How Do You Make The Tax Change Correct From the Start

Prior to any tax policy proposal being put into place, it should be subjected to a thorough evaluation to determine whether it's the most effective option to achieve its goal at a reasonable cost. The number of tax reforms that are now or in the near future be considered is enormous, and we're concerned regarding whether they'll go through enough analysis to judge whether they are clearly efficient and effective in achieving important objectives without burdening the tax system.



Set the goals and investigate the possibilities.

The first step to get the tax changes right is to define the goal of the tax policy to be achieved. For instance, maybe the objective is to increase the use of green methods and equipment to decrease pollution and other negative effects on the environment.

With this in mind, it is now time to determine whether a tax-related initiative or incentive is the most effective way to get the desired outcome. In the past, policymakers in Canada appear to have had an interest in using the tax system over other methods, such as direct funding, grants, or other subsidies.

Evaluate the design options and practical considerations.

If a tax overhaul is thought to be the best method, all possible design options must be thoroughly analyzed from both practical and conceptual viewpoints to find which option has the greatest chances of success. Whatever the theoretical merits of the idea might be, however, it will have a slim chance of success if it will be difficult to implement.

Balance efficiency and complexity.

A significant part of the analysis must ensure that the tax change is carried out in a manner that is balanced between efficiency and the level of complexity. Sometimes, a tax law could be created to deter certain behaviors generally or to prevent taxpayers from taking benefit of a larger beneficial tax reduction. This is often an exchange of benefits—if everything that is possible is made to ensure the integrity of a rule and rigor, the rule could be so complicated that taxpayers will be unable to comprehend and follow. This may deter taxpayers from adhering to the rules or the rule to be applied incorrectly, which could render the rule useless.

Look out for collateral damage.

If rules are not sufficiently defined, they can be caught by certain taxpayers or facts inadvertently. Tax policymakers should be aware of these kinds of collateral damages, for instance, when establishing rules that block certain outcomes or raise the reporting obligations.

Tax administrations may also suffer unexpected effects from the broader nature of tax laws. In particular, with every amount of complexity that an amendment to tax rules adds in the tax code, the aim of streamlining and automating tax returns filing for the vulnerable Canadians becomes more away.

Protect yourself from windfalls and take effective measures.

In determining tax incentives that stimulate certain types of behaviors or investments, the government must be aware of the potential for tax gains—that is, taxpayers shouldn't get tax benefits in exchange for actions they would have otherwise done.

Tax incentives, too, should only be offered when it is demonstrated that they will actually encourage the actions desired by taxpayers.