Big company tax shake-up looms – The Age 7-8-08

The preamble document to the Federal Government’s review of the tax system foreshadows a cheprehensive rejig of the relationship between business and governments.

Company taxation takes centre stage in Australia’s Future Tax System, a snapshot of the tax system’s architecture released yesterday by Treasury secretary Ken Henry.

The document, intended as a preliminary discussion paper rather than a comprehensive analysis, makes no recommendations about the future shape of the tax system. But it does say the current system contains “overlapping and inconsistent regulations” that make it harder for businesses to work productively.

“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 paper comes as Dr Henry prepares a comprehensive analysis of the nation’s tax arrangements, to be delivered to Treasurer Wayne Swan by the end of next year.

CPA Australia senior tax counsel Garry Addison said the project of removing inefficient state taxes was “critical” to the review. “Duplication, overlap and inconsistency severely hamper the effectiveness of the overall system and Australia’s international competitiveness,” he said.

Mr Addison suggested administration and collection of taxes should be more centralised in the Australian Taxation Office to avoid the cost of complying with numerous authorities across levels of government.

But while the paper laments the time lost dealing with complex taxes, it declines to recommend a fix.

States are unable to raise enough money to pay for their expenses, including their share of big projects like roads, bridges and schools, in part because of the range of taxation options they are allowed under the Constitution.

Combined, money from the Federal Government accounted for 45% of state spending last year.

Company tax was the second-largest source of tax revenue last year, after personal tax, and accounted for 5.3% of gross domestic product. That places Australia fourth-highest among countries affiliated with the Organisation for Economic Co-operation and Development. Since Australia last lowered its corporate tax rate ó from 36% to 30% ó the average rate in OECD countries has fallen from 32.5% to 26.6%.

A spokesman for the Australian Industry Group said Australia should follow the trend and cut its corporate tax rate to 25%.

But KPMG’s head of tax in Australia, Ross Doherty, said the company tax rate alone gave a shallow understanding of the corporate tax burden.

A KPMG study found that, when the total tax burden across all levels of government was considered, Australia fared better than countries including the US, Britain, Japan, Germany, Italy and France.

But Mr Doherty said taxes, other than the federal company tax, were relatively low in Australia. But he conceded that compliance with the many taxes was a drain.

“The costly complexities and administrative inefficiencies, both for corporates and governments, do not enhance a business-friendly environment,” he said.