An easy solution to tax reform previously raised in late 2015, but still valid.
A New Improved Income Tax Collection Idea
Although I'm an Accountant(and registered tax agent for over 35 yrs) I've been appalled by the recent media disclosures of Tax "minimisation" going on in the business world and especially multi-national organisations, where transfer pricing enables them to supposably earn their profits from business on some little island far, far away!!
The use of family trusts, negative gearing and the like have also eroded both the Governments income and the average tax payers confidence in the tax system, which is the necessary mechanism for funding all Government services!
The whole current approach to tax collection is now outdated and needs to be rebuilt, so I've come up with a modern 21st century solution.
A Tax based on business sales income should be imposed on the actual Business Sales (Income) that each business gets, suggested amount could be a % on sales prices excluding any GST if involved.
The necessary % required would be the tax revenue required to cover the budget expenditure divided by the total sales of businesses in the year. The amounts would be available from the tax statistics tables
Eg if the tax revenues needed was 100 billion dollars and the total sales of all businesses in a year was say 900 billion dollars the sales tax needed would be 11.1%. No other taxation would then be necessary
What that would mean is that whatever you buy from any a product service or whatever from any business they will have an Income Tax Liability of 11.1% of the sale price.
NOW WAIT, there is another change, all other Business Income Tax would be scrapped.
IE there would be no income tax on their profits being made, so then no need to manipulate expenses or costs, and the true business profits would be available to the owners or shareholders.
There would also be a cost savings in the business tax administration, so the tax profession won't like this idea one bit!!
The actual tax collection of the 11.1% tax could be added to the businesses Monthly/Quarterly or annual BAS returns, as an extra line to the form.
So if a business sold $1000 on goods for the month, it would normally detail this $1000 and calculate the GST owed and then deduct any GST owing.
At the bottom of the BAS would be another line added where the 11.1% Business Income Tax would also be calculated and this amount would be due whenever the BAS is lodged by the business.
NOTE all businesses would be required to get an ABN and register for GST purposes, for this to work, but overall the administrative savings to both business & government would compensate for this inconvenience.
Businesses would no longer have to worry about expenses be incurred and whether there a tax deductable as all expenses/costs wold not be considered for tax purposes.
Whether depreciation on an item at 10% or 20% becomes a business decision as it should be, and the management of expenses should be a business owner problem only as it should be.
The overall profit of the business is then distributed to the owners/shareholders according to their ownerships entitlements,
NOTE it would mean no more share distributions with franking tax credits either, as no tax liability incurred.
However payments by businesses to owners/shareholders, whether the payment is profit share or interest on loans made to the business would also be subject of the Turnover Tax as the recipients are in the business of either owning a business or share, or in the money lending business.
To simplify the payments of tax on these types of payments, the businesses making the payments would in fact deduct the 11.1% turnover tax and pay it as a separate tax line item than their main turnover amounts.
The actual businesses would already be set up to make the regular turnover tax payments, so little extra work involved.
This way the owners/shareholder or interest recipients wouldn't have any further tax issues with the 88.9% balance of the payments they receive.
To compensate consumers for any likely effects of the business tax changes, all personal income tax rates would also be dropped by up to 100%.
No changes to GST exemptions, Capital Gains Calculations, or Superannuation taxes need be done.
Existing tax exempt organisations/charities would continue to be exempt from this tax.
As overseas businesses already trading with Australian consumers charge GST (currently over $1000) it shouldn't cause much additional hassle for their business systems.
What would all this mean, basically is all businesses no matter how they a structured, would be required to pay the (say 11%) Business Turnover Tax, on business transactions conducted within Australia, so the likes of American Express, Google, Amazon would be taxed on Australian sales, and all other businesses trading within Australia would also be taxed, no matter how profitable or unprofitable they were.
The taxes due for larger businesses would be paid to the Government monthly and although I've yet to do any type of "modelling" on the (I'm writing this from the Wheat belt area in WA) I'm very confident this system would raise more income for the Government (which it needs) than the existing abused system.
Some other benefits if such a system were introduced;
Cash Economy- will never be completely eliminated but under this system any customer paying cash to a business and receiving no documentation eg invoice with ABN, would know for certain that it unlikely to be reported for tax purposes.
If the work paid for was unsatisfactory the customer could easily "dob in" in the business as revenge! Such a possibility may reduce the size of the cash economy.
Govt Cash Flow Improved- Large businesses would be paying their tax liabilities at least monthly. Could save the Government borrowing needs and interest costs incurred.
Economic Data Quickly Available- As the larger businesses/industries etc would now be reporting Sales Turnover MONTHLY and by ABS industry codes economic data & trends would be available each month not quarterly. Such detail could even go down from industry types right done to postcodes which would show economic trends by small areas (postcodes).
At present only average Taxable Incomes by Postcode are available.
Ken Hudson CPA
22 March 2016