The influence of tax allowances on tax liability

Abstract

Though the tax system has changed significantly in our modern age, we have certain abiding expectations of it. Namely, that it be clear, simple, and fair. One way to simplify taxation would be to introduce the flat tax system. This concept stimulates domestic and foreign experts, provoking strong opinions both in favor of it and against it. In practice the flat tax system has shown varied solutions and results. Although the amount of the tax rate has an important role in the development of tax liability, we must not neglect the diminishing influence of the tax allowance. For governments struggling with socio-political problems, it is not an easy job to create a fair tax-system. Governments support savings, child rearing, and other important causes according to economic and social considerations through taxation systems. There can be big differences between tax burdens for the various income levels, especially if a certain part of the benefits is fixed to an income limit. Taxable persons are entitled to several allowances. Tax allowance advantage or disadvantage could be a problem between them. All these factors can affect the transparency of the tax system significantly. Cutting these possibilities radically would simplify the tax system significantly even if the system in question is a progressive tax-system. The range of tax benefits has become significantly smaller in Hungary. The version for 2011 introducing the flat tax-model ensures a great tax reduction for parents with children. In European countries, a trend of reduction in personal income tax has been prevailing. The arrangements in Hungary follow the regional trend. Keywords: tax system, fair, transparency, flat tax model