New system a tale of the unexpected

BUSINESS has backed a new survey that suggests Australia’s tax system is becoming more complicated than was ever expected.

In September and October 2001, accounting firm Ernst & Young held interviews with financial and tax managers at more than 100 of Australia’s leading companies. And while the responses were unsurprising – there’s too much tax legislation and it’s all too complicated – Ernst & Young suggested there were risks beyond the obvious threat of sanctions for non-compliance.

The firm indicated that “mushrooming volumes of new tax legislation” would threaten business with reduced cashflows, operational inefficiencies, lost business opportunities and higher tax liabilities.

According to Ross Lyons, a principal with Ernst & Young’s Perth practice, even the most pessimistic commentators failed to predict the volume of changes the Federal Government’s new tax system and other reform initiatives would generate.

“Our findings show that it is already virtually impossible for an individual tax professional to have a working knowledge of all tax-related legislation,” Mr Lyons said.

“The practical necessity to deal with the multitude of tax legislation, regulations and rulings means there is often less time and fewer resources for tax planning and other activities that allow the tax function to become a corporate value provider.”

This issue is as much a problem for consulting accountants as for internal financial controllers. Roger Sullivan from the Institute of Chartered Accountants in Australia pointed out that before the tax reform process began, private accounting practices were branching out into value-adding services like business advice and estate planning.

“In the last two years, everyone’s become so swamped in the compliance work to just try to meet the obligations of BASs and PAYGs and all the other massive changes in tax reform that accountants in practice are providing very little professional advice to their clients – they’re spending most of their time flapping around dealing with the wonders of tax reform,” Mr Sullivan said.

“Most practices are a principal and a couple of staff, and how on earth they cope defies belief.”

Executive director of the Australian Petroleum Production and Exploration Association, Barry Jones, said the introduction of the GST was a particularly difficult issue for joint ventures to handle, and it was unlikely the system would become any simpler in the forseeable future.

APPEA was more concerned that the issue of effective asset lives for depreciation purposes was still unresolved.

“If we get the wrong decisions on effective life, the Government will wreck investment in gas development in the north and north-west of this country, and the prospects of gas-to-liquids industries and petrochemical industries will be severely compromised,” Mr Jones said.

Chamber of Commerce and Industry of WA’s chief executive Lyndon Rowe agreed that complying with federal tax laws was a significant issue for business.

He said the system was made doubly complex by the growing maze of State tax requirements and rulings.

“Where companies have operations in more than one State they could conceivably be dealing with up to nine different sets of tax rules and administrations,” Mr Rowe said.

“[But] we should not blame the GST and other recent changes for this situation. Those reforms were necessary and will prove to the nation’s long-term benefit, but they did add more to the compliance burden than was expected, and that is disappointing.”

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