The Business Tax Working Group on Mon 13.8.2012, released a discussion paper that canvassed a number of possible ways in which a cut to the company tax rate could be funded from within the business tax system. The 71-page paper noted the options canvassed are not recommendations, and to date, the Working Group has not finalised an assessment of the costs and the benefits of the options canvassed. The discussion paper is available on the Treasury website.
The Working Group said it “believes that Australia should have an ambition to reduce its company tax rate over the medium term and that achieving a materially lower rate is a worthwhile reform objective”. The Working Group noted the Henry Tax Review’s proposal of a rate cut of 25% over the short to medium term. Further, according to preliminary Treasury estimates, a 25% company tax rate would have revenue implications totalling $26m over 4 years from 2012-13.
According to the Working Group, a comprehensive tax base that contains minimal special exemptions and deductions for certain investments can result in a more productive mix of different investment options and a broader tax base that will generate greater revenue to fund a lower company tax rate. However, it noted there may well be circumstances where a departure from a uniform tax base can be justified on economic grounds (such as encouraging activities that give rise to positive social benefits). Further, the Working Group noted its terms of reference do not allow it to consider changes to the GST.
The Working Group’s consideration of base broadening options builds upon its recent work on the tax treatment of losses whereby 3 areas were identified as worthy of additional analysis:
interest deductibility (including thin capitalisation rules);
capital allowances and the treatment of capital expenditure; and
the research and development (R&D) tax incentive.
The Working Group was careful to note that the options set out in the paper should not be interpreted as an indication that they will be adopted by the Working Group or the Government. The Working Group is open to suggestions on potential transitional arrangements that could accompany any potential base broadening options.
The Working Group said it plans to meet with stakeholders during August and September 2012 in relation to the discussion paper. The Working Group intends to release a draft of its final report to the Treasurer in late October 2012 with the final report due to the Treasurer in December 2012.
SUBMISSIONS are due by 21 September 2012.
[LTN 155 13/8]