization. This means that, educating the people about issues to do with tax participation would be a great deal in ensuring that more players are engaged in the process. There should also be measures through which governments should strategically engage the public in all the affairs through civic education so that more taxes can be realised. In the book by Moore and Outslay (2008) it was found that this will ensure there is the development of a responsible citizenry which is both interested in policymaking and improving the economy. This form of education will serve as a very important tool in improving democracy, and especially in big countries.
There are also other measures of engaging player participation. For instance, there should be a good taxation system in a nation which can be effective in solving most of the problems faced. This will ensure more investors are attracted to the economy. This can be achieved if there are reduced taxation rates and people will be in a position of saving more. Tax rates can as well be dropped when it comes to investments, savings, and earnings, hence encouraging more player tax participation. In a study (Laffer, 2008) found that once that has been done, it is very clear that more and more investors will be willing to come to Hong Kong should a competitive taxation system be adapted. Also, there should penalties and laws which govern the way taxes have to be paid and especially with the personal income tax system. This will ensure that all people and companies registered under that system will pay the required tax within the stated dates.
Comparison of Hong Kong’s and United States’ Tax System
The Hong Kong tax system has generally been regarded to be relatively simple and as well favourable to the country’s taxpayer; this is upon comparison to many industrialised countries in the world. Hong Kong’s taxation system is 16 percent flat taxation on salaries. This is known as the income or salaries tax system which has been seen by experts as the simplest tax system the. With this form of taxation, no one in that country will be subject to more than this 16 percent on income tax. However, with this system, there are a number of personal exemptions for children and those depending on a given earner. In a study by Jefferson (2005) it was found that another important thing with this taxation system is that majority of the people in this country do not pay income tax.
The other important thing with Hong Kong’s system is on property taxes. In this country, these taxes are referred to as Government Rates. These have been known to be irritatingly exorbitant although not extortionate as such. According to the Revenue Authority in the country, one will pay about 16 percent in a year for the property’s constant assessable asset value. Many nations will consider the Hong Kong’s system to be offshore the limits of jurisdiction. The impression the country gives out is that it applies a common-sense territorial principle in its flat tax system. These taxation laws in Hong Kong have been extremely simple when compared with all other jurisdictions. This means that we can outline a number of fiscal advantages with the system. According to Isenbergh (2000) One, the rates are low and will outweigh any other form of monetary gain; two, the taxes are levied on Hong Kong’s income sourced inside the territory only. With the system, there are absolutely no capital-gain taxes, there are no taxes withheld, no value added taxes, and no sales taxes. This has been considered as a loophole which might see many people not paying the appropriate tax which would increase the country’s revenue.
While the U.S. income taxation law has been quite complex, the underlying basics are relatively easy to comprehend. Simplifying it in a greater way, the gross income is the major source of income for taxation. This gross income is reduced with any exclusion. According to the system, exclusion will be anything that the Congress has announced not to be included by the taxpayer for his taxable amount. This includes the amount paid to insurance and accommodation by the employer. In a study by Laffer (2008) it was found that exclusions, which are as well known as deductions will be something left for legislation grace. This is to say that the taxpayers will not deduct from the gross amount any item that has not been allowed by the Congress. When it comes to individuals, the Adjusted Gross Income, AGI, will be the gross amount less any above-line exclusions. These above-line exclusions are any form of business or trade deductions, moving expenses and alimony. The taxable income or amount will be the AGI minus the stated exclusions. In the book by Mitchel and Chris (2008) it was found that there are also some allowable individual exemptions like the payer and spouse joint taxing, or with the dependants. Basically, the indication is that the system of taxation is not based on a flat system like with Hong Kong’s. As well, the itemized deductions will include some other deduction like medical expenses not stated above.
According to Hall and Rabushka (2003), the taxable amount will then be multiplied with the appropriate taxation so that the payable tax can be arrived at (p. 45). Other factors like tax credits will tend to lower the owed tax. The indication is that the tax credits will be valuable than some of the deductions that have to be made on the same income amount since the deductions will be applied before arriving at the taxation rate. With the system, there are a number of incomes derived in the country. Ordinary incomes will include things like compensation towards personal services which may include the salaries and wages, dividends and business profits, and interest incomes. Over the years, the Congress has been showing preference towards the long-term investments by having the capital gain taxation rates being lower from the ordinary income rates. However, it is very true that the long-term gains on capital will get the necessary preferential treatments. As well, some complications may come from a number of distinctions from different categories. Basically, when someone speaks of tax rate in the country, what he means is marginal taxation rate applied on ordinary income.
With the American System, there are a number of differences that exist from that of Hong Kong. This system of taxation has been an integration of the worldwide systems whereby all the companies and people in the country are supposed to pay tax regardless of where the income has been earned unlike with the Hong Kong’s system. All the profits and income earned from the overseas activities will have to be taxed. In his study Gordon (2002) suggested that this is similar to the systems applied in Japan and United Kingdom. As well, there are a number of issues which experts have been pointing out with the U.S. corporate tax system. They have also argued that the system is biased when it comes to efficiency, investment, and is as well very complex. The system of taxing the corporation has as well been quite uncompetitive as with other nations. This has been the reason, experts say, why the country has been recording reduced receipts from the taxation system. Also, a number of companies have been relocating their economic operations into overseas. In a study (Hildreth, 2009) argued that there has been less competition with the corporate tax system and the reason many feel that reforms would be necessary.
Having seen the nature of the American Taxation system, we can say that it is better of once compared with the Hong Kong’s tax system. Should the country adopt this system, it is likely that more and more tax players may not be willing to pay tax actively as it has been in the country. Looking at the country’s taxation system, it will occur that all people pay at rate of sixteen percent of their income, with more other not paying tax. However, having noted some of the major ways through which player participation can be engaged, it would be necessary that the country adapts a better system so that it can get much more revenues in developing the country’s economy. In a study by Tang (2008) it was found that once the US tax system is applied in the country, it will necessarily bring better changes on the taxation system which would be effective for economic development, but that does not mean that more and more people will be willing to participate in tax payment. With the Hong Kong’s flat tax system, majority of companies overseas will not pay tax to the country since the income was not earned on that soil, but with the US system, this will have to change, and by so doing the companies may have to change their registrations so that they won’t end up paying more taxes they had not been used to.
Table 1: Year income-tax rates and brackets in United States (in US dollars)
Note: These values have been varying from one year to the other
Table 2: Gain rates in Hong Kong (in percentages)
Appropriate Tax System
Looking at Hong Kong’s tax system, we will realise that it has not been giving the country the necessary revenues which can bring about economic development and sustenance. One way through which this system can be changed is through reduction of taxation on salaries to something lesser than the current 16 percent. This can ensure that the people are free to pay taxes, but on the other hand, it will be seen that the major source of revenue for the government has been coming from the people’s salaries and hence it is possible that the country may run out of funds for development. Therefore, we object to this move since the government cannot in any way improve tax player participation through reducing the percentage tax levied on salaries. According to Isenbergh (2000) this hence calls for some other systems which will improve revenue collection while at the very time maintaining the appropriate tax player participation.
Having seen some of these important issues, it would be necessary that we suggest the personal income tax system which can be integrated with the corporate tax system to bring a hybrid system which will give the government better returns while at the same time improving player participation. This reform should therefore be done in a more consistent manner which broadens the tax base. In his study (Tang, 2008) suggested that this will be effective in improving fairness and efficiency in the economic structures. This will ensure that the people will pay their tax depending on their income so that we do not end up having some people paying exorbitant amounts in tax while they earn very little salaries. This will ensure that different rates of income will be taxed differently and high earners won’t be in a position of using any loopholes in reducing their taxes as it has been happening over the years. According to Berry (2001) what is being advocated for here is what experts will refer to as ‘fairest approach’. Moving closer to an applicable income tax system or a dual income tax system will be a fairer system than this flat system being applied in the country.
Conclusion
In conclusion, we can agree that the best thing for Hong Kong to do is to reform its flat tax system so that the country can be in a position of getting the necessary revenue which will facilitate economic development. Once a fairer system has been adopted, different incomes will be taxed differently so that tax is not weighed on some individuals than others. Again, the new system will hold all companies and investors liable to taxes which would be a big boost to the country’s economy. The most important reason why a reputable system will be necessary is because it will improve player participation when it comes to the payment of taxes. This will eventually promote development and improve people’s living standards.
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