Taxation impacts on Australian business
While the appointment of the Tax Design Review Panel, as covered in the March 2008 edition of TaxTalk, is certainly a good sign that business tax reform is on the new Federal Government’s agenda, it must also be a strong focus for businesses. There is a growing appreciation of the need for businesses to better understand their tax obligations for management and reporting purposes, particularly given the mix of Federal, State and Territory taxes which translates into 169 potential taxing obligations for businesses operating Australia-wide (excluding Local Government obligations).
To gain an understanding of how the current Australian taxation system impacts business, the second Australian PricewaterhouseCoopers’ Total Tax Contribution (TTC) survey obtained feedback from 63 Australian corporates regarding the number of taxes they face, the amount of tax paid and collected on behalf of the various Governments, and the overall cost of tax compliance. The 63 participating companies represent a wide range of industries, and include listed, large foreign owned and privately owned Australian entities, and are clearly major contributors to Australia’s revenue collectors, paying over $28 billion in business taxes. This equates to 9% of Australia’s total ‘tax take’, and is enough to fund the entire Australian Defence Force for 12 months.
The recently released 2007 survey results reinforced those of the previous year’s survey, undertaken in conjunction with the Business Council of Australia (BCA) and the Corporate Tax Association (CTA) – Tax Nation: Business Taxes and the Federal-State Divide. Both surveys have confirmed the structural problems with Australian business taxation, and highlight that meaningful reform could produce significant gains in efficiency for Australian business, and indeed for Government, especially in terms of Federal and State relations.
In particular, the TTC survey makes it very clear that reform is sorely needed in at least two areas, namely the high number of business taxes imposed across the country, in particular the number of small and less efficient taxes; and the need for harmonisation of similar State taxes. Any reform initiatives should address:
- the amount of revenue raised
- the number and nature of all business taxes
- the consistency of taxation across States, and
- the administration burden on both Government and business of individual taxes.
Overview of the 2007 Australian TTC survey results
The 2007 TTC survey results highlight the role of Australia’s largest companies as major contributors to Australia’s revenue, both at Federal and State levels, and show that:
- Of the total business Taxes Borne by survey participants, 68%, or $18,982 million, was corporate income tax. The reliance on corporate income tax is significantly higher in Australia than most other countries, with the global average closer to 35%.
- Of all Taxes Borne by survey participants, Federal taxes comprised 85% and State, Territory and municipal taxes accounted for the balance of 15%.
- Of the 42 companies that participated in both the 2006 and 2007 surveys, corporate income tax borne increased by 19%, and other Taxes Borne increased by 11%.
The role that business plays in supporting the administration of the Federal and State tax systems is very significant, with the companies bearing the most taxes generally also being the largest collectors of tax. These collections include excise, goods and services tax and employee pay-as-you-go taxation. In relation to this, the survey results showed:
- Taxes Collected from customers and/or employees totalled over $33 billion, or 11% of total estimated Australian Government taxation receipts.
- For every $1 of Tax Borne, a further $1.19 was collected on behalf of Australian Governments.
For the individual participants, the survey results provided further indication of the need for reform. The average number of taxing points for Taxes Borne and Taxes Collected as identified per survey participant was 24, with the maximum number identified as 67. The number and amount of Taxes Borne and Taxes Collected varied substantially between participating companies.
In the 2007 survey, participants were also asked to comment on the cost of tax compliance to their business. In providing their responses, it was acknowledged that the “real” cost of compliance is very difficult to determine. Part of the challenge participants faced was to estimate the hidden costs of systems and other processes that support the delivery of accurate financial information for the purpose of reporting current tax positions. On average, survey participants estimated that they were incurring tax compliance costs of approximately $2 million, with some of the larger organisations reporting costs exceeding $5 million.
The increasing focus of key stakeholders on the Australian tax system, and opportunities for real reform was further reinforced in the recent PricewaterhouseCoopers’ Annual CEO Survey, where 44% of Australian Chief Executive Officers surveyed indicated that taxation was the most important regulatory issue on their agenda.
The new Federal Government has clearly indicated its desire to address reform in tax legislation and promises to consult with industry on how to improve the process. While the result of the 2007 PricewaterhouseCoopers’ TTC survey confirms the structural problems with business taxation, it also highlights that meaningful reform could produce significant gains in efficiency for Australian business and Government. With these factors in mind, it is reasonable to be optimistic about the appetite to address the structural reform of Australia’s tax system.
