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Submission No. 20 Back to full list of submissions
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The Geelong Chamber of Commerce

Advancing Business and Industry in the Geelong Region

SUBMISSION
TO
REVIEW OF BUSINESS TAXATION
ON ITS DISCUSSION PAPER
A STRONG FOUNDATION

Establishing Objectives, Principles and Processes

24 December, 1998

  1. INTRODUCTION

On behalf of its members, The Geelong Chamber of Commerce is pleased to have the opportunity to make this submission on a number of topics discussed in the paper A Strong Foundation - Establishing Objectives, Principles and Processes prepared by the Review of Business Taxation chaired by Mr John Ralph AO.

 

1.1 Support for Review

The Chamber fully supports a total review of taxation, including business taxation, and advised the Commonwealth Government that it supported the government's stated intentions of March, this year, to introduce major taxation reform.

In its submission to the government on 1 May,1998, the Chamber made a number of recommendations on certain matters it believed should be considered as part of the taxation reform measures, including tax rates, pay-roll tax, personal tax threshold, business structures, fringe benefits tax, etc.

But, more importantly, the Chamber strongly submitted that a bold and innovative approach should be taken by the government to simplify taxation laws rather than merely simplifying the expression of the present very complex laws.

The Chamber believed that the complexity of the present taxation system virtually made it impossible for business managers to understand its requirements of business and this placed them at a serious disadvantage.

The Chamber also strongly submitted that taxation reform should include the introduction of a Goods and Services Tax with a corresponding reduction in the reliance on direct income tax and a general simplifying of the tax system.

 

2. THE CHAMBER

The Geelong Chamber of Commerce has, as its primary roles, the fostering and advancement of business and commercial activity and being an effective and independent voice of business in the Geelong region.

The Chamber has operated since its establishment in 1853 and represents all business and industry sectors in Geelong. It is funded solely by membersí subscriptions and is answerable only to members - currently over 530 - who are drawn from a wide diversity of large, medium and small business enterprises and organisations operating in Geelong, and include Ford Australia, Alcoa, Shell, Deakin University, Geelong Hospital, etc., to individuals.

The Chamber's Mission Statement is:

The Geelong Chamber of Commerce will advance business and industry in the Geelong Region through creative and innovative leadership, advocacy, co-ordination and promotion of business interests.

 

3. COMMENTS ON REVIEW

3.1 Overall Comments

The Chamber commends the Review on the positive and concise comment and clear directions given in its Discussion Paper A Strong Foundation - Establishing objectives, principles and processes.

The Chamber wholeheartedly agrees with the Review that the widespread dissatisfaction and frustration with the present business tax system stem from it not being based on a coherent set of principles.

It fully concurs with the need to first establish a sound foundation and a framework of coherent principles that will adapt to changing needs without jeopardising integrity.

The Chamber further commends the Review in its objective of joining with the various stakeholders in the tax system in agreeing on the type of foundation which will enhance performance growth of the economy, is equitable and efficient, and is as simple and as transparent as possible.

 

3.2 Agreement with Objectives

The Chamber agrees with the Review in proposing three national objectives of:

  • optimising economic growth
  • ensuring equity; and
  • facilitating simplification

around which to structure debate and achieve consensus on the ultimate design principles.

 

3.3 Acceptance of Design Principles

The Chamber generally accepts the three suites of Design Principles suggested by the Review, viz:

  • Policy Design Principles (pp. xx and xxi)
  • Legislative Design Principles (p. xxii); and
  • Administrative Design Principles (pp. xxiii and xxiv)

 

3.4 Specific Comments

The Chamber makes the following specific comments:

Differential treatment of business entities (p. 16)

The Review mentions the differing tax treatment and measurement for the various types of entity.

The suggestion is that, currently, taxpayers will adopt ownership structures that maximise their tax advantages rather than the structure best suited to their business circumstances.

The Chamber makes the point that the ownership structure could well be based on other important and genuine considerations e.g. asset protection, succession planning, employee participation in ownership, etc.

Transactions taxed differently (p. 17)

The Chamber supports the Review's contention that the same economic transaction should be

taxed in the same way regardless of its particular form.

The Chamber notes that the Review mentioned the different tax consequences between hiring individuals as employees or as individual contractors.

These inconsistencies occur in fringe benefits tax, income tax and pay-roll tax (and, incidentally, Workcover).

Complexity (p. 19)

The Chamber is very concerned at the complexity of the current taxation system that results in virtually no business manager being able to comprehend the tax requirements placed upon the business.

Thus, the Chamber believes that inadvertent breach of the taxation law is commonplace, and the anxiety created by uncertainty inhibits strong business performance.

The complexity has been largely caused by adding more and more features to the tax laws to try vainly to make them work.

The Chamber concurs with the Review that a simpler, more effective system is urgently needed.

The Chamber believes that reliance on indirect tax should provide a means of achieving this, at least, in part.

 

Business Tax Incentives (p. 78)

The Chamber believes that using the tax system to provide incentives, or encourage taxpayers to make choices in what is perceived to be the national good, has distorted the revenue picture.

It makes the point that incentives in the form of income tax deductions favour those paying the highest rate of tax.

Those business owners with low incomes, or no taxable income, receive little or no benefit, and yet they are often the ones who should be helped the most.

The Chamber also makes the observation that, once the incentives are introduced, they seem rarely to be reviewed.

 

Integration across Policy Areas (p. 81)

The Review suggests that the business tax system should be designed to fit with such other policies to ensure minimal and consistent policy differentiation and integration across policy areas.

The Review gives the example that the design of the goods and services tax and the business income tax should complement each other to the extent consistent with the underlying principles of each.

The Chamber commends the Review on this and believes that all policies should be fully coordinated to ensure consistency.

 

Compliance Costs (p. 91)

The Chamber believes that it is not unusual for businesses to incur a third of their administration costs merely to comply with tax requirements.

This is an extreme waste of valuable resources that would be better used to improve productivity and augment export marketing.

 

Consultation (p. 97)

The Chamber believes that consultation with those affected by taxation should be put on a more formal and consistent basis.

Small business must be strongly represented when consultation takes place as it comprises, in aggregate, the largest employer of labour and, because of the small size of each entity, finds it economically burdensome to comply with the tax law.

The Chamber believes that the proposed Advisory Board should include adequate representation of small business.

__________________________

This submission has been prepared by the Public Finance Committee of The Geelong Chamber of Commerce.

The Committee members are accountants, auditors, taxation specialists and lawyers in private practice and a regional bank manager.

 

Submitted for and on behalf of The Geelong Chamber of Commerce.

Lawrie H.Miller
Executive Director
Tel: 03 52222234
Fax: 03 52224845
E-mail: admin@geelongchamber.com.au