Essay: Critically assess the extent to which the personal income tax can be regarded as a good tax

Introduction
Income is considered as the main indicator of tax paying ability. Since taxation is now focused on controlling economic conditions whilst keeping equal distribution of income, the primary concern of most countries’ governments is to have a pleasing income tax system. Progressive income tax structures are generally encouraged to best serve equity during the course of allocation of tax burdens. Literature and economic theory define tax being “good” with at least 4 main characteristics of the system, first contributed by Adam Smith’s famous book, “The Wealth of Nations” (Smith, 1776).
Smith’s Canons
Equity
Adam Smith wrote that “the subjects of every state ought to contribute towards the supports of the Government, as nearly as possible, in proportion to their respective abilities, that is, in proportion to their revenue which they enjoy under the protection of the state” (Smith, 1776).. It is in favour of a progressive tax structure and implies that tax should be paid on a rate schedule. The UK uses this system on their income tax, with an allowance of £11,850 (as of 2018/19) (UK Government, 2017) tax free to help low receivers of income, and anything over is taxed at various rates based on the band in which they fall. The design of the rate schedule should reflect the best available evidence on how responsive people at different income levels are.
Certainty
This cannon suggests that the tax needed to be paid, the place and other procedural information should be certain to the tax payer. This protects the individual from exploitation from the tax authorities. This also means the government should be able to estimate the tax yield within a certain degree of accuracy, so expenses can be managed. The system should have some degree of flexibility so that changes are possible without damaging the economy or contentment of the people. It must cope with the changing needs of politics, with tax rates changing year on year to deal with contributing factors, but should clearly be announced, and change of leadership in short successions, with a minimum of 5 years in the UK.
Convenience
Every tax should be levied in such a manner and at such a time that it gives the tax payer maximum convenience. Tax in the UK is generally collected by either taking from the tax payer before they receive the rest of the money, known as the Pay As You Earn (PAYE) system, or they pay it directly to the government (HMRC).
Economy
The cost of collecting tax should be the minimum so that a major part of collection is towards the treasury. If administration expenses consumes a large portion of tax revenue, it cannot be said it is a good tax system. Tax systems vary around the world due to historical and institutional differences, but any good system must seek the least aggregate sacrifice in its tax policies. For 2018, the UK government spent 2% of their total spending on general government where HMRC is included (Chantrill, 2019).
Extra Characteristics
Simplicity
Tax should be so simple that any tax payer can understand its computation and complications without the help of an expert. It would also reduce the chance of tax evasion as it will not bother the individual to pay tax. A simple tax system is also beneficial for the government due to spending less time and money. A tax system that treats similar economic activities in similar ways for tax purposes will tend to be simpler and avoid discrimination between people and economic activities. However it can sometimes be efficient to discriminate between different activities for tax purposes, such as UK taxes on alcohol and tobacco, and other things that harm others and the environment.
Desirability
A tax should be desirable so that the government may defend itself against public criticism, by supporting its expediency. An unjust tax will always face sharp unwillingness on the part of the tax payers to pay and they will try to evade them, every new tax must have a justification to create a feeling of acceptance. Dalton stated that “in a good tax system, there should be a double illusion that the rich should pay more than what they think they should, so the rich will be contented and the poor become virtuous and in this way, the incentive to work and save will be sustained”.
Issues with UK Tax System
The UK needs to change the separate systems of income tax and National Insurance, with different sets of rules and exemptions, pointlessly increasing administration and compliance costs and making the system less transparent. NI is not a true social insurance scheme anymore; it is just another tax on earnings, which is added to the total revenue. The current tax and benefit system is unnecessarily complicated and convinces many people not to work or to work too little.
Coherence requires first that the income tax system itself be sensibly structured. We need to move away from pointless complexities such as that which any amount between £100,000 and £123,700 means the personal allowance reduces and can actually mean that some people would get more net income if they earned less.
Conclusion
A good tax system is one which has primarily good taxes and fulfils most of the canons of taxation. It should be a balanced system where there are all types of taxes in the right proportion. The tax and benefit system should therefore be progressive, coherent, and designed to reflect income distribution and how different groups respond to work incentives. In the current system, there are a disarray of tax rates, a lack of a coherent vision of the tax base, and arbitrary discrimination across different types of economic activities. However, income tax does fundamentally treat the individual proportionately equal and helps provide items all benefit from. Ultimately, a good tax system is definitely better than none.