The Tax " Dodge " !

 Australia's longest serving Federal treasurer has levelled a criticism at the disparity between the personal and the company tax rates in this country.  As we start the long road to recovery from the ravages imposed by the coronavirus it is important that the tax rate is clear and concise and is imposed equally on both companies and individuals.

Peter Cosgrove drew public attention to the existing anomaly.  The top marginal tax rate for individuals is thirty-seven cents out of every dollar earned from $87,001 to $180,000, and  then forty-five cents for every dollar over that top bracket.

The top company tax rate is thirty percent, and a lower rate applies to businesses with a turnover of less than fifty million, in which the tax rate falls to 27.5 %.  That is a very big incentive for individuals to corporatise themselves to make a  tax saving.  Even worse, it is a very good reason to hold a company back to ensure it does not trade over that fifty million threshold and move into the higher tax bracket.

Peter Cosgrove is telling the government that their top tax bracket is too high.  This has spawned a lucrative trade in public accountants  who devise magical tricks in circumventing company law to gain tax advantages.  That often involves the registration of companies in overseas tax havens and the tax dodge of moving the payment of intellectual royalties from a high tax regime to a lower one.  In many cases these gambits skirt the legal definition of the tax law.

In recent times, the international tax laws have resulted in the creation of giant corporations which move the payments for intellectual property around the world to gain advantage from low tax regimes and pay little tax in high taxing countries.   Tax is not paid where the profits are made and these companies employ contingents of international lawyers to fight any change to tax laws that may change this situation.

All that is high finance and well above the head of the average man or woman who relies on having their pay envelope in their hand every payday.  The " pay as you earn " system, ensures that their tax has been deducted and they hope to get a small refund when they do their tax return each year, and even here cheating is rife in the exclusions claimed.

Around then world, governments have been trying to break the nexus between basing the tax on what we earn and devolving it on what we spend, and that evolved into the " Goods and Services tax ", known as the GST and several other similar tax collection methods.

The weakness is that the GST imposed at a similar rate for all imposes an extra burden on pensioners and the lowly paid and creates an immense book keeping task on all aspects of business to to ensure the tax is collected and paid to the government.

The complexity of the tax regime is such that we may never see a simple basic tax applied to both personal income and company profits with no applicable deductions.  That might meet the " fairness " test, but it is doubtful if it would fund the government outlay necessary to deliver the services it provides.

That old proverb covers the situation superbly.  The only certainty is death - and taxes  !