- Issues with PFM and Tax Policy
Despite its significance, tax policy frequently encounters a number of difficulties:
Tax Evasion and Avoidance: People and businesses might underpay taxes due to lax enforcement and legal loopholes.
Informal Economies: The tax base is constrained in many emerging nations by sizable informal sectors.
Complex Tax Codes: Excessively complex regulations make it more difficult to comply with them and decrease productivity.
Political Interference: Vested interests and short-term political objectives may cause tax reforms to be postponed or weakened.
Low Capacity: In certain nations, tax administrations might not have the means or know-how to put policies into place that work.
- Techniques for Improving PFM’s Tax Policy
Governments can do the following to increase the efficiency of tax policy in handling public finances:
Expand the Tax Base: To guarantee greater coverage, eliminate exemptions and incorporate the unorganized sector.
Invest in digital technologies, increase audit capabilities, and provide staff training to improve tax administration.
Encourage Taxpayer Education: Raise awareness and conduct outreach to promote voluntary compliance.
Put progressive taxation into practice by creating structures that safeguard low-income individuals and promote equity.
Stop Illicit Financial Flows: Enforce stricter tax evasion rules, especially through international collaboration.
Connect Taxation to Service Delivery: Establish credibility by proving that tax money is spent wisely.
- Final thoughts
A key component of managing public finances is tax policy. It makes it possible for governments to increase revenue, advance economic stability, and accomplish social goals. Tax systems need to be equitable, effective, transparent, and flexible in order to work well. Countries can guarantee equitable and sustainable development supported by a strong foundation of public financial integrity by consistently enhancing administration and changing tax laws.
Author: Mohamed Yasin
