Despite calls from business groups for the government to introduce an investment allowance in its 6 October budget, the Tax Institute believes a corporate tax cut will deliver longer-term benefits.
It has called for Australia’s two-tiered corporate tax rates — the full 30 per cent tax rate and the 27.5 per cent rate for small and medium active businesses — to be reduced to a uniform rate of no more than 25 per cent.
The Tax Institute director of policy and tax technical Andrew Mills believes that while investment allowances are useful in bringing forward certain capital investments, their benefits are limited to certain sectors in the economy.
“One suspects those promoting an investment allowance may have been bitten before by attempts to make Australia’s corporate tax rate competitive,” Mr Mills said.
“A better solution to addressing both the short and long-term needs of companies in Australia is to provide a universal corporate tax cut with immediate effect.
“Not only will this be of benefit for capital-intensive industries, it will also encourage investment and jobs across more of the economy and provide stability and confidence in the future for investment whether in capital, knowledge or people.”
Likewise, CPA Australia tax policy adviser Elinor Kasapidis believes having a lower corporate tax rate should be a priority over an investment allowance to ensure Australia remains competitive on the international scene.
“That was our position pre-COVID, but COVID-19 has really highlighted the need for some reforms and some consistency in that area in terms of having a uniform reduction in the company tax rate and keeping us globally competitive, too,” Ms Kasapidis said.
“When you look at other OECD countries, their corporate tax rates are certainly lower than ours. We’re not talking about tax havens, but we’re talking about our counterparts at the OECD.”
Mr Mills believes critics of a lower corporate tax rate need only look at other international tax rates — the USA at 21 per cent, the UK at 19 per cent, Japan at 23.2 per cent, and China and Korea at 25 per cent — to understand the need to remain competitive on the global stage.
“When our major trading partners and foreign investors all have corporate tax rates lower than Australia’s, it creates a disadvantage that will not be overcome by the short-term fix of an investment allowance,” Mr Mills said.
“Now is the time to fix this mess and make Australia’s corporate tax rate competitive and support Australian companies investing and employing.”
Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.