Mixed views stir pot on corporate tax

Assumptions drawn by the Business Council of Australia (BCA) in its Corporate Taxation: An International Comparison – 2006 Update, prepared in conjunction with KPMG, have been labeled ‘misleading’ by Treasurer Peter Costello.

The corporate taxation update compared the overall burden of taxes on Australian companies with those in competitor countries, such as trading partners, the OECD and the European Union.

The report alleges Australia’s corporate tax burden – up from 5.1 per cent of GDP a year ago to 5.7 per cent – is unfairly high compared to countries such as the United States and United Kingdom.

It also points out that in the past 12 months Australia’s corporate tax rate has remained at 30 per cent, while in the same period there have been falls in the average rates in the OECD from 29.1 per cent to 28.4 per cent, 25.3 per cent to 24.8 per cent in the European Union and 30.4 per cent to 30.1 per cent in the Asia-Pacific region.

Treasurer Costello says as corporate tax is levied on profits, the BCA’s approach perversely rates countries with more profitable corporate sectors as less internationally competitive. He says the results do not really illustrate tax comparisons, and what they actually show is how profitable Australian companies have been in recent years.

According to Treasurer Costello, growth in company taxes is explained by growth in profitability rather than any tax increases. He says profits have gone up by 69 per cent over this period while company taxes have increased by 65 per cent.