Tax is a fee collected by the Government of a country on activities, income, or products. There are two types of taxes which are direct and indirect. This tax aims to finance a government's expenditure for the country's welfare. Whereas; Rationalization is the reorganization of the tax policy to increase its operating efficiency. The reorganization may lead to an expansion or reduction in size, a change of policy, or an alteration of the strategy of a particular project. Like a reorganization, a rationalization is more widespread, encompassing design and structural changes. Rationalization is necessary for a government to increase profit, decrease capital costs, and improve its output.
Therefore, tax rate rationalization means restructuring the tax rate policy through which the procedure's efficiency can be increased. Like any other decision-making, tax rate rationalization should be built systematically among possible choices. The system should be made on the most concrete reasons and facts. One should employ a series of analytical stages to scrutinize relevant facts, observations, and thinkable outcomes before selecting a specific course of action.
Rationalization also refers to the process of becoming measurable and calculable. For example, introducing specific financial models or technologies rationalizes markets and makes them more efficient.
Rationalization is a process that most countries consider. That's because it aims to improve efficiency, eliminate waste, standardize processes, and ultimately boost the bottom line.
Depending on the country and its strategy, rationalization can result in the expansion or reduction in the size of the economy. It can also lead to structural changes.
Specifically, the rationalization process may involve government actions, including sales or closures of underperforming business segments, the expansion of outperforming segments, a complete restructuring of the country's financial structure, and a streamlining or modernizing of manufacturing or other operations.
There are many reasons for the need to rationalize tax rates. To name a few:
1. To reduce the cost of government expenditure;
2. To maximize revenue or profits;
3. To conserve resources;
4. To improve Government's transparency;
5. To eliminate idle and unnecessary projects; and
6. To update old machinery.
Pros of Rationalization of Tax rates:
It helps the Government become more efficient and boosts its productivity;
It allows the Government to implement modernized techniques and systems;
It lowers market volatility;
It can provide the workforce with better working conditions and higher pay;
It translates into a higher standard of living in society; and
It can lead to lower prices and better products for consumers.
Cons of Rationalization of Tax rates:
It emphasizes efficiency at the expense of price change;
It may lead to inflation;
It can lead to a significantly increased workload for the workers;
It is costly and requires consistent monitoring; and
There is no guarantee of improved returns.
However, tax rate rationalization may threaten a country's economy. The dangers include:
Focusing too much on optimization at the expense of human capital.
The possibility of negative cultural changes.
Allocating money in an ultimately inefficient manner.
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