taxing time was had by all

  • Date:01 Nov 2005
  • Type:CompanyDirectorMagazine

Taxing time was had by all

The Tax Act, at a monstrous 10,000 pages and growing, is a major threat to
Australia’s international competitiveness as John Arbouw reports

The first taxes ever raised in the budding colony of New South Wales were to pay for a jail in Sydney and help care for orphans. This was in 1788. The first Tax Act came into being in 1915 and 90 years later this simple piece of paper now needs a forest to source the paper for the ever growing volumes of tax amendments.
This Tax Act Frankenstein, which was created over the past 90 years with bits and pieces, bandaids, inappropriate surgery and grafts, now threatens Australia’s international competitiveness.
The 10,000 odd pages of legislation has become so onerous and so difficult to deal with that the Inspector-General of Taxation, David Vos recently found that the Tax Office is in a state of “paralysis” because it is overwhelmed by a lack of resources and the technical ability to deal with it.
Vos intends to investigate the reasons behind this apparent paralysis.
His work will be helped by a report from Ken Burgess from the Corporate Tax Association who was given the task of investigating whether Australia’s big businesses were having their tax affairs dealt with expeditiously.
In interviews conducted with big businesses, Burgess found frustration and concern that the ATO was slow to act, did not consult and that “there were also some isolated examples of conduct perceived as inappropriate or oppressive in relation to possible settlements at the conclusion of audits.
In some cases the possibility of misinterpretation in the course of sensitive settlement discussions did not appear to have been recognised by ATO officers”.
In a speech last month following the release of the report card, tax commissioner Michael Carmody promised to do better and announced some changes. But this is merely fixing the symptoms.
Business tax reform has long been on the agenda of Australian business and the Business Coalition for Business Tax Reform (BCTR) that came into existence in the late 1990s to drive the agenda for change continues to call for further reform.
At the time the AICD had a tax policy committee and it was one of the founding organisations of the BCTR. AICD continues to be represented on the BCTR.
One of the key criticisms of the present system is that it hinders Australia’s international competitiveness. This is the main plank in the case the Business Council of Australia is building for further reform. The graph (at right)  illustrates that the tax collection system is certainly dependent on business taxes.
In the report, The BCA’s Corporate Taxation - An International Comparison released last month, the overall tax burden on companies in Australia was compared with major trading partners, countries which are key sources of foreign direct investment, other Asia-Pacific economies, the European Union and OECD economies.
It concluded that Australia had the highest corporate tax burden across every relevant global comparison.
Australia’s headline corporate tax rate of 30 percent is often used by business and Government as a leading indicator of tax competitiveness.
As the report argues however, the total tax burden on companies is the more important indictor of Australia’s competitiveness because it reflects the total tax take extracted from companies’ balance sheets.
The report found that Australia’s competitiveness measured using the headline corporate rate was deteriorating and the overall tax burden on companies was significantly higher than every other country bar Norway and Luxembourg.
Australia’s high overall tax level is largely due to government levying a broader base of taxes on Australian companies, with fewer concessions than those offered in other countries.
The report explored some common assertions as to why the company tax burden is so high compared to other economies.
It discounts assertions that the current surge in company profits or a strong economy resulting in companies no longer having losses to facilitate tax reductions are the key reasons behind Australia’s uniquely high tax burden.
The report argues that corporate tax competitiveness is not just an economic or business issue, but one of importance to the wider community.
The current corporate tax take of $48 billion a year, up from $25 billion in 2001-02, means that Australia’s ability to fund new services, programs and future income tax cuts was directly linked to its ability to secure and maintain new sources of business investment.
In April this year, the BCA released its Taxation Action Plan for Future Prosperity which canvassed a range of changes to Australia’s tax system, including both personal and corporate tax systems to make sure it remained competitive and sustained, rather than restrained, future economic growth.
As part of the action plan, the BCA called for a review into the competitiveness of Australia’s corporate tax regime prior to the next Budget.