Western Australia's booming resource-led economy faces some challenging times ahead unless corporate tax reform is addressed to help ensure continued investment in the state.
Western Australia's booming resource-led economy faces some challenging times ahead unless corporate tax reform is addressed to help ensure continued investment in the state.
This is one of the findings of the Warburton-Hendy international tax benchmarking study.
The news comes amidst renewed calls at both the state and federal level for tax review.
With WA's eceonomy enjoying a period of unprecedented economic prosperity, there has been a chorus of voices from different sectors of industry seeking tax relief, from the state's ample surplus, to help make business conditions in WA more favourable.
For its part the state government has made some cuts to state taxes, as part of a stage-by-stage process to reduce taxes in the state.
The cuts have been largely met by a muted response from industry, as being only fringe measures that have little real impact. The situation with stamp duty on property is sited as an example.
Federally, Treasurer Peter Costello has also been under pressure to instigate major tax reform, and this mounted today after a speech by Australia's inspector-general of taxation David Vos, calling for more fairness and simplicity in the system.
Deloitte tax partner Fiona Cahill said that Australia was at risk of becoming one of the least attractive countries in which to do business.
She also said that the long life of depreciable heavy plant and equipment is a key factor for Western Australia's capital intensive energy and resources industry.
"There is no recognition in the tax system for acquired business goodwill, limited and highly restrictive recognition of tax losses, and the lowest value for depreciation allowances on investment in new plant and equipment," Ms Cahill said.
"Australia has the equal lowest value of depreciation allowances of the OECD-10 countries, measured as the present value of depreciation as a proportion of initial purchase price.
"The present value of depreciation allowances in Australia is only 66 per cent of the initial purchase price, compared to 88 per cent in the US.
"Loss carry-back is something of interest particularly for small and start-up mining activities," Ms Cahill said.
Carry back of losses refers to the ability to offset current year losses against tax paid in earlier years.
"Half of the OECD-10 permits the carry back of losses. Permitting loss carry back could help fund future exploration programs by companies with short life mines," she said.
"Allowing franking credits on taxes paid by foreign subsidiaries," Ms Cahill said, "is another area of taxation reform which is particularly important for Western Australian business.
"As it currently stands, Australian shareholders of companies with offshore operations are paying tax in Australia on profits which have already been taxed.
"The Ralph report in 1999 acknowledged the second layer of tax on foreign earned profits has the potential to discourage offshore investment relative to domestic investment.
"In many instances our local businesses have outgrown the domestic market and are expanding offshore - however this progression carries a significant tax cost.
Ms Cahill said the Hendy-Warburton report clearly shows there is capacity for reform of business tax.
"Australia's corporate tax take as a proportion of total Gross Domestic Product is 5.3 per cent, which is double the weighted OECD average countries of 2.6 per cent," Ms Cahill said.
"Being ranked in the middle of the OECD pack is not leading. Australia is seriously becoming uncompetitive when it comes to business taxation."
THE FULL MEDIA RELEASE APPEARS BELOW.
News Release
Corporate Tax Levels Risking Investment in Western Australia
The Warburton-Hendy international tax benchmarking study shows corporate tax reform is needed for continued investment in Western Australia's energy and resource industries, Deloitte Tax Partner Fiona Cahill said.
"Australia is at risk of becoming one of the least attractive countries in which to do business," Ms Cahill said.
"There is no recognition in the tax system for acquired business goodwill, limited and highly restrictive recognition of tax losses, and the lowest value for depreciation allowances on investment in new plant and equipment.
"The long life of depreciable heavy plant and equipment is a key factor for Western Australia's capital intensive energy and resources industry.
"Australia has the equal lowest value of depreciation allowances of the OECD-10 countries, measured as the present value of depreciation as a proportion of initial purchase price.
"The present value of depreciation allowances in Australia is only 66% of the initial purchase price, compared to 88% in the US.
"Loss carry-back is something of interest particularly for small and start-up mining activities," Ms Cahill said.
Ms Cahill explained carry back of losses refers to the ability to offset current year losses against tax paid in earlier years.
"Half of the OECD-10 permits the carry back of losses. Permitting loss carry back could help fund future exploration programs by companies with short life mines," she said.
"Allowing franking credits on taxes paid by foreign subsidiaries," Ms Cahill said, "is another area of taxation reform which is particularly important for Western Australian business.
"As it currently stands, Australian shareholders of companies with offshore operations are paying tax in Australia on profits which have already been taxed.
"The Ralph report in 1999 acknowledged the second layer of tax on foreign earned profits has the potential to discourage offshore investment relative to domestic investment.
"In many instances our local businesses have outgrown the domestic market and are expanding offshore - however this progression carries a significant tax cost.
Ms Cahill said the Hendy-Warburton report clearly shows there is capacity for reform of business tax.
"Australia's corporate tax take as a proportion of total Gross Domestic Product (GDP) is 5.3 per cent, which is double the weighted OECD average countries of 2.6per cent.
"We are taxing corporate profits on a much larger tax base. Clearly, with the growth in the economy and employment at record high levels, there is capacity to reform the tax system and the time to do it is now.
"Being ranked in the middle of the OECD pack is not leading. Australia is seriously becoming uncompetitive when it comes to business taxation," Ms Cahill said.