iscoverTax practitioners have welcomed the Productivity Commission’s “bold” net cash flow tax idea but warned against introducing more complexity into the Australian tax system.
‘Bold’ net cash flow tax idea could increase tax complexity, BDO says
12 August 2025
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8 minute read
In its recently released tax reform interim report, the Productivity Commission (PC) advocated for company tax cuts for most Australian businesses and the introduction of a 5 per cent net cash flow tax.
Tim Sandow, BDO corporate and international tax partner and president of The Tax Institute, told Accountants Daily that the cash flow tax was a welcome entry to the tax reform table, but warned that it could introduce fresh complexity into the tax system.
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“The Cash Flow tax is a really interesting concept. One of the things that we've been advocating for, both through BDO and The Tax Institute, is for big, bold ideas and holistic tax reform. So, we would welcome the Productivity Commission putting forward bold new ideas,” he said.
“My understanding of when the cash flow tax was originally proposed by Ken Henry, it was going to replace other taxes. The Productivity Commission's proposal here is not to replace other taxes, but to add it on as a new tax.
“If you're not replacing other taxes, you're just adding an extra layer of compliance and complexity into the system. Given that this cash flow tax is proposed to apply to all companies, then it's only increasing the compliance burden.”
To boost corporate investments, the PC’s interim report, ‘Creating a more dynamic and resilient economy,’ recommended that the company tax rate should be cut to 20 per cent for businesses with revenue under $1 billion, which would capture most companies operating in Australia.
This would see Australia’s corporate tax rate align more closely with the OECD average of 21 per cent, the PC said.
The commission said this tax cut should be coupled with a new 5 per cent net cash flow tax (NCT). This would apply an additional tax of 5 per cent to company profits, but enable companies to deduct capital expenditure costs, which the PC says would boost corporate investments.
BDO said an NCT would incentivise new capital expenditure across the economy, despite raising the total tax burden for some large companies, particularly those not undertaking new investment.
The NCT would allow companies to deduct the full value of their capital expenditure in the year it was made, rather than through depreciation.
BDO added that the NCT would boost companies' incentives to take risks, because losses would be uplifted for inflation when offset against future tax liabilities. This could have positive implications for productivity and innovation.
While BDO said it saw merits in the PC’s NCT proposal and its ability to boost economic dynamism in Australia, it warned that implementation would need to be carefully executed, with considerations made for its interactions with the existing company income tax (CIT) system.
“If not implemented appropriately, [the NCT] has the potential of increasing the complexity of Australia’s already highly complex corporate tax system,” BDO said.
“If the Federal Government decides to implement the 5 per cent NCT proposal, it needs to fit smoothly into the existing CIT calculation, reporting and payment systems.”
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