Introduction to Economy and Designed Governing Authorities of Country

Question:

Discuss About The Designed Governing Authorities Of Country?

The term economy refers to the production activities, demand and supply of goods and services and financial situations of a geographical location, measured in monetary terms. The goods and services, which are produced within a country and the demand-supply dynamics of the country mostly, fall under the domain of the monetary and taxation rules and regulations as designed by the governing authorities of the country. These production activities, which are accounted for in the tax regulations of a country comprises of what is known as white economy of the country. However, there runs a diametrically opposite kind of economy in almost every country of the world, which is known as the black economy (Black, Hashimzade and Myles 2012).

Though most of the production activities of an economy are accounted for in the taxation accounts of a country, there are quite a number of productive activities, which though get very much carried out in an economy, but does not come under the domain if the legal framework and the taxing rules and regulations of the country. In simpler words, these activities are not accounted for in the records of the country and therefore, this portion of the economy of that particular country, tends to grow at the cost of the overall accountability of the governing authorities of the country. These activities comprise of what is known to be the black economy of the country (Alkon 2012).

The term black economy, though sounds to be comprising of illegal activities only, does not necessarily be so. There are many activities in the economy, which though not conventionally illegal per se, comes under the domain of the black economy of the country, due to their inherent nature of unaccountability. For example the case of a legal worker in a transport company can be considered, who though being legal is being paid under the table to avoid taxation procedures. These types of economic activities fall under the domain of the black economy of the country along with the conventionally illegal activities like smuggling and others. Black economy comprises of a significant share of economic activities of many countries and therefore, is an issue of concern among the governing authorities, policy-makers, taxing regulators and economists across the globe (Schneider and Enste 2013).

There are different economic frameworks existing in the global economic scenario. These frameworks have come to existence over time and after sufficient dynamics in the world economy and each of these economic frameworks has their own inherent properties and features which have different aims and implications on the society or organizations implementing these models. One such model is that of the shared economic framework (Teubner 2014).

Understanding Black Economy of the Country

This type of economic framework refers to a system, in which the private assets, comprising of goods and services, already owned by some individuals of the economy, can be shared with some other private individuals, in exchange of monetary benefits or shared for free, depending upon the nature of the assets and the parties involved in the sharing. This implies that in the shared economic framework, the private individuals can share their owned and under-utilized assets with those individuals who otherwise do not have the privilege to enjoy these assets but have the demand for the same (Cohen and Kietzmann 2014). The concept of this economy may seem to be very new but the shared economic framework has always been existent in the economy of the world. Over the years the framework has undergone huge dynamics to become fit for the contemporary age. However, the underlying intuition and the economic objective of the shared economic have not changed much over the years. The shared economic framework targets to make the distribution and utilization of the scarce resources of an economy more efficient by facilitating greater mobility and dynamics in their utilization and thereby maximizing the overall welfare of the residents of the concerned economy. The shared economic model, with globalization, liberalization and the recent upsurge in the usage of internet, has become even easy to implement and many of the commercial organizations across the world as well as the global economies are trying to implement this framework in their operating systems (Heinrichs 2013).

The shared economic framework, as discussed in the above section, has gained significant attention in the recent business world, with many commercial enterprises coming in the domain of this economic framework. The main feature of this feature, as discussed in the above section, is to provide the facility of sharing already owned assets among the private individuals of an economy, in exchange of fees or for free. However, not all the commercial organizations or economies in the world are not highly in favor of this shared economic framework. The main reason of these skeptic attitudes of the business organizations, towards this particular framework, is the speculations regarding the non-feasibility and non-applicability of this conceptual framework in real economic operations (Schor 2016). These organizations, instead of the shared economic framework, believe in a more traditional type of construct for their operations. In simpler words, there are many commercial organizations who prefer the traditional economic frameworks over that of the shared economic models to operate in the market. Unlike that of the shared economy model, the traditional economic models do not believe in the concept of sharing of privately owned assets among the private individuals of a country, in exchange of monetary benefits. Instead, the traditional economic models only allow those persons to use the benefits of an asset, who pay for the concerned asset and own it. The users become eligible to use these goods and services only for their personal and commercial benefits after paying for the assets. Therefore, the commercial organizations who follow the traditional business models, also follows this construct and targets to maximize their individual profit, which is the underlying objective of the traditional business model (Ert, Fleischer and Magen 2016).

Shared Economic Framework and Its Objective

This section of the assignment tries to analyze and interpret the features and workings of both the types of economic models and tries to see their applicability in the real economic scenario, by taking the examples of two commercial enterprises, each of which fall under the domain of the two different business frameworks. To conduct the same, the assignment takes the commercial organizations eBay and Amazon, both of which are two of the biggest players in the e-commerce market of the world and both of which have a huge share of market operations in the economy of Australia. However, the business constructs of these two organizations are different; where eBay adopts the shared economic model for its operations, the operating framework of Amazon is more of the traditional type (Hamari, Sjöklint and Ukkonen 2016).

With the initiation and expansion of international and interconnected commercial relations across the globe, with the advent of Globalization and liberalizing economic and trading policies in the major economies of the world, the e-commerce industry is making a significant expansion across the world. By contributing hugely to the convenience of the people all over the world and thereby increasing the number of people coming under its domain in large rates. One of the key players in the e-commerce industry, with a impressive operational network specifically in the Australian economy is that of the organization eBay (Vézina and Melin 2013).

With a total asset value of 24 billion USD, the company is one of the major e-commerce organizations in the global economy, with an average income of $9 billion approximately. Founded in 1995, the enterprise now has operational base in 30 countries and employs around 12600 employees all over the world. Surprisingly, though the organization works in the e-commerce market, it does not hold any asset or inventory with it (Matzler, Veider and Kathan 2015). The company simply plays the role of an auction house, which facilitates communications and interactions between the third party buyers and sellers. With the online interface of this enterprise, the sellers display their products and the buyers bid for the same. The products sold by the sellers in eBay can be new as well as second-hand and the company therefore also facilitates trading in used commodities. The pricing strategy implemented by the company is also of the type of wholesale pricing, which gives the buyers a chance to bid. The company, as a mediator, earns commission both from the supply side as well as the demand side (Bond 2014).

Analysis of Two Types of Economic Models with Examples of eBay and Amazon

As can be seen from the above discussion, the operating framework of the concerned company has huge similarity with that of the shared economic framework. The enterprise, by acting as a facilitator of communication between the buyers and the sellers across the globe, makes provision for sharing of private and already pre-owned assets of some individuals, with other private individuals, who has the demand for the same and is ready to pay fees for availing these goods and services.

The e-commerce organization has gained significant popularity and clientele across the world over time, both from the seller as well as from the buyer side. With time and increasing prospects of the e-commerce industry globally, this commercial enterprise is expected to expand and prosper hugely in future. However, there has been significant debate and concern regarding the tax structures of the company, especially in the Australian economy.

The main problem which the governing and the taxing authorities of the country has been facing regarding the axing mechanism for that of eBay is that of the applicability of the GST on the company. The enterprise, as has been discussed above, has been operating for quite a long time in the Australian economy and earns significantly high revenues from the country itself. However, the company being only a mediator between the third party buyers and sellers, not producing any good or service, and not keeping any warehouse or inventory itself, is not in favor of coming under the domain of the GST in the economy of Australia. The enterprise has even threatened to walk out of the economy if it is forced to come under the domain of the GST of the economy (Abdulkarimli 2015).

However, the notion of the government being that eBay is another retailer in the e-commerce market; it seems to be feasible for them to impose GST on this organization also. This, if implemented, can help the government in increasing the revenues from taxation significantly due to the sheer size of company and its business extent. This issue needs to be taken care of and both the parties, the governing authority and the commercial enterprise need to come to a mutual agreement which can prove to be beneficial for both of them in the long run and thereby maximizing the welfare of the society as a whole. The above argument however shows the feasibility and applicability of the shared economic framework in the real economic scenario, as can be seen from the success of eBay despite of its limitations in the taxing framework (Shakow 2013).

Concerns of Governing and Taxing Authorities Regarding Taxation Structures of eBay in Australian Economy

Another significant player in the e-commerce market is that of the Amazon, which has been and is still one of the biggest players in the concerned industry in the international commercial framework and enjoys a huge clientele in the economy of Australia as well. Established in 1994, the company enjoys average annual revenue of around $135.96 billion and has its operation spread across all the leading economies of the world (Ritala, Golnam and Wegmann 2014).

However, the business framework of the company is of a more traditional type as it owns almost all the goods and services, which it offers to the buyers across the world. Though the company involves several service providers, but the third party buyer and seller concept is not applicable for this company. The company also has a large and extensive network of warehouses and keeps inventories of goods, which they offer, to the buyers. The pricing mechanism of the company is also of that of a retail store. In simpler words, though belonging to the e-commerce industry, the mode of operation of Amazon is that of a big retailer (Laudon and Traver 2013).

As can be seen from the above discussion, the company follows a traditional business framework, where the concept of sharing of privately owned goods and services among other individuals is not feasible. The objective of the company is to maximize personal profits, which also go with the basic conceptual framework of the traditional business models.

The first records of revenue generation of Amazon Australia, as declared by the company itself are only of $15 million, which is considerable small compared to the speculated amount which is around $250 million annually. This indicates towards the trend of the company to side step the conventional tax rate of 30% which is faced by the normal sellers in the country. The company being an online one, it becomes easy for them to hide their original revenue generated and they only show a part of their revenue and pay taxes on the displayed amount. This taxing mechanism of the company has been a matter of concern as it is hurting the economy as a whole (Nguyen, DeCenzo and Drucker 2012).

Despite of the above limitations of the company, the enterprise still enjoys the position of the leading e-commerce giant in the world and in Australia and is one of the most successful examples of an organization running under the domain of the traditional business model.

The issue of black economy has been one of the persistent and most bothering issues in almost all the countries of the world. The black economy being the one, which grows at the cost of the government of a country, the curbing of this phenomenon, is one of the primary targets of the governing authorities of almost all the economies in the world. With the expansion of the shared economic framework, the problem of black economy has also been increasing due to the inherent nature of the shared economy. There have been several recommendations made in the Interim Report of the Black Economy Taskforce of Australia, some of which seems to be effective to reduce this problem, if implemented correctly (Consult.treasury.gov.au, 2017). The most important ones are as follows:

1. a) The procurement prospects should only be given to those companies in the Australian economy, which maintains a clear and good record of taxation over the years.
2. b) Many defaulting occur unintentionally due to the absence of proper awareness regarding the taxing rules and regulations of the country, especially among the small and new commercial organizations, which are new to the taxation framework. To remove this problem, the government of the country for these small enterprises should implement proper awareness and training programs (Singh, Jain-Chandra and Mohommad 2014).
3. c) The taxation framework and other regulatory norms should also be a little less stringent for these small and new organizations in order to encourage them.
4. d) Companies implementing non-cash modes of payments should also be encouraged with appropriate incentives by the government, such that more companies follow their lead and implement the non-cash transaction mechanisms in their mode of operations.
5. e) Cash transactions in the overall economy should be limited to a certain extent and non-cash transactions in the form of credit and debit card usages and account payment systems should be encouraged.
6. f) The Phoenix Taskforce should be made active in order to reduce the black economy burden in the country (Anderson et al. 2016).
7. g) The taxation system should be expanded appropriately.
8. h) The threshold of the GST levels in the country should also be lowered.

The above recommendations, if implemented with sincerity and monitored regularly, can help the government to achieve its goal to reduce the influence of the shared economy in increasing the burden of the black economy in Australia.

References

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