Jury still out on the new tax system

WHEN Treasurer Peter Costello announced the introduction of new tax system in August 1998, he said Australians deserved a tax system that would make our economy stronger, generate more jobs, improve our living standards and fund essential services.

The new tax system has been in place for more than two years. Despite considerable uncertainty in the international economy, the Australian economy has performed well, and according to Federal Treasury is well placed to be one of the world’s best performing economies this financial year.

In addition, more than one million jobs have been created since 1996, average weekly earnings have risen by 5.4 per cent over the past 12 months, and the revenue collected by the Australian Tax Office has grown by 16 per cent since the 1998/99 financial year to $165.4 billion last year.

However, despite these improvements, there are still many complaints about the new tax system. Accountants are threatening to strike, and business is unhappy the promised simplification has not been delivered.

Criticism of the old sales tax system included its complexity and administrative burden. The GST that replaced it takes up 540 pages of legislation. The basic rules of the GST are covered in 95 pages of legislation. The remaining 445 pages are devoted to dealing with issues such as food and charities; there are also rules to deal with particular industries such as financial services and insurance, and a variety of rules to deal with other special circumstances.

The tax office receives about 130,000 telephone calls each month from tax practitioners. According to Tax Commissioner Michael Carmody, phone calls from tax agents have risen by 900 per cent in the past three years. Business enquiries have risen by 280 per cent in the same period. Such an explosion in the number of contacts reflects the complexity of our new tax system.

Mr Carmody says the intro-duction of activity statements has substantially increased the number of returns processed by the tax office. He says the ATO now processes more than 60 million forms and remittances each year.

The one form that generates the most angst is the BAS. It has proved a real headache for small businesses. Countless hours are spent poring over the brown form and its accompanying 150-page instruction book. And unfortunately the BAS wasn’t designed to replace the annual income tax return; instead, it’s an extra impost on business.

In addition to the concerns of small business, a survey by Ernst and Young has identified that two thirds of the nation’s top executives believe that the Federal Government has failed to deliver successful business taxation re-form.

A total of $500 million was set aside by the Government to assist small and medium enterprises, the community sector and educational institutions get ready for the GST. The estimated total cost to government and business of the introduction of the GST has been $20 billion.

Has tax reform been worth the effort? The Australian economy is in good shape, but many of the businesses and tax professionals who have been caught up in the administration side of the new system argue that it been more trouble than its worth.

There have even been calls for the new tax system to be replaced with an even newer, simpler tax system.

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