Business taxes likely to be slashed in tax review

Treasurer Wayne Swan’s “root and branch” review of the tax system looks certain to result in cuts to business, property and capital gains taxes.

Treasurer Wayne Swan’s “root and branch” review of the tax system looks certain to result in cuts to business, property and capital gains taxes.

Treasury’s review of the Australian tax system – a sort of preliminary scene-setting document – says that while personal income tax rates are low from an international standpoint, “overlapping and inconsistent regulation” business taxes are harming productivity.

“Every extra hour spent by households and businesses grappling with the myriad of tax rules and obligations (including the different regimes across the states) is an hour not used to produce goods and services (including utilising leisure time), that are of higher value to Australians,” the report says.

The review highlights just how uncompetitive Australia’s corporate tax rate has become in the last decade. In 2001, when the Australian rate was cut from 36% to 30%, we had the ninth lowest rate in the OECD. But while OECD nations have been slashing corporate tax in the last few years – the average is now down to 26.5% – Australia’s rate has stayed put. We now have the 21st lowest rate.

The Australian Industry Group was quick to call for the company tax to fall from 30% to 25% following the release of the Treasury review.

But it’s not just the corporate tax rate that makes the blood of businesses boil. The review has found there are 125 separate state and federal taxes and levies, although just 10 of these – including personal income tax, company tax, the GST and fuel excise – collect over 90% of the tax raised in Australia.

There are different taxes on vehicle use, on property, on hire purchase arrangements, on insurance and on banking. As well as the cost of paying the taxes, businesses also face costs associated with collecting and complying with duties and levies.

CPA Australia senior tax counsel Garry Addison nominates stamp duty on insurance premiums and real business property transfers as two areas the review must address.

He says the elimination of ineffective taxes and the harmonisation of state tax regimes across the nation will also help improve conditions for business.

“Dupilication, overlap and inconsistency severely hamper the effectiveness of the overall system and Australia’s international competitiveness,” Addison says. “We see the need – and opportunity – to create a truly world-class business tax regime.”

Addison also pointed out that streamlining the tax system will help the tax office make far better use of its limited resources.

There is a slightly humerous side to all this tax talk, as the person in charge of the review, Treasury Secretary Ken Henry, was quick to point out yesterday. We have some very odd little taxes and levies – here are a few of the real beauties from the agricultural sector:

• A levy on the sale of queen bees.
• Five different levies on the sale of prawns.
• The tax on the slaughter of ratites (flightless birds).
• The goat fibre levy.
• A levy on the export of buffalos.

It’s worth pointing out that most of these levies are instigated at the request of producers and traders, usually to fund industry-wide initiatives such as marketing or research and development.

Perhaps business will need to take the lead in helping the Government clean up some of these taxes.

Related articles:

• 10 best tax strategies for SMEs
• 20 tax tips from the experts
• Tax watchlist: Be prepared for change

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