Our submission has been formulated on the basis of members' primary concerns and interactions with the tax system (that is, from a tax design and tax policy perspective) and as such does not seek to address the consequences of the proposed changes on business operations or behaviour. We encourage the Working Group's ongoing consultation with the business community in order to obtain essential feedback on the likely effect of the proposals in the discussion paper on business investment and outlook.
We note that the discussion paper has been developed in line with the Working Group's terms of reference, including the requirement to "identify a range of off-setting budget savings from existing Commonwealth business taxation (or spending) measures" without considering changes to the GST.
We have made our submission in line with these terms of reference, but we note significant concerns in relation to this restriction. This missed opportunity to lower the overall tax burden on companies and reconsider the appropriateness of Australia's current tax-mix will limit the potential benefits to the Australian economy arising from this reform process.
We broadly agree with the detailed arguments set out in the discussion paper in relation to the potential benefits to the Australian economy of a cut to the company tax rate in the short term in the order of 2-3 per cent, with a longer term goal of a company tax rate of 25 per cent as recommended in the Henry Review.
The widely accepted likely increase in Australia's attractiveness as a destination for foreign investment, the resulting short term increase in returns on capital, and the longer term projected increase in returns on labour, as well as the multitude of tax administration savings (for example by way of reduction in the incentive to transfer price) are all valid and widely accepted reasons for pursuing a cut in the company tax rate.
We acknowledge that such a cut will first and foremost affect the investment decisions (and returns on investment) of foreign investors, and will largely constitute a timing benefit for domestic investors as a result of Australia's imputation system. Regardless, we consider a cut in the company tax rate to be worthwhile as it will reduce the cost of equity financing for many small to medium enterprises currently operating in a credit constrained environment.
We also note that while a cut in the company tax rate will not immediately benefit the majority of small to medium enterprises that are not currently operating in a company structure, it is our view that the balance of these businesses will nevertheless benefit from the economy-wide benefits that will flow from the cut. In addition, it is our recommendation that the company tax rate should be made available to any separate entity for small business that is developed in due course.
You can read the complete submission.
The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.