|Submission No. 72||Back to full list of submissions|
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REVIEW OF BUSINESS TAXATION
SECOND DISCUSSION PAPER
A PLATFORM FOR CONSULTATION
AUSTRALIAN STOCK EXCHANGE
1. Trade-off between company tax rate reductions and abolition of tax concessions
2. Entity taxation system
3. Investment in Australia by non-residents
4.Taxation of foreign source income
5. Reform of capital gains tax
6. Taxation of financial arrangements
Attachment 1: Modelling analysis of deferred company tax
Attachment 2: Capital Gains Tax Issues
Attachment 3: Modelling of options for CGT reform
ASX strongly encourages the government to make the globalisation of Australian business the driving force for reform of business taxation. In trade and industry policy, Australian governments have confronted the difficult issues that arise when actively participating in international markets.
Taxation policy should not be an exception to this overall trend. Cross-border investment flows are vital to reducing the cost of capital in Australia, and the generation of employment in the industries of the future. With these issues taken into account, it might be possible to reduce the company tax rate without sacrificing tax concessions that contribute to investment in important sectors of the Australian economy.
As a result, ASX disagrees strongly with the governments requirement that tax reform recommendations of the Review of Business Taxation be revenue neutral (against the baseline of A New Tax System).
If the government imposes a revenue neutral constraint, then ASX believes that the Review of Business Taxation can at least strike a balance between the achievement of growth and equity goals for tax reform, drawing on options contained in the second Review of Business Taxation discussion paper A Platform for Consultation. In this submission, ASX sets out arguments for the following proposals:
ASX is particularly concerned about the deferred company tax proposal. Modelling analysis by ASX indicates that deferred company tax will raise the tax burden on non-resident investors in large, globalised Australian companies. For a theoretical Australian company, DCT is estimated to raise the weighted average cost of capital by 8 per cent (from 10.8 per cent to 11.6 per cent), and decrease the estimated market value of equity by 16 per cent. DCT is expected to diminish Australias position as a regional financial centre for equities, and indirectly impact on resident investors.
ASX has carefully considered the options for reform of capital gains tax. Some preliminary analysis of this issue is provided in the submission, and ASX has commissioned detailed analysis of CGT reform. ASX argues that any CGT reforms should:
ASX strongly supports moves to reduce personal capital gains tax rates below those for other income, but not at the price of removing indexation. ASX believes that CGT rate reductions can be at least partly funded by behavioural responses, as lower CGT rates both encourages new investment activity and leads investors to sell assets that they would otherwise hold for longer periods of time, thereby increasing the tax base. If the response is sufficiently great, then a rate reduction may well be largely self-funding.
ASX notes that with indexation in place and the reduction of the entity tax rate to 30 per cent, Australia will achieve a highly competitive business CGT regime.
The proposal to provide an exemption from capital gains tax for scrip-for-scrip transactions is strongly supported, and this reform can be funded through the abolition of averaging provisions.