Innes Willox, Chief Executive of the Australian Industry Group, puts the case that contrary to recent debate, business does pay its fair share of tax in Australia.
The response last December to the first release of tax data for large corporates demonstrated the hazards of the lack of understanding of the realities of Australia’s tax system. In the process, it has wrongfully undermined confidence in that system and it should send a clear message to the Government not to repeat the data release in 2016.
For all the false and misleading “companies pay no tax” commentary, what was missed was the bottom-line finding of the ATO that Australian-based businesses are overwhelmingly complying with their tax obligations.
Even a passing familiarity with the facts of Australia’s corporate tax experience should indicate a very strong contribution to total tax revenue by the Australian corporate sector and, overall, a high degree of compliance on the part of corporate taxpayers.
Consider these facts drawn from information freely available on the OECD website:
In Australia, tax paid by corporations as a percentage of GDP consistently ranks as one of the top three among all OECD countries. On average over the years since 2000, the proportion of GDP accounted for by taxes on the income of corporations has been some 72% higher in Australia than for the average OECD country.
The corporate sector in Australia pays an even higher share of total tax relative to other OECD countries. For each year since 2000, the proportion of total tax revenue made up of income taxes paid by corporations has been the second highest in the OECD. Over this period the proportion of total tax revenue paid by corporations has averaged more than double that of the OECD as a whole.
Consider also the following statements included by the Australian Taxation Office (ATO) in its tax data release in relation to compliance with tax obligations on the part of corporations: In 2013–14, overall company income tax receipts continued to move in line with macro-economic indicators, reflecting broad compliance by corporates with their income tax obligations.
Corporate income tax receipts increased from $56.3 billion to $67.3 billion (19.6%) over the three years to 2013–14, despite slower growth in 2012–13 and 2013–14.
The ATO also noted as part of its release that the long-term correlation between income tax receipts from corporates and corporate Gross Operating Surplus “demonstrates that corporate income tax receipts have largely kept pace with corporate GOS over [an] extended period”.
Unsurprisingly the ATO expressed “confidence that companies are complying”.
These facts went largely unreported. The headline about the 579 companies that paid no tax in the 2013-14 year proved too good to resist, particularly for the more click-bait focussed segments of the media.
As the ATO pointed out, there are clearly legitimate reasons why companies might not pay tax in a particular year. The most obvious is that they made a loss. This is a normal feature of our economy. Particularly in years like 2013-14 when conditions in many sectors were distinctly tough, businesses make losses.
The next most prominent reason companies do not pay tax in a particular year is that they, like any other taxpayers, are entitled to deduct prior-year tax losses against profits. With the echoes of the GFC still reverberating through corporate accounts, it is not surprising that a fair few companies claimed prior-year losses in 2013-14.
The ATO pointed to a further range of legitimate reasons companies might pay no or relatively little tax in a particular year. In much of the coverage, these also went unreported.
Is it unreasonable to expect that people reporting on or publishing articles about the ATO Report would take the time to read and digest the supporting material?
Of course, as with all groups of taxpayers, there are large businesses that rightly attract the attention of the ATO. But this does not justify the outcome whereby the reputations of a number of individual businesses have been wrongly tarnished as has the standing of “big business” as a whole.
But most importantly, confidence in the Australian taxation system has been unjustifiably undermined.
Although unsupported by the facts, the general public has been left with the impression that big business is not complying with its obligations and does not pay its fair share of tax. In the face of this new conventional wisdom, why should anyone else comply with their obligations? Why should a cleaner or a tradie declare income that could just as easily be taken as cash?
This is not tax transparency. With the pockets of more responsible coverage swamped by ill-informed, less-than-diligent and sensationalist coverage, the very solid contributions and strong compliance record of Australia’s corporate sector has been obscured.
This reporting process should be abandoned in 2016 for its failure to deliver the promised transparency and for undermining the effectiveness of our tax system and the community’s confidence in it.