Fundamental Tax Reform

Fundamental tax reform is that type of tax reform, which refers to the total replacement of the existing tax structure or its major constituents with a new tax structure. Fundamental tax reforms try to ensure that the tax system is beneficial both to the government and the taxpayers.

Fundamental tax reforms should be carried out in such a way so that the taxpayers are able to comprehend the tax system easily and the rules and regulations under the tax structure should be simple in nature.

Fundamental tax reform carries a substantial degree of importance and it depends on the following factors:

Fundamental tax reform is necessary for increasing the efficiency and reducing the complicated nature of a tax system. It would also increase the clarity of the tax infrastructure.

• A tax structure can only be simplified with the help of fundamental tax reform. The principles of tax reform should be consistent in nature.
  
  
• Fundamental tax reform carries a lot of potentials. The Tax Reform Act of 1986 has widened the income tax base and the rates of income tax have also been diminished. Nevertheless, some more reforms are necessary to reduce the complications that are involved in the tax system.
  
  
• Fundamental tax reform should concentrate on the tax base.
  
  
• The tax base is coherently different from the tax rates
  
  
• Fundamental tax reform should commence by getting rid of every types of direct taxes levied on capital and it suggests a trend towards a uniform consumption base
  
  
• Every consumption tax should not be designed similarly. The consumption tax can be broadly categorized into two types. In case of the first one, the tax is levied directly, for example, a wage tax or a yield-exempt or prepaid consumption tax. According to the second type of consumption tax, a single tax is levied on the backend, for example sales tax or a postpaid consumption tax.
  
  
• A postpaid, progressive and uniform consumption tax is a form of tax, which is imposed on the return to capital and this is levied under the most suitable and reasonable situations for taxing that return.
  
  
• The existent tax policy is channelized in the direction of a prepaid and flat consumption tax.
  
  
• The execution of a postpaid, progressive and uniform consumption tax is pragmatic and necessary.