06/06/2014 - 09:58

Big scope for tax review

06/06/2014 - 09:58

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Tax compliance costs hit all businesses, from small operators to big miners, and need to be addressed.

Big scope for tax review
FLAWED: Current weakness in the iron ore price makes it even less likely the MRRT will raise significant revenue.

Tax compliance costs hit all businesses, from small operators to big miners, and need to be addressed.

There is almost untold potential for improvements in Australia’s taxation system; that makes it difficult at times to work out where to focus attention.

There are two aspects currently occupying the federal government’s interest, and both warrant broad support from across the political divide.

One is abolition of the Minerals Resource Rent Tax, the other is the impact of tax compliance on small business.

The cost of tax compliance on small business has been quantified in new research from the Institute of Chartered Accountants Australia.

It has estimated that tax compliance is costing the 1.7 million Australian businesses in the small to medium sector a total $18.4 billion every year.

That equates to about 14 per cent of total tax revenue collected by the Commonwealth.

For the average small to medium business, the gross tax compliance cost is about $11,000 per firm per year.

The institute said this was a significant increase since the last major Australian study of tax compliance costs in 1995.

The introduction of the GST was a contributor, but by no means did it account for the full increase.

Smart deployment of technology can help address this high cost by making small business interaction with agencies such as the ATO faster and more efficient.

It can also help the ATO improve data collection and analytics so that compliant small businesses are identified and left alone by ATO audit teams.

But there is more that can be done, and should be done as part of the Board of Taxation’s ‘fast track’ review of tax impediments facing small business.

The institute recommended more ‘safe harbour’ arrangements, to allow small business to claim standard deductions for simple things like home office expenses.

It also suggested a review of record-keeping requirements, and a more lenient approach to small business that follow ATO procedures but still fail to categorise ‘employees’ and ‘contractors’ correctly.

A standardised approach to identifying small business family ‘groups’ for determining eligibility for concessions was another recommendation.

The frustration many small businesses feel when navigating the tax system is matched by big miners that deal with the MRRT.

They face onerous administrative requirements for a tax that does not make a meaningful contribution to federal government coffers.

The perversity of this tax is reflected in the need to complete the administration, even when it is clear there will be no tax liability.

Current weakness in the iron ore price makes it even less likely the MRRT will raise significant revenue.

Abolition of the mining tax was ‘front and centre’ in Tony Abbott’s election campaign, so there is no doubt the prime minister won a mandate to abolish the MRRT.

Labor’s failure to acknowledge this does the party no credit.

Instead of accepting the government’s mandate and moving on to more constructive policy debates, Labor continues to cling to one of the undoubted failures of the Rudd-Gillard years.

Let’s hope Labor’s MPs from Western Australia are able to prevail upon their east coast colleagues.

As the Abbott government starts to think about longer-term taxation reform opportunities, it’s worth remembering that the MRRT came out of a tax reform process that started with some promise.

The Henry tax review was wide ranging and should have been the start of a community debate; instead the process was hijacked when Labor plucked out one proposal – the resource super profits tax, which morphed into the MRRT.

That corruption of the process can’t be allowed to happen again.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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