27/02/2008 - 22:00

Details needed on tax take

27/02/2008 - 22:00


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Should there be a tax that can reap hundreds of millions, if not billions, for the state that is so vague that no-one really knows what it costs them?

Should there be a tax that can reap hundreds of millions, if not billions, for the state that is so vague that no-one really knows what it costs them?

Should there be a tax that forces taxpayers to negotiate with bureaucrats, and often expend significant resources to determine its quantity?

That appears to me to be how a major tax operates in this state.

The tax in question is stamp duty on conveyances that involve companies with land-rich holdings, and it is probably one of the biggest taxes paid in this state.

Not that you’d know it, because in the budget papers it gets buried in with other taxes, such as those on property transactions.

If you ask state Treasury, it says it does not distinguish land-rich transactions from other types of transactions that are subject to conveyance duty.

That is bizarre.

I know Treasury people are like boffins the world over; they like to know their numbers in detail – especially when such numbers could have a significant impact on the finances of the state.

And the impact could be huge. For instance, on three transactions that took place this financial year – takeovers of listed companies – the most conservative estimate was the potential for $80 million in stamp duty.

That was 5.4 per cent of the last publicly reported Western Australian land assets, including tenements and exploration data, for takeover targets Jubilee Mines Ltd, Consolidated Minerals Ltd and LionOre Mining International Ltd.

But for some in the industry – and usually the government’s starting point from what I am told – the projected stamp duty could be 5.4 per cent of $7.7 billion, the collective takeover prices for these three companies relative to their WA assets, which is more than $400 million.

That’s just on three transactions. There are dozens more that are too small to calculate or happen privately, so we don’t know about them.

At the most conservative estimates, those three transactions could generate enough tax to represent the seventh largest single tax revenue stream for the government based on this financial year’s budget.

At their most bullish they would be the fourth biggest, just behind land tax itself. Throw in all those lesser known transaction and we most likely have the third biggest revenue stream for the government this financial year; and it’s not a separate line item in the budget.

Even betting tax, which is forecast to rake in a colossal $29.3 million for the government, gets it own line item.

For a state government that’s always banging on about how transparent and accountability it is, I was very surprised to find this.

It might suit Treasury officials, their government masters and even the industry that has formed around this hazy tax collection process, but I have to say I find it alarming to have large corporations, including foreign firms, negotiating with government officials over how much tax they ought to pay.

Thank goodness it’s not the 1980s; they’d have been told to donate to the Curtin Foundation and their tax dramas would disappear. While I don’t suggest for a minute that kind of activity is happening, this is the kind of scenario where it could happen.

Why are private companies negotiating with the state over their tax? Tax is meant to be simple and transparent. In my view, its good governance for everyone to know where they stand with regard to taxes before they enter a transaction. It’s also good governance for the rest of us to know what the government is pulling in from the taxes when it is material.

Of course, this has all happened because WA broke ranks with the other states and decided to widen a system designed to catch tax evaders.

Originally the land-rich provisions in the Stamp Act were created to stop people putting land assets in companies and selling the shares, rather than the property, to avoid stamp duty. Fair enough.

But more recently, the state has decided that this includes even listed companies with 60 per cent land assets, thereby catching minerals companies.

By July 1, every company with more than $2 million in land – retailers, cinemas, shopping centres – will fall within the land-rich provisions.

Personally, I don’t have an argument with that, except it is another example of the state broadening its tax base after signing up to the GST, which was meant to rid us of state taxes.

But what I do object to is the doubt it causes and its secretive nature.

If a supermarket property is sold for a few million bucks, we all know the stamp duty on the transaction.

When a multi-billion dollar mining deal happens, we may never know what tax they paid, or the steps taken to mitigate that issue.

Is that right?

With BHP Billiton Ltd in the frame for potentially billions of dollars in stamp duty if it’s successful in taking over Rio Tinto Ltd, I simply wonder if it’s right for such a player to be horse trading with bureaucrats over what it will pay WA.

There’s a big sovereign risk in this and we ought to know the details.


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