Is Australia Set to Overhaul its Business Tax System
After such a brutal year for economies around the world, it is quite possible that some sort of change to the tax system in Australia could be on the way. But first of all, how does the said system in Australia work.
The amount of tax that a business must pay relates to how much money it makes. Its taxable income. They calculate your taxable income based on your assessable income which is your gross amount of money earned from the business and other capital gains. You can claim tax deductions for some elements of running your business. Tax in Australia is often paid in installments to avoid large payments at the end of the tax year. Small businesses like one of the plumbers you can find in Perth AU with an annual turnover of less than 10 million are likely to be eligible to get small business tax concessions from the Australian tax office. The full taxable rate is 30% but if the business is a base rate entity it will be eligible for a lower tax rate of 27.5%. A base rate entity is one that has an aggregated turnover of less than 50 million or 80% of the assessable income is passive income.
Why The Change?
So why should there need to be a change to business tax systems? Well, the COVID-19 pandemic has meant that Australia is, like many other places in the world, in a deep and hopefully short-lasting recession. There has been a large increase in government expenditure, a shrinking in government revenue, and an increased government debt. Tax reform is something the government needs to prepare for as when we are in a post-COVID-19 world there will be needed to generate revenue, improve equity, and support economic growth.
This set of tax reforms has to be different from the previous one If the government is going to pull through this economic recession. Over the past 20 or so years there have been four different attempts to reform tax in Australia. In each case, the general purpose of sitting and reviewing the tax laws was to promote economic growth and to support Australia’s fiscal position. The only problem is that in most of those cases the proposed reforms and laws were almost always left partly unenacted and the goals of the tax law reviews were never truly met.
So, if this is how things have been working then should things be changed now? Well according to the International Money Fund, maybe not quite yet. They believe that introducing bespoke or knee-jerk fundamental reforms or overhauling existing tax law systems could compromise the system completely if done during such an unprecedented economic crisis such as the COVID-19 pandemic. There are emergency taxation and spending measures already in place to deal with the immediate issues at hand, but the catch is that they are only temporary. A more permanent solution for the future will need to be drafted and implemented to avoid long term economic issues.
Currently, the government is in an almost state of triage towards the economy, dealing with the more imminent and harmful dangers, but this, unfortunately, will not last forever. But once the economy is in a more stable place, we will be able to strongly consider the possibility of tax reform in the future and they need to do it with the people in mind. The pandemic has involved a degree of openness with the public. The government asked the public to basically dissect the economy in order to save life’s and now that they have somewhat achieved that they need to be open with the rebuilding of the economy.