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16 April 1999

 

The Secretary
Review of Business Taxation
Department of the Treasury
Parkes Place
Canberra ACT 2600

 

Dear Sir,

The Printing Industries Association of Australia (formerly the Printing and Allied Trades Employers' Federation of Australia) is the peak representative organisation for companies in the printing and graphic communications industry. It is registered under the Workplace Relations Act 1996 and various State industrial legislations. Although a formal Federal organisation since 1924, and a National association since 1971, its history dates from the 1880's as autonomous State bodies.

The membership of the Printing Industries Association of Australia (Printing Industries) which comprises of more than 2200 companies includes printers, desktop publishers, graphic designers, prepress houses, publishers, software and hardware manufacturers and distributors, paper and paper board manufacturers, paper merchants, ink manufacturers, manufacturers and suppliers of printing equipment and consumables, packaging and flexible packaging, paper converting, binding and finishing, communication and media services.

Printing Industries provides a comprehensive range of business assistance services as well as industry representation to all levels of government. Members are supported by a network of offices serving New South Wales, Victoria, Tasmania, South Australia and the Northern Territory, Western Australia, Queensland and the Australian Capital Territory.

Printing Industries has participated in the recent round of debates on taxation reform initiated by the Federal Government following the release of the proposals for a new tax system.

While much of the focus has been on the Goods and Services Tax (GST), Printing Industries is of the view that comprehensive taxation reform must not only concentrate on the indirect taxation system but also on the business taxation structure. If one of the primary aims of taxation reform is to make Australian business internationally competitive, then all impediments to the realisation of that noble objective must be addressed and this is true for both indirect taxation and business taxation in general.

Given the importance of taxation reform Printing Industries responded by forming a taxation committee to assess and make recommendations on the nature of business taxation that is preferable for the printing and related industries. The recommendations outlined below reflect both industry consultation and feedback received on critical business taxation reform issues such as the Fringe Benefits Tax (FBT), the company tax rate, and the accelerated depreciation provisions.

Fringe Benefits Tax

Printing Industries is of the view that the FBT has a high compliance component that urgently needs to be addressed. The Government's proposal which will require fringe benefits to be reported on group certificates is seen as being problematic. Difficulties are likely to arise with calculating the fringe benefits, amortising it and reporting it.

The principle of shifting the FBT liability from the employer to the party which actually enjoys the fringe benefit - the employee at face value makes great sense. Printing Industries however remains concerned about the associated compliance costs.

Further more, there is a strong likelihood that employees will respond by demanding an increase in their remuneration to compensate them for the increased tax burden which will only exacerbate industrial relations issues. Given this potential problem and difficulty, Printing Industries does not support the proposal which would result in the shifting of FBT liability from the employer to the employee.

On the issue of aligning the FBT year with the income tax year, Printing Industries believes that given the new complexities emanating from the Government's proposals to include fringe benefits on group certificates, the FBT year should not be aligned with the income tax year as companies will require the additional time to get their FBT commitments right.

Accelerated Depreciation

The removal of accelerated depreciation or reductions in accelerated depreciation provisions is being offered as a trade-off to the lowering of the company tax rate. Printing Industries opposes the proposed trade-off between a lower corporate rate and reduced accelerated depreciation provisions.

Certain sectors of the printing and related industries rely heavily on the current accelerated depreciation provisions which assist companies operating in the industry to regularly upgrade their technology. This characteristic of the industry allows the Australian printing industry to remain at the forefront of technological change and application which in turn helps the industry to be efficient, innovative and internationally competitive.

Printing Industries has examined the impact on total tax payable of the trade-off proposals which are outlined below.

 

Current Framework

Proposed Framework

Book Profit

$2m

$2m

Book Depreciation

$1m

$1m

Pre tax depreciation profit

$3m

$3m

Tax Depreciation

$1.5m

$1.125m (25% reduction)

Taxable income

$1.5m

$1.875m

Tax Due (36% / 30%)

$0.540m

$0.562m (4% increase)

However if this profit is increased with the tax depreciation also increased, the tax burden increase is much greater.

 

Current Framework

Proposed Framework

Book Profit

$10m

$10m

Book Depreciation

$7m

$7m

Pre tax depreciation profit

$17m

$17m

Tax Depreciation

$11m

$8.25m (25% reduction)

Taxable income

$6m

$8.75m

Tax Due (36% / 30%)

$2.16m

$2.625m (22% increase)

If there was a 50% reduction in tax depreciation rates as mooted, then the effect would be far worse.

 

Current Framework

Proposed Framework

Book Profit

$10m

$10m

Book Depreciation

$7m

$7m

Pre tax depreciation profit

$17m

$17m

Tax Depreciation

$11m

$5.5m (50% reduction)

Taxable income

$6m

$11.5m

Tax Due (36% / 30%)

$2.16m

$3.45m (60% increase)

With the printing industry being such a capital intensive industry the effects of reducing depreciation by a minimum write off period of say 25% on the current rates to a maximum of 50% is likely to prove very disadvantageous, especially in instances when those tax writes offs assist with the financing of the acquisition of new technology.

Even if the proposals only apply to equipment purchased post July 2000 or 2001, it means that the tax burden will then be a lot greater than it otherwise would have been, such that returns in service and non-capital intensive industries and sectors will be higher than the printing industry. It also means that fewer players will have the capital to invest in the printing industry if the tax write off benefits are reduced, thereby increasing the cost of funding.

While non-capital intensive and service industries may benefit from a 30% corporate tax rate, the printing industry will be disadvantaged with the lower tax depreciation rates, when compared to the current regime.

Corporate Tax Rate

While Printing Industries supports the lowering of the taxation burden on business (and acknowledges that lowering the corporate tax rate from 36% to 30% will achieve this) as this is likely to make Australian industry more competitive internationally, the reduction in the corporate tax rate should not be made conditional on reductions in tax depreciation rates.

Such a proposal will be of no benefit to the capital intensive industries such as the printing industry. For this reason, while a lower corporate tax rate is a desirable outcome, Printing Industries will not support it if it results in lower depreciation rates.

Recommendations:

R1 The FBT has a high compliance component that needs to be addressed.

R2 Printing Industries does not support the proposal to shift the FBT liability from the employer to the employee.

R3 The proposal to align the FBT year with the income tax year is not supported by Printing Industries

R4 Printing Industries does not support the proposed changes to the accelerated depreciation provisions to help finance reductions in the corporate tax rate.

R5 The budget surplus should be used to help finance reductions in the corporate tax rate.

I hope the comments above prove helpful to your inquiry into business taxation reform.

Yours sincerely,

Hagop Tchamkertenian
Manager
Industry & Commercial Policy