One big four firm has tipped technological changes to force the tax reform agenda out of stagnation and has forecast some far-reaching changes over the next 10 years for both the tax system and tax agents.
Big four forecasts tax changes for next decade
KPMG’s report Tax 2025 argues that developments in technology, especially the increased use of cognitive intelligence, will change the nature of both the corporate tax function and national revenue authorities.
“Tax reform has currently slipped off the domestic political agenda despite the base erosion and profit shifting (BEPS) initiative placing huge scrutiny on the international tax system in recent years,” said David Linke, KPMG national managing partner.
“But this is only a temporary pause because technological, economic and societal changes will force change in our tax system and policy-makers will have to respond. How far they go will have a major bearing on Australia’s competitiveness and prosperity in the medium term. Our fear is that the response will not be as great as it will need to be,” he said.
Importantly for accountants, KPMG believes tax in 2025 “may well see” the application of artificial intelligence to the preparation of tax returns.
“AI may be used to discern the likely tax treatment of general ledger (GL) items within a high range of certainty, based on learning experiences from previous analyses,” KPMG said.
“One of the major changes for the tax function will be the ready availability of relatively sophisticated methods of data analysis,” KPMG said.
“Revenue authorities will have fewer staff but will become far more precise in their targeting and enforcement. They will be have direct access to companies’ general ledgers (GL) and run various mechanistic and cognitive intelligence-based analyses to test systems controls and precisely target tax risk,” KPMG added.
KPMG said internationally, for most small to medium-sized economies, company tax rates will settle between 17 and 25 per cent.
“It is likely that in Australia’s – a mid-size economy – efforts to reduce the corporate tax rate to within this band will remain, but domestic political realities suggest it may not be achieved by 2025,” the report said.
KPMG also said the rise of the ‘gig’ economy – a highly educated, global group of people willing to provide services through the internet for lower cost – may diminish Australia’s personal tax base by pushing down our high marginal rates from 49 per cent to the mid-40s.
By 2025, the report projects more states will have joined ACT on the path from stamp duty to land taxes.
“But Australia will continue to resist calls for wealth and estate duty taxes. ‘Sin’ taxes and financial transaction taxes will increase in rates and usage,” KPMG said.
The report also said changes to the definition of a permanent establishment – a key part of the BEPS agenda – are likely to diminish Australia’s corporate tax base, with more of the profits of our major exporters being taxed by overseas revenue authorities.
Further, while there will be an international move to higher indirect taxes, domestic political difficulties will see Australia with the same low consumption tax base and rate in 2025, KPMG said.
“This will be further diminished as expenditure patterns change towards increased health, which is mostly GST-free,” the report said.
Transfer pricing will also become “ever more complex”, according to KPMG, and there will be increasing tension between China/India and most developed countries on the location of value associated with intellectual property.