Is Australia set for a major tax overhaul?
Does the Australian tax system need to be radically altered?
The government clearly thinks so, as it recently released the Re:think Tax Discussion Paper and this document is designed to start a process that will ultimately result in "a better tax system that delivers taxes that are lower, simpler, fairer".
Every aspect of the Australian tax system is up for scrutiny, according to treasurer Joe Hockey, as the country seeks to identify the measures needed to rebalance the tax economy to focus more on consumption taxes and bring the whole system into the 21st century.
"For too long our taxation system has been stretched and retro-fitted to cover changing needs, without ever getting ahead of the curve," Mr Hockey stated.
But what are the key issues for businesses operating in the country?
The review of GST
The goods and services tax (GST) is under review, although the government has said changes will only be implemented where there is "a broad political consensus". The broad-based tax is currently at ten per cent, which is low by international standards, but its structure is known to be particularly complex. For example, the government has pointed out how pizzas, pizza subs, pizza pockets and bakery-style pizza rolls are taxed differently due to their definitions under existing laws. The government has already said it will introduce legislation to impose GST on any intangibles supplied by non-residents from outside Australia (this covers activities such as streaming films from Netflix and Amazon Instant Video).
Lowering corporate taxes
The business community has long campaigned for lower corporate taxes, with the current 30 per cent flat rate viewed as too high. In general, the country is seen to be too reliant on corporate tax income. A 1.5 per cent general company tax cut was announced in the last Budget, but this has now been shelved. However, prime minister Tony Abbott confirmed there will be measures to cut small businesses' tax bills "in ways that will stimulate investment, boost productivity, generate new jobs, and make existing jobs more secure" in the next Budget.
Modifying the dividend imputation system
At the moment, Australian shareholders receiving dividends from Australian companies are able to receive credit that represents the tax paid by companies on their underlying profits. However, the paper opines that this measure may not be good for the country due to the increasing globalisation of the economy. For example, it provides little incentive for foreign investors, while at the same time creates a bias against Australian-owned companies that do invest in foreign companies. But Geoff Wilson, an experienced fund manager, told the Australian Financial Review that ditching this scheme would be disastrous for capital markets.
Inbound and outbound investments
How inbound and outbound investments are treated could be reformed, according to the paper, as the current system is set up in such a way that attracts particular forms of investment. At the moment, the law distinguishes between active and passive, and portfolio or non-portfolio investments. This issue is particularly relevant because of the work being carried out through the BEPS project set up by the OECD.
This highlights some of the major issues to come out of the paper, and it will be interesting to see what the final outcome is of this project. The 203-page document is out for consultation and responses are being welcomed until June 1st.