Article:

Taxing matters: Biggest pain points for businesses

17 February 2015

Lance Cunningham |

Five years have passed since the Rudd Government published Australia's Future Tax System Review, otherwise known as the Henry Tax Review.

The panel, chaired by then-Secretary of the Treasury Ken Henry, outlined 138 recommendations to guide tax reform over the next 40-50 years.

However, since 2010, less than 15 per cent of these suggestions have been partially or fully implemented. According to BDO's Annual Tax Reform Survey, the Government's limited action has not gone unnoticed among Australians.

The survey, currently in its fourth year, highlighted a number of interesting trends regarding the country's current approach to tax reforms. Here is a summary of the most telling statistics, indicating what taxpayers really think about the existing system.

GST review essential

BDO's research showed overwhelming support for GST reforms, with more than 90 per cent of those polled agreeing with overhauls to levies in this area.

GST was one area not covered by the Henry Tax Review remit, but the Australian government will be addressing it in a Tax Reform White Paper, due to be published this year.

Survey participants showed support for:

  • The abolition of GST exemptions (66 per cent)
  • The removal of dysfunctional state taxes (71 per cent)
  • Changes to the GST rate to support lower personal taxes (49 per cent).

One of the key complaints among respondents was that GST was introduced so that state taxes could be removed. However, this failed to occur and now many businesses are paying considerable hidden taxes, which is costing jobs.

The survey results broadly align with research from the OECD, which recommended in 2014 that indirect taxes such as GST should be increased in order to abolish state charges.

SMEs feeling the strain

Among survey participants, there was significant agreement that small and medium-sized enterprises (SMEs) struggled under the current tax system. In fact, 63.3 per cent of those polled either 'disagreed' or 'strongly disagreed' that the existing framework adequately catered for smaller businesses.

This figure slumped to under 29.8 per cent for people who said the same about larger public or private companies. The same percentage of respondents 'agreed' or 'strongly agreed' the tax system supported big businesses but a larger proportion (40.4 per cent) indicated neither agreement nor disagreement to the question for larger businesses. This could be the result of more of the respondents having an understanding of the problems for SMEs than for larger businesses.

The survey appears to support the Federal Government's stance on the issue, following the release of the Board of Taxation's report on impediments to small businesses.

Minister for Small Business Bruce Billson stated: "Small business is the engine room of the economy and a key driver of jobs growth in Australia.

"The government wants to simplify small business' interactions with the tax system and make Australia one of the best places to start and grow a business."

Taxes are complex and confusing

In keeping with previous BDO Tax Reform Surveys, respondents feel Australia's tax system is confusing and time-consuming, making compliance a challenge.

Nearly 80 per cent agreed this complexity is a significant barrier to businesses, while 86.7 per cent claimed organisations are spending an increasing amount of time and resources dealing with tax obligations.

Unsurprisingly, a mere 0.5 per cent of participants strongly agreed with the sentiment that the system is easy to understand and comply with. In contrast, 91.3 per cent either disagreed or strongly disagreed.

Issues included the existence of too many different forms of tax (88.5 per cent agreed), as well as state payroll and stamp duties acting as a significant obstacle (90 per cent).

However, participants believed companies exploiting loopholes in legislation to avoid paying taxes in their own country undermined the integrity of Australia's tax system.

More than 90 per cent agreed with this statement, suggesting there may be support for introducing new legislation to prevent these practices.