CPA Australia slams ‘piecemeal’ approach to tax reform, calls for simplicity

In its interim report, Creating a more dynamic and resilient economy, the Productivity Commission (PC) put forward a range of measures aiming to boost business dynamism and productivity.

To boost corporate investments, the PC’s interim report recommended that the company tax rate should be cut to 20 per cent for businesses with revenue under $1 billion, which would capture most companies operating in Australia.

It proposed that this tax cut should be coupled with a new 5 per cent net cash flow tax (NCFT). This would apply an additional tax of 5 per cent to company profits, but enable companies to deduct capital expenditure costs, which the PC says would boost corporate investments.

CPA Australia wrote in support of corporate tax cuts, suggesting it should be extended to businesses with over $1 billion in annual turnover, but warned that the NCFT would introduce unnecessary complexity into the tax system.

“Australia’s declining business investment and productivity performance requires bold but carefully designed reforms,” Gavan Ord, business and investment lead at CPA Australia, said.

“The proposed NCFT raises significant design, complexity and international compatibility issues that must be resolved before any consideration of adoption. CPA Australia therefore supports immediate expensing as a priority measure to incentivise investment.”

Instead of the NCFT, CPA Australia said that immediate expensing of new capital investment for all businesses would be “highly effective” in boosting investment and would be administratively simpler.

It raised a series of specific issues regarding the proposed NCFT, including the additional complexity it would introduce to the tax system, its interaction with existing systems such as franking credits, small business CGT concessions and tax exemptions, and the cash flow effects it could have on small businesses.

CPA Australia called for comprehensive tax reform, slamming the government’s current “piecemeal” approach to tax changes.

“A well-designed tax system can stimulate economic growth, improve productivity and benefit the wider community. In contrast, a poorly structured system acts as a handbrake on progress,” the submission read.

“The current piecemeal approach to tax reform only adds complexity to an already burdensome and uncompetitive system, discouraging the investment and entrepreneurship needed to boost productivity.”

In terms of regulatory reform, CPA Australia called on the government to view regulation as a last resort to addressing “identified mischiefs.”

It also called on regulators to streamline reporting obligations for international tax disclosures, citing overlap and duplication across different frameworks.

Large multinationals operating in Australia had to comply with overlapping tax disclosure obligations including country-by-country reporting, public country-by-country reporting, reportable tax position schedules, international dealings schedules and contemporaneous transfer pricing documentation.

CPA Australia warned that the combined effect of these regimes resulted in an “overly granular and duplicative regime that exceeds international norms.”

“Businesses are frequently required to repackage the same data in multiple formats, with different levels of aggregation, timeframes and materiality thresholds. This is particularly inefficient where the disclosures relate to low-risk or well-established structures and transactions.”

The accounting body was broadly in support of Productivity Commission recommendations to increase scrutiny of new regulations, and ensure that regulatory change didn’t get in the way of economic growth, competition or innovation.

“Unnecessary and duplicated regulations are a thorn in the side of businesses, not-for-profits and government agencies,” CPA’s submission read.

“While ‘quick wins’ in cutting red tape are welcome, they are insufficient. Australia must also curb the growth of new regulation by fostering a cultural shift, where regulation is treated as the last resort rather than a default response.”