Businesses voice tax reform priorities – BDO 2016 Tax Reform Survey results

From
Lance Cunningham

Lance Cunningham

The Australian business community has spoken on the critical issue of tax reform, highlighting the discrepancy between business and government priorities.

A record 523 respondents from around the country – across sectors and business sizes – have had their say in BDO’s fifth annual Tax Reform Survey.

BDO National Tax Director Lance Cunningham said multinational profit shifting was identified as the number one priority issue, with GST and state taxes rounding out the top three areas most in need of reform.

“This year’s survey attracted more than double the number of respondents than in 2015, a clear sign the business community still sees holistic tax reform as an urgent priority even if the government does not,” he said.

“With the fast-tracked Federal Budget on 3 May, and potential double dissolution election in July fast approaching, I would urge Prime Minister Turnbull and Treasurer Morrison to outline how they plan to tackle tax reform as a matter of urgency.

“After getting so close to genuine tax reform through the Tax White Paper process, many businesses feel cheated by its recent abandonment and are fearful the federal budget will present only piecemeal measures and a vague commitment to look closer at tax reform after the next election.

“While most (almost 90%) survey respondents wanted to see a tax reform options paper ahead of the federal budget, hope has now all but faded that this will occur in the next five weeks.”

Recently, the Federal Government has hinted that company tax rate cuts could be included as part of this year’s Federal Budget, however the BDO survey revealed that, while a company tax rate cut would be welcome, businesses identified other areas as more urgent priorities.

“Like previous announcements regarding carve outs of specific tax areas like GST and individual income tax, there is danger in addressing one-off measures like company tax cuts without taking a holistic view,” Mr Cunningham said.

“It is also critical that Federal and State Governments are involved in building the simplest, fairest and most effective tax system we can possibly get.

“Certainly from a business perspective, reform of GST to allow for removal of inefficient state taxes have been identified as much more pressing issues than company tax rate cuts.” 

Multinational profit shifting

“The fact that survey respondents still considered this the primary issue could suggest either the public does not see these changes as going far enough, or, and more likely, the Federal Government has not sufficiently educated the public about these quite extensive and complex changes to elevate multinational profit shifting,” Mr Cunningham said.

“Respondents rated multinational profit shifting as the issue most in need of urgent tax reform (closely followed by GST and state taxes), however this seems at odds with opinions for the statement that Australian’s adoption of the OECD’s BEPS initiatives was an appropriate way of discouraging companies from avoiding taxation in Australia.

“While only 47.78% of survey respondents agreed with this statement, about the same number had a neutral view (potentially indicating a lack of knowledge about the issue) and only 5% disagreed.

“Eliminating the neutral responses, it can be suggested more than 90% of those with a view on the issue were in agreement that the Federal Government’s moves were appropriate. However, this appears contrary to the identification of multinational profit shifting as the tax issue most in need of reform.

“The recent multinational anti-tax avoidance law changes in Australia included a rewrite and tightening of Australia’s transfer pricing rules and tightening of the Thin Capitalisation rules.

“They also included the introduction of country by country reporting rules, increased penalties for multinationals involved in tax avoidance and the Multinational Anti Avoidance Law that deals with arrangements that artificially avoid the attribution of profits to a permanent establishment (PE) in Australia.

GST

“80.54% of respondents agreed a review of the GST is essential to any discussion of tax reform, with many (60.23%) in favour of abolishing all GST exemptions to simplify the system,” Mr Cunningham said.

“Slightly more (62.28%) disagreed that the GST rate should never exceed 10%, up from 38.2% of respondents in the first survey in 2012, which shows an increasing support for change of the GST rate.

“In terms of how increased GST revenue might be best directed, most respondents preferred the abolition of state stamp duties and reform of other state taxes (62.4%) over assisting the states to adequately fund health and education (52%) or enabling a cut to personal taxes (52%).”

State taxes

“85.36% agreed state stamp duties are a significant impost on business and reduce the mobility of the population and businesses by discouraging the sale of residential and business real estate, and other business assets,” Mr Cunningham said.

“Changes to state payroll taxes were also popular, with 82.59% in agreement they should be reformed to reduce the rates and either reduce or abolish the wages thresholds to make it more efficient, and 80.2% agreeing the taxes should be abolished as they discourage employment and are a disincentive to growing business.”

Company tax rate

“Respondents had varying thoughts on the current 30 per cent rate for companies with annual turnover of $2 million or more – perhaps due to smaller businesses already enjoying the 28.5 per cent rate from last year’s federal budget,” Mr Cunningham said.

“28.18% of respondents agreed the current company tax rate was appropriate, with 50% in disagreement.

“However, 59% of respondents agreed that a reduction in the corporate tax rate would improve the Australian economy by encouraging companies to invest and employ more staff (up from 50% in 2015), and 47% agreed the highest personal marginal tax rate and the company tax rate should be aligned, which was a reduction on the results in previous surveys.”

Other Key Findings

Superannuation

  • 44% agreed the capping of superannuation contributions is inconsistent with the original policy of the superannuation scheme of Australia.
  • 92% agree the rate of compulsory superannuation contributions should continue to increase from 9.5% to 12%.

International

  • 93% disagreed that Australia’s tax system is competitive with international counterparts.
  • Two-thirds (65.51%) disagreed that Australia’s tax system promotes it as a desirable location for regional headquarters and investment.

Respondent Statistics

Turnover breakdown Less than $1 million – 34%

Between $1 million and $10 million – 29%

Between $10 million and $50 million – 20%

Between $50 million and $150 million – 7%

More than $150 million – 10%

 

Employee base

 

0 employees – 11%

1-5 employees – 27%

6-25 employees – 20%

26-100 employees – 18%

101-500 – 13%

More than 500 – 11%

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