ANU: Corporate equity allocation can fix tax system – India Education | Latest Education News | World Education News
According to a new report from the Australian National University (ANU), Australia’s corporate tax system is unsustainable, has a negative impact on investment and promotes debt.
The report highlights five other “serious” systemic issues, including the high corporate tax rate and the gap between the corporate tax rate and the top tax rate in the personal income.
Many of these major problems would be solved by the introduction of an allowance for business equity, or ACE, according to report authors Kristen Sobeck, Professor Robert Breunig and Dr Alex Evans.
They argue that Australia should urgently change its corporate tax system with the addition of an ACE.
“ACE is an additional tax deduction given to companies that expand their capital base with investments,” Professor Breunig said. “Not only will an ECA increase levels of investment in Australia, including fresh money from overseas, but it will also reduce the exposure of Australian businesses to debt.
“The ACE deduction will encourage companies to invest, allow them to make more profits before they start paying taxes and make them more financially secure by removing the bias of the current system in favor of debt.
“The deduction can be seen as providing a tax-free zone for corporate profits.”
According to the report’s authors, an ACE could be tied to the current government bond rate, meaning companies would receive $21,000 to offset their tax bill for every million dollars of equity investment.
“The first $21,000 of taxable income will be tax exempt, after which they will pay corporation tax on any income as usual,” Professor Breunig said.
“Under the current system, an investment that generates $21,000 in pre-tax income will attract $6,300 in taxes, leaving the owner with $15,700. Since this is a lower rate of return than a risk-free government bond, the investment is less likely to occur.
“Currently, companies are better off borrowing $1 million than investing $1 million in stocks. They get a deduction for the interest on their loan to deduct from profits before paying tax.
Report co-author Kristen Sobeck said: “While some researchers have already recommended a cash flow tax (CFT) for Australia, an ACE could be more easily integrated into the current corporate income tax system. companies and would present fewer transitional challenges than a CFT, such as debt interest management.
“Unlike a cash flow tax, an ACE has also been implemented at the national level in other countries. In those countries that have adopted an ACE, we observe that companies have become less indebted and that investments increased.
According to the authors, an ACE in Australia is likely to induce similar effects and generate more jobs in the process.
“By making it attractive to invest in sectors that generate lower profits than mining and banking, Australia’s economy will become more diverse and complex. Increased economic diversity, less complexity and reduced systemic risks posed by highly indebted companies will protect us from global shocks,” Professor Breunig said.
“An ACE is also a better solution than reducing the corporate tax rate. While this could stimulate investment, a reduction would also generate undesirable results, including subsidies to foreign investors and undermine the corporate tax system. personal income.