related documents

top stories

Share

With the election campaign well underway, the focus has been on personal tax cuts. The Association of Certified Chartered Accountants (ACCA) is calling on all parties not to overlook corporate tax reform.

The Association of Certified Chartered Accountants (ACCA) has today released a paper "The Facts of Australian Corporate Taxation" which aims to provide some context and understanding of Australian corporate taxation and makes a call for reform.

The paper, commissioned by the ACCA is written by tax expert, Sinclair Davidson, Professor of Institutional Economics in the School of Economics, Finance and Marketing, RMIT University .

The paper provides insights into Australian Corporate Taxation and considers areas of concern. The analysis suggests a need for fundamental reform of Australian Corporation Tax as part of a wider tax reform program. Urgent issues such as headline corporate tax rates and how much revenue the tax system actually raises are explored in the content.

What is clear from the analysis of the paper is that the area of corporate taxation is in need of fundamental reform the ACCA asks all political parties to look at plans for reform.

Author of the paper Sinclair Davidson said "The corporate tax is in dire need for reform - the tax is neither simple, nor fair, nor equitable".

The paper summarises the facts of Australian taxation and concludes the following key findings:

1. The Australian corporate tax rate is high by international standards.
2. The corporate tax burden (measured by corporate tax revenue to GDP) is very high by OECD standards.
3. The increase in the corporate tax burden is due to an increase in the corporate profit share of the economy and also an increase in the effective corporate tax rate.
4. The corporate tax is meant to operate as a flat tax but clearly does not and is very distorted especially at the lower levels of taxable income.
5. The corporate tax is very highly concentrated with 0.38 percent of firms paying 72.59 percent of the net corporate tax to Treasury. The Australian corporate tax burden is very high, many firms do not pay much tax yet the burden for those that do is high and rising.
6. It is unclear who bears the final economic incidence of corporate tax.
7. The deadweight costs of corporate taxation are not known with certainty with estimates ranging from about 5 percent to over 100 percent of corporate tax revenue.
8. The Australian imputation system constitutes a pre-payment of personal income tax so reducing the net corporate tax take, and creating a contingent liability against future government revenue.
9. Compliance costs are likely to be low at about five percent of corporate tax revenue.
10. Despite commentary to the contrary tax competition is not eroding the corporate tax base.

The paper also observes that there has been much debate on Australian Corporate Taxation over the last year arising from a concern that other countries competing to attract investment are reducing their rates below Australia 's. While Australia has been slow to consider a further reduction, the amount of tax collected has risen measured as a percentage of GDP. For taxpayers resident in Australia , Corporation Tax on dividends is simply a withholding tax which may be offset against personal tax liabilities. However, there are significant compliance costs incurred by companies and concerns that Corporations Tax is, in part, a tax on employment and on employees.

Using OECD data, Sinclair estimates the ratio the ratio of corporate tax revenue to corporate profit – the effective corporate tax rate. He finds that this ratio has been growing even as the nominal tax rate fell. So while the corporate tax rate itself may have fallen, the corporate tax base has expanded at a greater rate. All this represents an increase in the corporate tax burden.

"The ACCA hopes that the findings in this paper will keep the debate on corporate taxation "top of mind" and the issues and potential policies examined in the paper will be considered by government agencies and all stakeholders in the tax arena" said Mr. Richard Francis, ACCA's Head of Australia and New Zealand.

The paper concludes that corporate tax debate in Australia has been overshadowed by the personal tax debate and in an environment with high levels of fiscal illusion it is possible that corporate taxation may well have a distortionary impact on the economy.

---

For further information please contact:

Jana Hunt, ACCA media relations
Mobile 0409 319026