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The federal government has been prompted to urgently address the nation’s taxation system, with a professional accounting body saying that current measures are not sustainable.
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Current tax system ‘not sustainable’
25 February 2022
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In its pre-budget submissions, CPA Australia proposed six recommendations to the federal government with regards to reforming the taxation system.
Elinor Kasapidis, senior manager of tax policy at CPA Australia said on episode four of the body’s ‘With Interest” podcast, that the current taxation system isn’t sustainable.
“You have a lot of respected economists, a lot of policy makers who are looking at Australia’s heavy reliance on income taxes and the design of our GST and basically realising that this isn’t sustainable into the future,” she said.
CPA Australia noted the COVID-19 pandemic has highlighted the structural challenges of the current tax system and considers tax reform “fundamental to raising Australia’s productivity and achieving strong economic growth that will fit future living standards.”
Among CPA’s tax reform recommendations to the government is a recommendation to “make temporary full expensing (TFE) permanent for small businesses”.
The body stated that “the introduction of the instant asset write-off and TFE has assisted business to maintain or even increase their capital expenditure”.
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“It’s just bringing forward the deduction and, in these times”, Ms Kasapidis said, “where a lot of businesses are looking to pivot or they need [to] invest in capital, again it’s just allowing them that breathing space so they’re not depreciating things over multiple years, they can just claim it straight away.”
In addition to this, the body has also recommended that the government reduce the interest rate charged on outstanding tax liabilities to align with the interest rate paid by the government.
While Ms Kasapidis acknowledges that the current rate of interest charged by the ATO has good intentions at heart, the need for change is still necessary.
“The ATO do charge a significant margin above the Government interest rate. And the reason for that is they don’t want to become a bag, or a source of cheaper capital, then for example a financial provider. So, we understand that it is intended not to encourage people to run up tax debts or to use the tax office as a source of financing,” Ms Kasapidis said.
“But the standing committee on tax and revenue has recommended that that differential be decreased and they’ve in fact said that it should go down to the Government rate, which I think is like 0.25 per cent.”
The body’s submission report outlined that “small businesses often incur above-market interest costs for tax liabilities that are usually paid within 90 days”. With this in mind, Ms Kasapidis believes more needs to be done to help reduce the costs for small businesses, particularly at the moment.
“There’s a sense I guess that a lot more could be done to help small businesses with their cash flow, to reduce the costs of [maintaining] their business. And you don’t necessarily want the tax office to be making money of businesses, particularly those that are compliant and are paying their debts,” Ms Kasapidis said.
The body’s other tax reform recommendations include abolishing the luxury car tax, releasing the Board of Taxation’s fringe benefits tax compliance cost review and the government’s response, initiating and leading discussions on GST reform with state and territory governments and extending the proposed patent box regime to more industries.
For more information on CPA Australia’s recommendations, see here.
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