Australia

Details

  • Service: Tax, Corporate Tax, Topics, Tax Reform, Federal Budget
  • Type: Business and industry issue, Regulatory update
  • Date: 13/05/2014

Tax Insights

KPMG's analysis of tax issues and developments.

David Linke

David Linke
Head of Corporate Tax

+61 2 9335 7695

davidlinke@kpmg.com.au

Federal Budget 2014: Corporate Tax Rate 

by David Linke, National Corporate Tax Leader

 

It’s been about half an hour since the release of the Budget, and in that short time, my gut reaction has been that this is in accordance with the leaks to the press in the last 3 weeks.

The Government’s commitment to reduce corporation tax from 30 percent to 28.5 percent,albeit with the Paid Parental Leave Levy of 1.5 percent is a small step in the right direction but an effective company tax rate of 30 percent for large businesses is increasingly uncompetitive for a medium sized company competing for foreign capital. Here is the evidence from KPMG Tax Rates Online.

 

 

Country

Corporate Tax rate

Indirect Tax rate

United States*

40.0%

0.0%

Japan

36.0%

8.0%

India

34.0%

14.0%

Australia 

30.0%

10.0%

Germany

 29.6%

19.0%

Canada

 26.8%

 5.0%

Brazil

 25.0%

 19.0%

China

 25.0%

 17.0%

United Kingdom

 21.0%

 20.0%

Singapore

 17.0%

 7.0%

OECD Average

 25.3%

 19.1%

 

*The federal corporate income tax rate is 35%. State and local governments may also impose income taxes, generally resulting in a net effective rate of approximately 40%.

 

We would have liked the Government to have gone further, given we are competing with Asian neighbours who mostly have lower rates. We disagree with those who say that lowering company tax would benefit shareholders rather than the general public. There is considerable evidence to suggest that in a medium-sized open economy like Australia’s, a lower company tax rate would actually help workers by generating increased capital intensity, greater technology transfer, and R&D per employee. This would lead to greater productivity and hence higher wages. We cannot keep relying on direct taxes.

 

KPMG’s recent Corporate and Indirect Tax Rate Survey shows that in the last year, 13 countries increased their indirect tax rate and none decreased. By contrast, nine countries increased their corporate tax rate and 24 decreased.  The increases in indirect tax rates are evidence of it becoming the ‘tax of choice’ for governments around the world who are looking to raise much needed income. Australia’s GST rate is low by international standards while our company tax rate is relatively high.

 

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Federal Budget 2014

Federal Budget 2014
KPMG's review of the major implications arising from the 2014 Federal Budget.

Corporate Tax

At KPMG we combine an in-depth knowledge of corporate taxation issues with our understanding of how tax fits into the broader picture.